Are the life insurance laws different in Scotland?

If the life insurance laws were different in Scotland, any differences were ended with the launch of the Finance Bill in 2001. This bill clarified and simplified the tax treatment of transfers of shares within life insurance products.

The new rules introduced by this bill attempted to simplify the process whereby part of the rights within a life insurance policy are transferred by making the tax treatment clearer and by ensuring that the part of the rights that were transferred would determine the tax charge on the transfer of any part of the rights under an insurance policy. It then also ensured that the tax charge on transfers like this would be the same in Wales and England as it was in Scotland.

In order to bring the tax treatment further into line with Scotland, when the rights are transferred it is the person giving up the interest is liable for tax due on the transfer. Furthermore, should the transfer of part of the rights under a life policy be made for no consideration it will no longer be liable to income tax.

Normally, the income tax charge on any gains on life insurance products arose only on chargeable events such as death, maturity or the surrender or assignment of all the rights under a contract or policy. However, if only a part of the rights is assigned under a policy and this gives rise to an excess it may also create an income tax liability. An assignment is when an interest in a policy is transferred to someone else. It is known as an assignation in Scotland. Whereas if the whole interest is assigned income tax is only charged should it be made for consideration (payment), the part assignment was taxable whether or not consideration is given.

The difference between Scotland and the rest of the UK is due to the fact that with the different types of co-ownership existing in England, Wales and Northern Ireland, it is difficult to be clear on what has been transferred. In Scotland, what has been transferred is normally certain. This is why the tax charges were different in Scotland.

Income tax law on part assignments was changed in 1975, the tax charge was supposed to apply to the specific share in the rights under that policy given up by the transferring person. The law was found not to be effective in achieving that intention in England and Wales, so the Finance Bill of 2001 was brought in by the Chancellor of the Exchequer to ensure that the income tax charge operated as was originally intended. So that was the difference between England, Wales and Scotland that no longer exists.

 

 

 

 

 

 

 

© AskFinancially.com 2008

Life Insurance

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