Chargeable event certificates
When a chargeable event occurs the life company must provide a certificate to the 'appropriate policyholder' specifying certain information about the event and the gain unless the insurer is satisfied that no gain arises on the event. On all chargeable events other than part assignments, the 'appropriate policyholder' is the policyholder immediately before the happening of the chargeable event. With a part assignment, the appropriate policyholder is any person who is both a policyholder immediately before the assignment and an assignor.
The reporting regime simply requires a life company to provide information to policyholders as it will always know the identity of the policyholder. It will not necessarily know who is the chargeable person, for instance where the policy is held on trust, and it is not required to establish this information.
Where a policy is held on trust, the policyholder is the body of trustees If there is more than one trustee then the life company only needs to send a chargeable event certificate to the first named trustee, or to whichever trustee it holds an address. Trustees should forward certificates to the chargeable person where that is not themselves.
Where there is more than one appropriate policyholder, the life company is required to deliver a certificate to each of those policyholders except where it has not been provided with an address for that policyholder. Each certificate should have the names of all the policyholders on it. Joint policyholders living at the same address will typically receive only one certificate with both names on it.
Where a gain arises on a policy held in the estate of a deceased individual, the life company only needs to send one certificate to the first named personal representative of the estate, or to one for which it has an address.
Where the policy has come to an end due to the death of the policyholder, the appropriate policyholder is the deceased person. To avoid distress, HMRC allows the life company to address the certificate to whoever is dealing with the estate of the deceased if the insurer has that information.
Except where the chargeable event is a whole assignment for money or money's worth, the information to be provided on the certificate is
- policy number
- nature of the chargeable event
- date of the chargeable event*
- the amount of the gain
- the 'number of years' for the purpose of top-slicing relief
- the amount of income tax treated as paid at the basic rate on the gain
* where the chargeable event is a part surrender or part assignment the date of chargeable event would be the date on which the insurance year ends.
Where the chargeable event is a whole assignment for money or money's worth, the life company is not required to report the amount of gain on the assignment or the amount of income tax treated as paid. Instead, it must also report the premiums or consideration paid and other information on the history of the policy listed to assist the liable person to calculate the gain.
The life company must deliver a chargeable event certificate to the policyholder within a certain period, depending on the nature of the chargeable event.
Maturity or full surrender of the policy
- three months of the date of the event.
Excess events (occurring on the last day of the insurance year)
- three months from the date of the chargeable event (i.e. end of insurance year)
Death or whole assignments for money or money's worth
- three months from the date it receives written notification of the event.
Insurers must also provide information about chargeable events and gains to HMRC, but only where the gain is larger than a certain amount, or where the chargeable event is a whole assignment.
Chargeable event certificates must be supplied by the life company to HMRC where the value of the gain, when aggregated with any connected gains, exceeds half the 'basic rate limit'.
Although insurers are not required to report gains to HMRC which are equal to or less than half the basic rate limit, nevertheless they may do so as an administrative convenience.
Insurers must supply details to HMRC in all cases where the chargeable event is a whole assignment for money or money's worth, whatever the size of the gain.
The time limits for insurers to deliver certificates to HMRC reporting events and gains are different from those for delivering certificates to policyholders, An insurer always has at least as long, and in most cases longer, to report events to HMRC as it does to report to policyholders.
The general rule is that an insurer must deliver the chargeable event certificate to HMRC within three months of the end of the tax year in which the chargeable event occurred. This however may be extended in certain circumstances.
Finally, a chargeable event certificate that has been delivered to a policyholder or HMRC may subsequently be found to be incorrect. An example of this is where a subsequent termination of the policy causes the reported event and gain to be superseded. Please see tax planning with uk investment bonds for an example.