Download M18 LIFE ASSURANCE POLICIES (INCLUDING SINGLE PREMIUM

M18
LIFE ASSURANCE POLICIES
ASSURANCE BONDS)
(INCLUDING
SINGLE
PREMIUM
LIFE
A tax liability may arise where the Director wishes to invoke the legal avoidance provisions
of the Income Tax Law and he reserves the right to do so in all cases.
Generally this will not be done in the case of full or partial surrenders or maturity if the
original investment has remained untouched for at least ten years, i.e. has not given rise to
income in any form.
If the investment is surrendered in full or matures before ten years have elapsed, any growth
on the investment would generally be taxed as income. However, a sympathetic view will be
taken if the investor has been forced to surrender the policy because of some external
circumstances beyond his control.
Where a partial surrender is made (for example, to take a regular withdrawal) then that and
any subsequent surrenders will be examined to ascertain the growth in the investment,
irrespective of whether ten years have elapsed since the previous surrender. Any such growth
will be taxed.
The method of calculation will vary according to the nature of the investment. For unitised
policies the income will be calculated by reference to the original unit cost and the number of
units surrendered. In other cases the following formula may be used to ascertain the original
cost:
A
A+B
Where
A = the cash received
B = the value of the remaining investment after the partial surrender.
Clusters of policies would generally be treated as one investment so that the surrender of one
policy would constitute a partial surrender of the whole.
Movements between funds within a bond would not be treated as partial surrenders and would
not therefore in themselves give rise to a tax charge. The surrender or partial surrender of a
bond in order to invest in another bond or another type of investment would be treated as a
surrender or partial surrender, as the case may be, for the purposes of this Statement of
Practice, but see M18A below.
No liability would arise on any death benefit paid.
If a loss arises on the surrender value of a policy, the strict legal position is that the loss is not
allowable. However, by concession, the Director will allow any such loss to be set-off against
any gain on the surrender of units in another policy in the same year, or may be carried
forward to set-off against gains or profits arising from partial or complete surrender of the
same policy in future years.
A claim for relief in respect of Guernsey or foreign taxes already suffered on any income
charged to tax under the above would only be given if the taxpayer can demonstrate that he
suffered the tax personally rather than through a third party (for example tax suffered by the
insurance company). The taxpayer would only be taxed on the net income received if a tax
credit was not available.
2
As explained above, the Director reserves the right to invoke the legal avoidance provisions
of the Law where appropriate. It has come to his attention that in some cases bonds are being
purchased for the principal purpose of holding an underlying portfolio of investments
(whether already owned or subsequently purchased) in order to obtain the protection of the
“10 year” concession afforded by this Statement of Practice. He wishes to make it clear that,
in such cases, there is a very strong likelihood that he will, in fact, invoke the anti-avoidance
provisions in order to protect States revenues as this is not the intended purpose of the “10
year” concession.
This statement does not apply to Corporate Life Assurance Contracts, i.e. any life assurance
policy held in the name of a company rather than an individual, where the treatment will vary
according to the purpose for which the contract is taken out.
This statement does not apply to purchases of second-hand endowment policies and the whole
of the profit on surrender or maturity will be charged to income tax.
Published: 1993
Revised: 1994 / 1995 / 1996 / 1997 / 2001 / 2002 / 2007 / 16.06.2009 / 2013