Part 4 Savings and investment income

Chapter 9 Gains from contracts for life insurance etc.

Part surrenders and assignments: periodic calculations and excess events

507 Method for making periodic calculations under section 498

(1) This section deals with the calculation required to be made in relation to a policy or contract as at the end of an insurance year under section 498(2) (requirement for periodic calculations in part surrender and assignment cases) to determine—

(a) whether a gain has arisen, and

(b) if so, the amount of the gain.

(2) There is a gain if the net total value of rights surrendered or assigned exceeds the net total allowable payments (see subsections (4) and (5)).

(3) The gain is equal to the excess.

(4) To calculate the net total value of rights surrendered or assigned—

• Step 1

  Find—

  (a)

    the value, as at the time of its surrender or assignment, of any part of or share in the rights under the policy or contract which has been surrendered at any time or assigned at any time for money or money’s worth, and

  (b)

    the value, as at the time of its assignment, of any part of or share in the rights under the policy or contract which has been assigned otherwise than for money or money’s worth in an insurance year beginning on or before 5th April 2001,

  in each case determining the value in accordance with section 508.

• Step 2

  Add together those values.

• Step 3

  If any previous calculation events (other than personal portfolio bond events) have occurred in relation to the policy or contract—

  (a)

    add together each such value which has been brought into account under this subsection on those events, and

  (b)

    subtract the result of paragraph (a) from the result of step 2.

(5) To calculate the net total allowable payments—

• Step 1

  Find the allowable element in each allowable payment by multiplying the amount of the payment by—

  

  where X is the number of insurance years in the period beginning with the year in which the payment is made and ending with the insurance year as at the end of which the calculation under this section is required to be made or, if it is less, 20.

• Step 2

  Add together the allowable elements for all allowable payments.

• Step 3

  Add together all the allowable elements brought into account under this subsection on a previous calculation event.

• Step 4

  Subtract the result of step 3 from the result of step 2.

(6) In this section—

• “allowable payment” means a premium, other than a retained replacement policy premium, and

• “retained replacement policy premium” has the meaning given in section 495(2).