UK Unit Linked Savings Policy

[jpd]

I left Ireland in 1974 to work in the UK. I was living in the UK from 1974-1983 and in France from 1983-2003. Now back in Ireland since 2004.

Whilst living in UK, I took out a 25-year unit-linked life assurance savings plan (with an Irish Life subsidiary but this is not relevant) in 1981. I have continued the premiums and the policy will mature at the end of 2006.

The revenue have told me that as the policy was taken out prior to 20 Sep 1993, any gains are taxable at 40% and neither indexation nor annual exemption apply. This seems unfair to say the least!

It would certainly seem to be at variance with EU rules on freedom of capital and movement of labour.

The gains involved with this particular policy are not huge but I think there is a question of principle at stake here.

Has anybody had similar experience and what was the outcome ?

Joe

 

[CCOVICH]

The revenue have told me that as the policy was taken out prior to 20 Sep 1993, any gains are taxable at 40% and neither indexation nor annual exemption apply. This seems unfair to say the least!

If they were the rules applying at that time, then so be it I'm afraid. Off-shore funds have generally been subject to less favourable tax treatment than was applied to Irish policies.

This is an extract from the following link

[broken link removed]

Two regimes for taxation of foreign life policies

 Under the old regime, which applies from 20 May 1993, a gain is
chargeable to capital gains tax. However, capital losses and an
individual's capital gains tax annual exemption amount cannot be set
against such gains. [See Appendix B]

 Under the new regime, which applies from 1 January 2001, income
from policies that issued from an "offshore state" is taxable as income.
Where there is a disposal of the policy the gain on the disposal is
taxable as income provided details of the disposal were correctly
included in a person's tax return. Otherwise a charge to capital gains
tax arises. [See Appendix B]
The old regime still applies to a policy issued from jurisdictions other than an
"offshore state". An "offshore state" is a country other than Ireland, which is a
member of the EU, the European Economic Area or a member of the OECD
with which Ireland has a double taxation agreement.

It would certainly seem to be at variance with EU rules on freedom of capital and movement of labour.

Free movement of capital and tax harmonisation are two different things.

The gains involved with this particular policy are not huge but I think there is a question of principle at stake here.

Has anybody had similar experience and what was the outcome ?

I doubt that Revenue have any discretion in the matter, it's one rate or the other, depending on the date taken out. Unless you are willing to take a court case (is it worth it?), I doubt you have any option but to pay the 40%.

 

[CCOVICH]

Any chance that the UK arm of Irish Life was a 'branch' (from the same link above)

4. Is the policy a foreign life policy?
4.1 A foreign life policy is in general terms one normally issued from outside
Ireland. However, a policy taken out with the Irish branch of an overseas
insurer is treated as an Irish policy provided certain conditions are met.

 

[jpd]

Thanks CCOVICH, that's makes it a bit clearer - it's still unfair - I should have cashed the policy in before returning!

Maybe I'll just cash it in and not tell them!

Joe

 

[CCOVICH]

Thanks CCOVICH, that's makes it a bit clearer - it's still unfair - I should have cashed the policy in before returning!

Probably, there's a lesson here for others considering returning to Ireland.

Maybe I'll just cash it in and not tell them!

I'll assume that's a joke, if not, it's an unwise course of action given the current environment, and it's certainly unwise (and unwelcome) to reveal such intentions on AAM!

 

[jpd]

Joking!

Am I reading document correctly - only the gains from 20 Mar 2001 are taxable (see page 7 - para 3.3) ?

If so, I'm lucky, so to speak - this was before the dot.com crash and the policy value has just recently recovered the lost ground.

Joe

 

[CCOVICH]

No, I don't think so. I think the date the policy commenced is the only relevant date, and I'm not sure if there is any pro-rating of relevant rates. I know that the CGT rate changed in the meantime (40%-20%).

 

[jpd]

OK, I'll contact the Revenue to clarify this.

 

[jpd]

Revenue confirmed that this policy/fund falls under the old regime because it was issued prior to 1993. The gains from 20 March 2001 are taxed at 40%.

I have now cashed it in, and will be paying the tax due.

 

[dunk]

Hi jpd,

I'm getting contradictory information regarding the disposal of my UK Mortgage Endowment policy, which I took out in January 1992, while a UK resident. I'm looking to sell the policy and have been told I will owe 40% on the gain, with no normal GCT relief (€1,270 pa) or indexation of premiums for determining cost-basis.

You say "The gains from 20 March 2001 are taxed at 40%". Are you saying that you are only liable to tax on the gains from 2001 to date of encashment, even though you policy was taken out in 1981 ? Put another way, the gains from 1981 to March 2001 are EXEMPT from tax ?

Thanks.