Background
32.Special rules apply income tax to investment profits (gains) realised by individuals from life insurance policies and capital redemption policies. The rules are known as the chargeable event gain regime.
33.Provision is made within the regime to ensure that chargeable event gains arising on policies issued by foreign insurers are reduced in proportion to the policyholder’s period of residence outside the UK at any time during the life of the policy. Very broadly, this means that gains accruing during an individual's period of residence outside the UK are excluded from the charge to UK tax.
34.Time apportioned reductions are currently not available to policies issued by UK insurers even though individuals with such policies may also have periods of residence outside the UK.
35.In addition, the amount of the reduction provided by the current rules may be inappropriate in some circumstances. For example, relief is given by reference to the residence history of the legal owner of the policy rather than the person liable to income tax on the gains (generally the beneficial owner).
36.A consultation document was issued 13 August 2012 to invite views on reforming the rules to allow time apportioned reductions to be made available to individuals with policies issued in the UK, who have a period of residence outside the UK and to develop a more appropriate method to calculate time apportioned reductions that also interacts effectively with the new statutory residence rules.
