Chapter CG69040

Published date12 March 2016
Record NumberCG69040

The main aim of the legislation in TCGA92/S210 is to exclude most life insurance policies from Capital Gains Tax so that people who take out such policies, and their families, do not suffer a tax charge when they receive payments under the terms of the policy. But life insurance policies are not completely exempted from Capital Gains Tax. The person who originally took out a life insurance policy may have transferred the rights conferred by the policy, or an interest in them, to someone else. Gains on a life insurance policy are not always exempted after a disposal of all or any part of the rights under the policy by the original policyholder. Where gains are exempted then losses will not be allowable - see TCGA92/S16 (2) and CG15800.

The original policyholder may give the rights a life insurance policy confers, or an interest in those rights, to a member of his or her family. Or give them to someone else who he or she wants to enjoy the benefits of the policy. In those circumstances the aim is to preserve the exemption. The exemption can also apply where the rights go through an unbroken chain of gifts.

Alternatively the policyholder may have disposed of the rights conferred by a life insurance policy other than by giving them away. There is, for instance, an established market for people who wish to buy existing life insurance policies, mainly as investments. In those circumstances the aim of the legislation is that any gains made on the policy after it has been sold should be chargeable, just as gains on any other type of financial instrument that might be held as an investment are chargeable.

The original version of TCGA92/S210 did not always achieve these aims. The original section 210 was therefore replaced, for disposals on or after 9 April 2003, by a revised section. In the revised section the existing rules extending what counted as disposals of life insurance policies were made clearer, and a specific definition of what we always understood to be an interest in the rights conferred by a life...

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