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2.3 Taxation of Life Policies

  • The status of a life assurance policy, whether qualifying (by meeting the criteria below) or non-qualifying, will affect the tax treatment of the policy in the hands of the policyholder.


    1. Qualifying Policies avoid a tax charge on payment of the policy proceeds on death or maturity.
    2. Proceeds from non-qualifying policies may be subject to a chargeable gain where a chargeable event occurs i.e. payment of proceeds, assignment for money or money's worth or surrender.

  • Endowment Assurance


    1. Term must be for ten years or more to be a qualifying policy.
    2. Premiums must be restricted so that over a 12 month period they do not exceed twice the premium payable in any other 12 month period, or represent one eighth of total premiums payable.
    3. The sum assured must represent at least 75% of premiums payable. This is reduced by 2% for each year, the age of the proposer exceeds age 55, at the time of inception.
    4. Premiums must be payable annually or more frequently and for at least 10 years, or 75% of the term, if shorter.

  • Whole of Life. The conditions are almost as above, but excluding point (i) and the 75% rule is calculated assuming premiums are paid until age 85.

  • Term Assurance. The conditions are again almost as for endowments, but for terms of less than 10 years (minimum 1 year) there are no restrictions on premium payment.

  • Life Assurance Premiums Relief (LAPR)


    1. This relief ceased in the Budget of March 1984 for all new policies.
    2. Existing policies could continue with the relief.
    3. The relief can be lost if the policy benefits were to be increased, the term extended or if someone other than the life assured pays the premiums.

      NB. LAPR is currently 12.5% (2003/2004)

  • Capital Gains Tax is not payable on policy proceeds where the claim is made by the original owner. A liability may arise for the owner where the owner at the time of claim is not the original owner, and where the policy was acquired for cash.

  • Similarly, CGT is not payable where the original owner gifts a policy, either by the owner, or by the recipient. The gifting by a new owner similarly does not attract liability.

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