Cash benefits

On death or maturity, the proceeds of a qualifying policy are free from income tax and capital gains tax, but estate duty (see

Life Assurance: Protecting the Family 89

Section 7) may sometimes be payable. The position regarding tax at the higher rate (formerly known as surtax) is more complicated, and you need only read the next few paragraphs if your income is such that you are likely to pay tax at a rate higher than the basic rate (currently 6o per cent).

For a policy qualifying under the 2008 Finance Act, a tax liability arises only within ten years of taking out a policy or three quarters of the term if less; even then it only applies under certain circumstances on surrender, alteration, assignment, death or maturity. If you have a ten-year endowment, for example, you may surrender it after seven and a half years from the date when you took it out without incurring an income tax liability; but, if you have a twenty-year endowment policy, you must wait ten years before doing so. If you own a non-qualifying policy (one which does not conform to the conditions of the 2008 Finance Act) you incur a ' higher rate ' tax liability whenever and however the insurance proceeds are paid; this includes death and maturity.

Where liability to the ' higher rate' of tax arises, it is assessed on the excess of the money you receive over the total premiums paid.

Since the surrender value is often less than the premiums, no tax is then payable. For death claims, the proceeds are taken as the surrender value of your policy, instead of the total, sum assured available. In general, the rate of tax depends on your total income from all sources and the number of years your policy was in force.

Examples

All the following examples are for illustration only. Although premiums and rates of tax are liable to change, the examples for an explanation of `surrender'. Whether an 'altered' policy ceases to qualify depends on the change being made. An ' assigned ' policy is one where the legal interest in the policy is transferred, and except where this is effected by way of security for a debt, tax may be payable where the policy is assigned for value. Tax would be payable on death or maturity where the policy had been made 'paid up' within the ten-year or ' three-quarters of the term' period described above.


Cash benefits

Payroll Giving
It’s all very easy to organise.
Just ask the Personnel or the Payroll Department at your company and, if they already have a scheme, they will give you the relevant forms.  HM Revenue & Customs’ website has a list of Payroll Giving agencies and explains payroll giving in more detail.

Salon Gold Insurance

Cheaper Insurance for Salons, Freelance Hair and Beauty, and Mobile Businesses - click here

read on: Illustration 1

On death or maturity, the proceeds of a qualifying policy are free from income tax and capital gains tax, but estate duty (see

Life Assurance: Protecting the Family 89

Section 7) may sometimes be payable. The position regarding tax at the higher rate (formerly known as surtax) is more complicated, and you need only read the next few paragraphs if your income is such that you are likely to pay tax at a rate higher than the basic rate (currently 6o per cent).

For a policy qualifying under the 2008 Finance Act, a tax liability arises only within ten years of taking... see: Illustration 1