HMRC have published a response to their consultation earlier this year on ‘Part surrenders and part assignments of life insurance policies’.

Under the current rules policyholders can withdraw up to 5% per annum from life insurance policies with no tax consequences.   

Any amount in excess of this 5% allowance is taxed as a gain without taking into account the amount invested.  As a result, a partial sale or assignment can lead to a gain that is disproportionate to the overall position on the bond.

Following feedback received HMRC have decided not to pursue any of the options set out in their original consultation document. Instead, from 6 April 2017 policy holders will be able to apply to HMRC for gains to be recalculated on a just and reasonable basis.

Draft legislation introducing this remedy has been included in Finance Bill 2017.


Our subscriber guide: Investment bonds: a tax guide

The original consultation and response documents can be found here.