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

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