Policyholders can receive part surrenders or part assignments up to an annual cumulative amount of 5% of the original premium paid without incurring a tax charge. If the total value received from the policy exceeds the allowance, it will result in a chargeable event and a gain will be brought into charge at the next anniversary date.
For a part surrender, the value received is usually the cash withdrawn from the policy, while for part assignments, it is the surrender value (usually lower than the real value) of the part sold at the date of the sale. Gains arising from chargeable events are deductible from any gain that arises when the policy comes to an end.
In the Spring Budget 2017, the Government confirmed that it will legislate in Finance Bill 2017 to change the current tax rules for part surrenders and part assignments of life insurance policies.
This will allow policyholders who have generated a wholly disproportionate gain to apply to HMRC to have the gain recalculated on a just and reasonable basis leading to a fairer outcome for policyholders.