Tax rules on part surrenders of life insurance policies up for review

The tax rules for part surrenders or part assignments of life insurance policies are under review as the government releases a consultation on three alternatives to the current tax arrangements by either introducing a direct tax charge, a 100% allowance or deferral of excessive gains

As announced at Budget 2016, the government will change the current rules to prevent excessive tax charges arising on these products.

This consultation invites views on possible alternatives and sets out, in detail, three options for change in the event that premium holders cash out some of their life insurance policies.

These so-called ‘excess events’ arise when cash is withdrawn from an on-going policy (a part surrender) or part of a policy is sold (a part assignment).

The three options are set out in a 29-page document outlining interpretation of each approach with worked examples and financial impacts.

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