FAQ's – Life Insurance – Qualifying Policies - HM Revenue & Customs

Contents
Introduction
Chapter 1 – Frequently asked questions on the new annual premium limit for
qualifying life insurance policies
A. Annual Premium Limit 2
B. Beneficiaries under a qualifying policy 5
C. Policies issued on or after 21 March 2012 and before 5 April 2013 (the
transitional period) 6
D. Policies issued before 21 March 2012 (protected policies) 8
E. Assignments 10
F. Restricted Relief Qualifying Policies (RRQP) 11
G. Declarations 12
H. Miscellaneous 16
Chapter 2 – Examples
1) Annual Premium Limit 17
2) Several policies in aggregate exceed the annual premium limit 17
3) Beneficial ownership 17
4) Qualifying policy issued in the transitional period where the premiums
payable exceed £3,600 18
5) Qualifying policy issued in the transitional period where the premiums
payable do not exceed £3,600 18
6) More than one policy is issued in the transitional period and the
premiums payable do not exceed £3,600 per policy but exceed £3,600 in
aggregate 18
7) More than one policy is issued in the transitional period and the
premiums payable exceed £3,600 per policy 19
8) What is the effect of a policy becoming a RRQP Example 1? 20
9) What is the effect of a policy becoming a RRQP Example 2? 20
10) What is the effect of a policy becoming a RRQP Example 3? 21
11) Multiple ownership 22
Introduction
This document provides answers to frequently asked questions (FAQs) on the
new annual premium limit for qualifying life insurance policies which takes
effect from 6 April 2013. These FAQs are aimed at agents and those who
either have qualifying policies or who are thinking of taking out a qualifying
policy.
The information is set out as follows:
• Chapter 1 provides answers to FAQs on the new annual premium limit.
• Chapter 2 provides examples in support of the FAQs at Chapter 1.

Chapter 1
A. Annual Premium Limit
1) What is a qualifying policy?
A qualifying policy is a life insurance policy with a special tax status.
When a qualifying policy comes to an end, or is treated as coming to an end,
it is usually not subject to income tax or capital gains tax.
The conditions that a policy should fulfill if it is to be a qualifying policy are set
out in the Insurance Policyholder Taxation Manual
IPTM2020 - Qualifying policies and life assurance premium relief: outline of
qualifying policy rules
If you are in any doubt as to whether your policy was issued as a qualifying or
non-qualifying policy, your insurance provider or your financial or tax adviser
will be able to advise you
2) What is the annual limit for a qualifying policy?
From 6 April 2013, the annual limit for premiums payable under qualifying
policies is £3,600 in a 12 month period.
3) Is the annual limit applied as a limit per policy or as an overall
limit?
The annual limit is an aggregate amount that generally applies to all qualifying
policies held by an individual at any one time including transitional period
policies but see also questions 7 (rules applying to protected policies) and 8
(certain exclusions).
Link to Example 1
4) When does the annual premium limit apply?
The annual premium limit applies from 6 April 2013.
5) Can policies be backdated under the annual premium limit rules?
The qualifying policy rules permit the backdating of a policy by three months
(i.e. the policy can be treated as made on an earlier date).
Policies made in the 3 month period 21 March 2012 to 21 June 2012 cannot
be backdated to a date before 21 March 2012 for the purposes of the annual
premium limit.

Policies made in the period 6 April 2013 to 6 July 2013 cannot be backdated
to a date before 6 April 2013 for the purposes of the annual premium limit.
6) To whom does the annual premium limit apply?
The annual premium limit applies to beneficiaries under a qualifying policy
(see Section B).
7) Does the annual premium limit apply to all qualifying policies held
from 6 April 2013?
The annual premium limit will apply as follows:
(a) All policies issued on or after 6 April 2013
(b) All policies issued in the transitional period (i.e. on or after 21 March
2012 and before 6 April 2013)
(c) Policies issued before 21 March 2012 which become restricted relief
qualifying policies after that date (see section F).
8) Are any policies excluded from counting towards in the annual
premium limit?
Yes, the following policies are excluded from the annual premium limit:
Existing protected policies as at 5 April 2013 which secure a capital sum
payable either
on survival for a specified term or on earlier death or
on earlier death or disability and
which have been issued and are maintained for the sole purpose of
ensuring that the borrower under an interest-only mortgage will have
sufficient funds to repay the capital lent under the mortgage
Policies (referred to as “pure protection” policies in the legislation) which
have no surrender value and are not capable of acquiring a surrender
value or
under which the benefits payable cannot exceed the amount of the
premiums paid except on death or disability
9) Is a single policy with premiums exceeding £3,600 treated as nonqualifying,
or is relief available up to the threshold?
If the policy is issued on or after 6 April 2013, the whole policy will be nonqualifying
if premiums exceed £3,600 in any 12 month period.
Policies issued before this date may be restricted relief qualifying policies
(“RRQPs”) – see section F.

10) Where a policy with annual premiums payable of less than £3,600
is treated as non-qualifying because the annual premium limit is
exhausted by existing policies, can that non-qualifying policy
become a qualifying policy if one of the existing qualifying
policies matures or becomes non-qualifying?
No, once the policy is designated a non-qualifying policy because the annual
premium limit has been exceeded, that policy will always remain a nonqualifying
policy.
11) If several policies in aggregate exceed the annual premium limit
can the beneficiary under the policy (see section B below) choose
which policy is the qualifying policy?
If the total annual premiums payable under the combined policies exceed the
annual premium limit, the policy or policies whose premiums cause the limit to
be breached will not be a qualifying policy.
Where the limit has been exceeded, a “last in, first out” approach applies so
that the most recently issued policy or policies will not be a qualifying policy.
Where an earlier policy is modified and, as a result, the annual premium limit
of £3,600 is breached, the “last in, first out” approach still applies but the date
of the modification is substituted for the original issue date. This may cause
the modified policy to become either non-qualifying or a restricted relief
qualifying policy (“RRQP”) – see section F, even though its issue date is
earlier.
Link to Example 2
12) What is a cluster policy?
This is where the sum invested by a customer is divided up equally between a
number of identical life insurance policies. These will be separate policies
provided that the policies are genuinely distinct and self-contained and the
documentation supports this. There can be one policy document for all the
clustered policies but it should be clear that the policies are separate and
each policy must be uniquely designated by appropriate sub-numbering.
Ideally, each policy will have a separate policy schedule showing the details of
that policy but a composite schedule may be accepted as evidence of a
cluster policy provided it is clear that it relates to separate policies.
See also the Insurance Policyholder Taxation Manual for additional
information on cluster policies.
IPTM7330 - Surrenders and part surrenders: cluster policies

13) How are the non-qualifying policies identified if more than one
policy is issued on the same day or where a cluster policy (see
question 12) is issued and the annual premium limit is exceeded?
Where two or more policies are issued at the same time, the policy whose
unique identifier is lower in either number or letter will be treated as issued
first.
14) What if a cluster policy (see Question 12) has no identifier and the
annual premium limit is exceeded in respect of the cluster as a
whole?
If a cluster policy has no identifier and the annual premium limit is exceeded in
respect of the cluster as a whole then the entire cluster will be treated as nonqualifying.
15) Can the annual premium limit be applied to segments of a single
policy?
The legislation applies to the single policy rather than to each of the segments
within that single policy. The annual premium limit therefore applies to the
single policy.
16) How does the annual premium limit apply to “low start”
endowment policies?
The annual premium limit will apply to premiums payable throughout the life of
the policy. Variable premium policies will be non-qualifying from the outset if
premiums payable will exceed £3,600 in any 12 month period.
B. Beneficiaries under a qualifying policy
17) When is an individual a beneficiary under a qualifying policy?
An individual is a beneficiary under a qualifying policy if he/she is the
beneficial owner of any rights under the policy or any share in rights under the
policy.
18) What is beneficial ownership?
There are two types of ownership, legal and beneficial, that co-exist in any
property:
The legal owner is the person(s) in whose name the property is held or
registered. ‘Legal owner’ includes a trustee or nominee.
The beneficial owner is the person for whose benefit the property is
held.

The same person may be both legal owner and beneficial owner of the life
insurance policy. This will be the case where an owner of the policy holds it
for his own benefit and not as a trustee or nominee for some other person.
There can be a separation of legal and beneficial ownership. In this case the
beneficial owner will be the person who enjoys the benefits of the policy even
though another person is the legal owner.
You are likely to be the beneficial owner if you paid the premium(s) and you
(or your estate after your death) are entitled to any benefits under the policy.
Link to Example 3
19) What about policies held in a bare trust?
A bare trust (sometimes called an ‘absolute’ trust) is where the beneficiary or
beneficiaries has/have immediate and absolute entitlement to trust capital and
income. The ‘beneficiary under the policy’ is the beneficiary of the bare trust.
20) What about policies held under other types of trusts?
Where there is no individual who is the beneficial owner of the rights or any
share in the rights under the qualifying policy (i.e. where there is no absolute
unfettered or unrestricted right to the policy held in trust) the beneficiary for
the purposes of this legislation is the individual who created the trust, known
as the settlor.
C. Policies issued on or after 21 March 2012 and
before 6 April 2013 (the transitional period)
21) How are policies issued in the transitional period treated if the
premiums payable exceed £3,600?
If a qualifying policy is issued in the transitional period and the premiums
payable under that policy exceed the annual premium limit of £3,600 which
applies from 6 April 2013, that policy will be a restricted relief qualifying policy
(RRQP) - see section F below.
For RRQPs, this means the full value of the premiums payable in respect of
the period from commencement of the policy up to and including 5 April 2013
will be relieved. Any premiums payable from 6 April onwards will be taken
into account for an individual’s annual premium limit.
The individual’s allowable premiums in respect of that policy will therefore be
restricted to a maximum of £3,600 per annum with effect from 6 April 2013 or
whatever headroom is left from that limit once the individual’s other qualifying
policies (which existed at the time the policy became a RRQP) are taken into
account.

Link to Example 4
22) How are policies issued in the transitional period treated if the
annual premiums payable do not exceed £3,600?
If a qualifying policy is issued in the transitional period and the premiums
payable under that policy do not exceed the annual premium limit of £3,600
which applies from 6 April 2013, the policy will count towards the individual’s
annual premium limit in the period from 6 April 2013.
Link to Example 5
23) How are policies issued in the transitional period treated if more
than one policy is issued and the annual premiums payable do
not exceed £3,600 per policy but exceed £3,600 in aggregate?
If more than one qualifying policy is issued in the transitional period and the
premiums payable under each policy do not exceed the annual premium limit
of £3,600 which applies from 6 April 2013, each of the policies will attract full
relief for premiums payable in respect of the period from which they are taken
out to 5 April 2013.
Each policy will count towards the individual’s annual premium limit in the
period from 6 April 2013.
The later policy that, when aggregated with earlier policies issued in the
transitional period, first results in the annual premium limit of £3,600 being
breached will be a restricted relief qualifying policy (RRQP) as will any
subsequent policies issued in the transitional period – see section F.
Link to Example 6
24) How are policies issued in the transitional period treated if more
than one policy is issued and each policy exceeds the annual
premium limit of £3,600?
If more than one qualifying policy is issued in the transitional period and the
premiums payable under each policy exceed the annual premium limit of
£3,600 which applies from 6 April 2013, each of the policies will attract full
relief for premiums payable in respect of the period from which they are taken
out to 5 April 2013.
Each policy will count towards the individual’s annual premium limit in the
period from 6 April 2013 and will be considered by reference to the date they
were taken out commencing with the earliest.
Each policy will be a restricted relief qualifying policy (RRQP) – see section F.
Link to Example 7

25) What happens if a policy is issued in the transitional period with
annual premiums payable not exceeding £3,600 and
is subject to significant modification after issue but
before 6 April 2013
and which results in the annual premiums payable under that
policy exceeding £3,600?
If a qualifying policy is issued in the transitional period and the premiums
payable under that policy do not exceed the annual premium limit of £3,600
but that policy is then subject to significant modification (see Question 30
below) after issue but before 6 April 2013 and, as a result of the modification,
the annual premium limit is exceeded, that policy will be a restricted relief
qualifying policy (RRQP) (see section F).
26) Are any policies excluded from inclusion in the annual premium
limit?
Yes, the following transitional period policies are excluded from the annual
premium limit:
Existing protected policies as at 5 April 2013 which secure a capital sum
payable either
on survival for a specified term or on earlier death or
on earlier death or disability and
which have been issued and are maintained for the sole purpose of
ensuring that the borrower under an interest-only mortgage will have
sufficient funds to repay the capital lent under the mortgage
Policies (referred to as “pure protection” policies in the legislation) which
have no surrender value and are not capable of acquiring a surrender
value or
under which the benefits payable cannot exceed the amount of the
premiums paid except on death or disability
D. Policies issued before 21 March 2012 (protected
policies)
27) What is a protected policy?
A protected policy is a qualifying policy issued before 21 March 2012.
28) Will qualifying policies issued before 21 March 2012 be affected
by the annual premium limit?
Qualifying policies issued before 21 March 2012 will not be affected by the
annual premium limit unless:

they are subjected to significant modification (see Question 29 below )
on or after 21 March 2012 or
are assigned (see section E below) on or after 6 April 2013.
29) What is significant modification?
We define “significant modification” of a protected policy as significantly
varying (see Question 30) the terms of the existing policy or substituting a
new policy in place of the existing policy where substituting results in a
significant variation of the existing policy’s terms.
A significant modification does not occur where the only change is in the life
assured under the policy.
A significant modification does not occur where the premiums payable under
a policy are increased or the term of the policy is extended and those
alteration arise from provisions within the contract which have been a feature
of the policy prior to 21 March 2012 which apply automatically. This means
that they are not applied at the instigation of the policyholder or beneficial
owner, or by the exercise of an option.
30) What is significant variation?
By “significant variation” we mean where the policy is amended to extend the
period over which premiums are payable or to increase the total amount of
premiums payable under the policy or both.
31) Are any policies excluded from inclusion in the annual premium
limit?
Yes, the following protected policies are excluded from the annual premium
limit:
Existing protected policies as at 5 April 2013 which secure a capital sum
payable either
on survival for a specified term or on earlier death or
on earlier death or disability and
which have been issued and are maintained for the sole purpose of
ensuring that the borrower under an interest-only mortgage will have
sufficient funds to repay the capital lent under the mortgage
Policies (referred to as “pure protection” policies in the legislation) which
have no surrender value and are not capable of acquiring a surrender
value or
under which the benefits payable cannot exceed the amount of the
premiums paid except on death or disability

32) What happens where a policy issued before 21 March 2012 is
significantly modified (see Question 26 above) on or after 21
March and the annual premium limit is exceeded following the
modification?
Where a qualifying policy issued before 21 March 2012 is significantly
modified on or after 21 March 2012 and is not an excluded policy (as
described in Question 31 above) that policy will become a restricted relief
qualifying policy (RRQP) from the date of the modification if as a result of the
modification the annual premium limit of £3,600 is exceeded.
The full value of premiums payable in respect of the period from
commencement to the date of the modification (or, if later, 5 April 2013) will
attract relief. Any premiums payable from the date of modification (or, if later,
5 April 2013) will be taken into account for an individual’s annual premium
limit. The individual’s allowable premiums will therefore be restricted to a
maximum of £3,600 per annum with effect from the date of modification (or, if
later, 5 April 2013) or whatever headroom is left from that annual limit once
the individual’s other qualifying policies issued before the modification are
taken into account.
E. Assignments
33) What happens when the rights (or any share in any rights) under a
qualifying policy are assigned to someone else?
If the rights (or any share in the rights) under a qualifying policy are assigned
to someone else before 6 April 2013 there will be no change in the status of
the policy in the hands of the assignee so it will remain a qualifying policy.
If the rights (or any share in the rights) under a qualifying policy are assigned
to someone else on or after 6 April 2013 the policy will automatically become
a non-qualifying policy apart from certain exceptions (see Question 34 below).
34) Do all assignments of rights (or any share in any rights) under a
qualifying policy on or after 6 April 2013 change the status of the
policy to non-qualifying?
No, certain assignments are excluded from this rule:
assignments as part of a divorce settlement
assignments as a result of a court order
assignments as security for a debt or on discharge of a debt
assignments between husband and wife and between civil partners
assignments into trust

35) What happens when an assignment of rights (or any share in any
rights) under a qualifying policy on or after 6 April 2013 takes
place and one of the exceptions in Question 34 above applies?
For the purposes of the annual premium limit, the assignee must consider the
assigned policy together with all his/her other qualifying policies already
subject to the annual premium limit rules.
This means that he/she must aggregate the total annual premiums payable in
respect of existing qualifying policies issued on or after 6 April 2013 and any
restricted relief qualifying policies (RRQPs) (see section F. below).
If the premiums payable under the assigned policy, when aggregated with the
assignee's other qualifying policies, do not lead the assignee to breach the
annual premium limit of £3,600 the assigned policy will remain a qualifying
policy in the hands of the assignee.
If the premiums payable under the assigned policy, when aggregated with the
assignee's other qualifying policies lead the assignee to breach the annual
premium limit of £3,600 the status of the assigned policy will be as follows:
a qualifying policy issued on or after 6 April 2013 will become nonqualifying
a qualifying policy issued on or after 21 March 2012 and before 6 April
2013 will become an RRQP or remain a RRQP if it already was one.
a qualifying policy issued before 21 March 2012 will become a RRQP
F. Restricted Relief Qualifying Policies (RRQP)
36) What is a Restricted Relief Qualifying Policy (RRQP)?
A RRQP is a qualifying policy that will not have full tax relief when a
chargeable event occurs.
37) When does a qualifying policy become a RRQP?
A qualifying policy becomes a RRQP where:
a qualifying policy is issued on or after 21 March 2012 and before 6
April 2013 where the beneficiary is in breach of the annual premium
limit as a result of the issue of that policy.
an excluded assignment (see Question 34 above) takes place on or
after 6 April 2013 of a qualifying policy issued before 21 March 2012
where the assignment results in the assignee being in breach of their
annual premium limit in respect of that policy.
a qualifying policy issued on or after 21 March 2012 and significantly
modified (see Question 29 above) before 6 April 2013 where the
modification results in the beneficiary being in breach of the annual
premium limit.

the significant modification (see Question 29 above) on or after 21
March 2012 of a qualifying policy issued before 21 March 2012 where
that modification results in the beneficiary being in breach of the annual
premium limit.
38) What is the effect of a policy becoming a RRQP?
The policy attracts full relief for the period up to the date that it becomes a
RRQP. From that date relief is restricted to the balance of the annual premium
limit not used up by other qualifying policies.
Link to Examples 8 -10
G. Declarations
39) When is a declaration required?
A declaration is required where:
a qualifying policy is issued on or after 6 April 2013
where a significant modification (see Question 29 above) is made on or
after 6 April 2013 to an existing qualifying policy
where a qualifying policy is assigned to someone else on or after 6
April and the assignment is an excluded assignment listed in Question
34.
40) Who should make a declaration?
Declarations are to be made by each person who is a beneficiary under the
policy (see section B).
41) Who should make the declaration in the case of a minor?
Minors will usually be represented by a person who has parental responsibility
over them and such a person may make the declaration on behalf of the
minor.
42) To whom must the declaration be made?
The declaration must be made to the insurance company that provided or is
providing the qualifying policy (see Question 44 below)
43) When must the declaration be made?
The declaration must be made within 3 months of the event in Question 39
having taken place.

44) What happens if the 3 month time limit has expired and I have not
made a declaration?
If the time limit for making a declaration has expired the policy will
automatically become a non-qualifying policy and will be treated as being a
non-qualifying policy from the date of its issue, or if relevant a significant
modification or assignment.
HMRC will accept late declarations by the beneficial owner where there is a
reasonable excuse for that individual failing to make the declaration. The
declaration must be made without unreasonable delay after the situation
covered by that reasonable excuse ceases to apply.
In such cases late declarations together with an explanation of why the
declaration was made late should be sent to:
HM Revenue & Customs,
CTIAA (Technical) Insurance Group,
3c/06, 3rd Floor,
100 Parliament Street
London
SW1A 2BQ
45) What does HMRC consider to be a reasonable excuse?
Generally, a 'reasonable excuse' is when some unforeseeable or unusual
event beyond your control has prevented you from making your declaration on
time. A combination of unexpected and foreseeable events may when viewed
together be a reasonable excuse.
It is necessary to consider the actions of the person from the perspective of a
prudent person exercising reasonable foresight and due diligence, having
proper regard for their responsibilities under the Taxes Acts.
If the individual could reasonably have foreseen the event, whether or not it is
within their control, we expect the person to take reasonable steps to be able
meet their obligations.
It is not possible to give a comprehensive list of what might be a reasonable
excuse. It will depend upon the particular circumstances in which the failure to
make a declaration occurred and the particular circumstances and abilities of
the individual who has failed to make the declaration. What is a reasonable
excuse for one person’s circumstances may not be a reasonable excuse for
another person, or the same person in different circumstances.
If there is a reasonable excuse it must exist throughout the affected period.

HMRC would normally consider the onset of a serious illness, disability or
serious mental health condition at the same time the declaration was due that
made the individual incapable of making that declaration a reasonable
excuse.
We will not accept an excuse where an individual has not made a reasonable
effort to meet the deadline such as for example, forgetting about the deadline.
The following reasons are also unlikely to be accepted by HMRC as a
reasonable excuse:
Pressure of work
Lack of information
HMRC/Insurance company did not remind me
Ignorance of the law
46) What is meant by unreasonable delay?
The following examples should assist in determining what is meant by
unreasonable delay:
(a) No unreasonable delay
Kate was unable to make a declaration on time due to the death of a family
member and, from the information available, HMRC accepted that the
bereavement was a reasonable excuse.
Kate made a declaration two weeks after the funeral.
As Kate had a reasonable excuse for not making the declaration on time,
HMRC judged that, based on the facts of this case, the delay in correcting it
was reasonable. The reasonable excuse provision applies so that the policy is
reinstated as a qualifying policy or restricted relief qualifying policy from the
date that it was issued or if relevant the significant modification (see Question
29 above) or assignment was made as appropriate.
(b) Unreasonable delay
Lisa was unable to make a declaration on time due to the death of a family
member and, from the information available, HMRC accepted that the
bereavement was a reasonable excuse.
However, Lisa had still not made a declaration for a few months after the
bereavement and did not notify her policy provider (or HMRC) of any other
changes to her circumstances.

Although Lisa had a reasonable excuse for not making a declaration on time
due to the death of a family member, based on the facts of this case, by
waiting so long to correct that failure meant that she had failed to take
reasonable care and so the delay became unreasonable. Lisa cannot take
advantage of this provision, so the policy is treated as non-qualifying from the
date of issue or if relevant the date of the significant modification (see
Question 29 above) or assignment as appropriate.
47) Does HMRC provide a form on which a declaration may be made?
No, insurance providers may provide the necessary forms for a declaration.
48) What information is required on the declaration?
The following information will be required:
Full name
Address
National insurance number (NINO)
Date of birth
Whether the individual is a beneficiary under another qualifying policy
A statement that the individual has not exceeded the annual premium
limit of £3,600
The policy identification number of the policy
The date the policy was issued
Where the policy is one issued before 6 April 2013 and is significantly
modified on or after 6 April 2013, confirmation of whether the policy
was issued and is being maintained for the sole purpose of ensuring
that the borrower under an interest-only mortgage will have sufficient
funds to repay the capital lent under the mortgage.
Details of a significant variation (see Question 30 above), including the
date from which it applies, of a policy.
The date of assignment and the full name and address of the person to
whom the policy was assigned if the assignment is one of those listed
in Question 34.
The full name and address of the previous beneficiary if the
assignment is one of those listed in Question 34.
Date of declaration.
49) What happens if I make an incorrect/false declaration?
If you make a false/incorrect declaration your policy will be incorrectly treated
as a qualifying policy when a chargeable event gain arises. If you make an
inaccurate self-assessment return or fail to make a self-assessment return as
a consequence of this incorrect treatment when you are liable to tax you will
be required to pay the full amount of tax due together with interest and
penalties for that inaccuracy or failure.

H. Miscellaneous
50) Can the decision to significantly modify (see Question 29) a policy
be reversed?
A significant modification will be ignored if the effect of that modification is
cancelled within 3 months of the day the modification occurred. This
nullification of the modification will not in itself constitute a modification but is
treated as if this change never took place. The policy reverts back to its
original state prior to this change.
If instead of a cancellation described above, an individual decides to modify
the policy again so that for example their premium limit is not breached but is
reduced to the balance of £3,600 relief available, this is treated as another
modification. The loss of qualifying status cannot be reversed in these
circumstances (see Question 10) and so the rectification provisions will not
apply.
51) How are premiums paid under multiple ownership policies treated
for the purposes of each beneficial owner’s annual premium limit?
Where there is more than one beneficial owner of a qualifying policy the
premiums payable under the policy will count in full towards each beneficial
owner’s premium limit of £3,600.
Link to Example 11

Chapter 2
Examples in support of frequently asked questions
1) Annual Premium Limit
Bob takes out a policy that meets all the requirements for a qualifying policy issued
on 7 April 2013 with premiums of £2,500 payable annually. This policy is a qualifying
policy because the premiums payable are under the £3,600 limit.
In May 2014, Bob takes out another policy of which he is the sole beneficial owner
and that meets all the current requirements for a qualifying policy. Annual premiums
are £500. The aggregate of his premiums is £2,500 + £500 = £3,000. This policy is
also a qualifying policy because the aggregate premiums payable do not exceed the
£3,600 limit.
In August 2014, Bob takes out a further policy of which he is the sole beneficial
owner and that meets all the current requirements for a qualifying policy. Annual
premiums are £1,000. Bob must consider his existing premiums in addition to the
new policy to establish whether this is a qualifying policy. In total his premiums are
now £2,500 + £500 + £1,000 = £4,000. His premiums now exceed the annual limit.
As such, the policy issued in August 2014 cannot be a qualifying policy as the £3,600
limit has been exceeded.
2) Several policies in aggregate exceed the annual
premium limit
Jim takes out a policy in May 2013 with annual premiums payable of £3,000.
He is the beneficial owner of a further policy with premiums of £2,000 issued in
February 2014. This additional policy means his total annual premiums now total
£5,000. This takes him over the £3,600 threshold.
Jim cannot choose which policy is qualifying and which is non-qualifying.
Under the last in first out rules, the policy issued in February 2014 will be nonqualifying,
whilst the May 2013 policy will be a qualifying policy.
3) Beneficial ownership
Sally takes out a life policy under her name making herself and Brian, her husband,
the joint beneficiaries under the policy. Sally is the legal owner but both her and her
husband are entitled to the gains that might arise under the policy. They are therefore
joint beneficial owners and jointly liable to income tax on any chargeable event gain.

4) Qualifying policy issued in the transitional period
where the premiums payable exceed £3,600
Maria takes out a qualifying policy on 30 March 2012 with annual premiums payable
of £4,000.
The premiums payable exceed the £3,600 annual premium limit.
Relief in full would be available for £4,000 per annum from 30 March 2012 until 5
April 2013.
From 6 April 2013 relief up to £3,600 is available but Maria cannot take out any more
qualifying policies because her annual premium limit is exhausted by the policy she
took out on 30 March 2012.
5) Qualifying policy issued in the transitional period
where the premiums payable do not exceed £3,600
Helen takes out a qualifying policy on 30 March 2012 with annual premiums payable
of £2,500.
In May 2014, Helen takes out another policy of which she is the sole beneficial owner
and that meets all the current requirements for a qualifying policy. Annual premiums
are £500. The aggregate of her premiums is £2,500 + £500 = £3,000. This policy is
also a qualifying policy because the aggregate premiums payable do not exceed the
£3,600 limit.
In August 2014, Helen takes out a further policy of which she is the sole beneficial
owner and that meets all the current requirements for a qualifying policy. Annual
premiums are £1,000. Helen must consider her existing premiums in addition to the
new policy to establish whether this is a qualifying policy. In total her premiums are
now £2,500 + £500 + £1,000 = £4,000. Helen's premiums now exceed the annual
limit. As such, the policy issued in August 2014 cannot be a qualifying policy as the
£3,600 limit has been exceeded.
If Helen had taken out a policy with annual premiums payable of £600 instead this
would have used the available balance of her annual premium limit and so would
have been a qualifying policy.
6) More than one policy is issued in the transitional
period and the premiums payable do not exceed
£3,600 per policy but exceed £3,600 in aggregate
Eddie takes out 5 qualifying policies as follows:
30 March 2012
31 March 2012
1 April 2012
2 April 2012
3 April 2012

Each policy has annual premiums payable of £1,000
Relief in full is available for each of the policies for the period from which they are
taken out until 5 April 2013.
From 6 April 2013 relief will be available as follows:
30 March 2012 policy £1,000
31 March 2012 policy £1,000
1 April 2012 policy £1,000
2 April 2012 policy £600
3 April 2012 policy £Nil
7) More than one policy is issued in the transitional
period and the premiums payable exceed £3,600 per
policy
Pamela takes out 5 qualifying policies as follows:
30 March 2012
31 March 2012
1 April 2012
2 April 2012
3 April 2012
Each policy has annual premiums payable of £3,600
Relief in full is available for each of the policies for the period from which they are
taken out until 5 April 2013.
From 6 April 2013 relief will be available as follows:
30 March 2012 policy £3,600
31 March 2012 policy £Nil
1 April 2012 policy £Nil
2 April 2012 policy £Nil
3 April 2012 policy £Nil
While the 4 policies taken out on or after 31 March 2012 will be restricted relief
qualifying policies (“RRQPs”), because Pamela has used up all of her annual
premium limit of £3,600 on the policy issued on 30 March 2012, the available balance
is nil. When the earliest policy matures (assuming that Pamela is not the beneficial
owner of any other policies) the 31 March 2012 policy will attract relief of £3,600 from
the date of the first policy’s maturity.

8) What is the effect of a policy becoming a RRQP
Example 1?
A qualifying policy is issued on 1 January 2000. It is therefore a protected policy. Its
annual premiums payable are £4,000.
No other qualifying policies are held.
The policy is due to mature on 31 December 2024.
On 1 January 2014 the policy is varied and the amount of premiums payable per
annum is increased to £5,000. The protected policy now becomes a RRQP.
Total premiums payable are (£4,000 x 14) and (£5,000 x 11) = £111,000
The policy matures on 31 December 2024 giving rise to a gain of £100,000.
Relief in full would be available for £4,000 per annum from 1 January 2000 to 31
December 2013 (£4,000 x 14 = £56,000).
Relief between 1 January 2014 and 31 December 2024 would be restricted to £3,600
per annum (£3,600 x 11 = £39,600)
The gain chargeable to tax on the maturity of that policy is reduced using the
statutory formula:
Gain x Total amount of allowable premiums payable
Total amount of premiums payable
This formula applies in respect of the policy on which the chargeable gain arises and
not the total premiums payable for all policies in existence.
In this case the calculation would be:
£100,000 x (£56,000 + £39,600) = £86,126
£111,000
The taxable gain is:
Gain £100,000
Less reduction of 86,126
Revised gain 13,874
9) What is the effect of a policy becoming a RRQP
Example 2?
A qualifying policy is issued on 1 January 2000. It is therefore a protected policy. Its
annual premiums payable are £4,000.
The policy is due to mature on 31 December 2024.
On 1 June 2013 another qualifying policy is issued with premiums payable per
annum of £2,000. This policy remains in existence at 31 December 2024.

No other qualifying policies are held.
On 1 January 2014 the first policy is varied and the amount of premiums payable per
annum is increased to £5,000. The protected policy now becomes a RRQP.
Total premiums payable are (£4,000 x 14) and (£5,000 x 11) = £111,000
The policy matures on 31 December 2024 giving rise to a gain of £100,000.
In this case relief for the original policy between 1 January 2014 and 31 December
2024 would be restricted to £1,600 per annum (£1,600 x 11 = £17,600) as a result of
its variation. £2,000 of the annual premium limit is already taken up by the later
qualifying policy issued on 1 June 2013.
The gain chargeable to tax is reduced using the statutory formula:
Gain x Total amount of allowable premiums payable
Total amount of premiums payable
In this case the calculation would be:
£100,000 x (£56,000 + £17,600) = £66,306
£111,000
The taxable gain is:
Gain £100,000
Less reduction of £66,306
Revised gain £33,694
10) What is the effect of a policy becoming a RRQP
Example 3?
A qualifying policy is issued on 1 January 2000. It is therefore a protected policy. Its
annual premiums payable are £4,000.
The policy is due to mature on 31 December 2024.
On 1 June 2013 another qualifying policy is issued with premiums payable per
annum of £3,600. This policy remains in existence at 31 December 2024.
No other qualifying policies are held.
On 1 January 2014 the first policy is varied and the amount of premiums payable per
annum is increased to £5,000. The protected policy now becomes a RRQP.
Total premiums payable are (£4,000 x 14) and (£5,000 x 11) = £111,000
The policy matures on 31 December 2024 giving rise to a gain of £100,000.
In this case relief for the original policy between 1 January 2014 and 31 December
2024 would be restricted to £Nil as a result of its variation. The annual premium limit
is fully used by the later qualifying policy issued on 1 June 2013.

The gain chargeable to tax is reduced using the statutory formula:
Gain x Total amount of allowable premiums payable
Total amount of premiums payable
In this case the calculation would be:
£100,000 x (£56,000 + £Nil) = £50,450
£111,000
The taxable gain is:
Gain £100,000
Less reduction of £50,450
Revised gain £49,550
11) Multiple ownership
Pete and Lucy are the beneficial owners of a policy taken out in May 2014. Annual
premiums under this policy are £3,000.
Pete takes out a further policy in September 2014 with annual premiums payable of
£300.
Lucy takes out a further policy at the same time with annual premiums payable of
£700.
Both of Pete's policies will be qualifying policies because his premiums payable
annually (£3,000 + £300) do not exceed his annual premium limit of £3,600.
The policy taken out by Lucy in September 2014 will be non-qualifying because her
premiums payable annually (£3,000 + £700) exceed his annual premium limit of
£3,600.