Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

730D Gains arising on a chargeable event

Summary

This section sets out the taxable gain that arises on the various chargeable events in relation to a life policy. It also sets out various situations where a gain does not arise on a chargeable event.

Details

Gain arising on a chargeable event

Where the chargeable event —

  • (1)(a) & (3)(a) is the maturity of the life policy or the surrender of the whole of the rights thereby conferred, the amount of the gain is determined by the formula —

    B – P
  • (1)(b) & (3)(b), (1)(da) & (3)(da) is the assignment of the whole of the rights conferred by the life policy or the ending of a relevant period, the amount of the gain is determined by the formula —

    V – P


  • (1)(c) & (3)(c) is the surrender of part of the rights conferred by the life policy, the amount of the gain is determined by the formula —

    (P × B)

    B –

    V
  • (1)(d) & (3)(d) is the assignment of part of the rights conferred by the life policy, the amount of the gain is determined by the formula —

    (P × A)

    A –

    V
  • (3)(e) is deemed to happen on 31 December 2000 the amount of the gain is determined by the formula —

    V – P

where —

B

is the amount of the sum payable and other benefits arising from the chargeable event,

P

is the total of all premiums paid on the life policy immediately before the chargeable event, less any premiums which have already been taken into account for a previous chargeable event (other than premiums in connection with a relevant event – these will have been taken into account, but will not have been repaid),

V

is the value of rights and other benefits under the life policy immediately before the chargeable event, and

A

is the value of the part of the rights and other benefits under the life policy which have been assigned.

Note: Certain technical adjustments are required in the calculation of the gain in respect of chargeable events that occur subsequent to the ending of a relevant period. The supplementary rules are contained in subsection (1A) and are explained in the note on that subsection below.

Supplementary rules – calculation of gain subsequent to a gain arising on the ending of a relevant period

(1A) Where a chargeable event occurs after a chargeable event consisting of the ending of a relevant period (as provided for in section 730C(1)(a)(iv)), that earlier event is disregarded when the gain is calculated. In other words, the gain on the new chargeable event is calculated as if there had been no such deemed disposal after 8 years. Supplementary rules apply depending on whether or not the later chargeable event is a partial disposal (i.e. part surrender or assignment).

  • If the chargeable event is not a partial disposal, then when the gain is being calculated the value of the policy is increased by F, where F is tax on the deemed disposal that has not been repaid.
  • If the chargeable event is a partial disposal, then when the gain is being calculated F (as defined above) is deducted from the eligible premiums figure.

Chargeable events not giving rise to a gain

A gain will not be treated as arising on a chargeable event in relation to a life policy if —

  • (2)(a) immediately before the chargeable event the assurance company possesses a declaration from the policyholder stating that he/she is neither resident nor ordinarily resident in the State and the assurance company does not possess any information which would suggest that the declaration is not, or no longer, correct, that the policyholder has failed to notify them that he/she has become resident in the State, or that the policyholder is resident or ordinarily resident in the State,
  • (2)(b) immediately before the chargeable event the policyholder itself is-
    • a life assurance company,
    • an investment undertaking,
    • a charity,
    • a Personal Retirement Savings Account (PRSA) provider,
    • a credit union,
    • the Courts Service,
    • the National Asset Management Agency,
    • an exempt approved pension scheme or trust scheme to which section 784 or 785 applies; or
    • approved retirement funds under section 784A and approved minimum retirement funds under section 784C

    and the assurance company which commenced the policy possesses a declaration to this effect,

  • the life policy is an investment made by the Motor Insurers’ Bureau of Ireland of moneys paid to the Motor Insurers Insolvency Compensation Fund under the Insurance Act 1964 (amended by the Insurance (Amendment) Act 2018), and the Motor Insurers’ Bureau of Ireland has made a declaration to this effect to the assurance company,
  • (2)(c) the life policy is an asset held in a Special Savings Incentive Account (SSIA) and the assurance company possesses a declaration to this effect,
  • (2)(d) the life policy is an asset held by the National Pensions Reserve Fund Commission, or the State acting through that Commission, and the Commission has made a declaration to this effect to the assurance company,
  • (2)(e) the life policy is an asset held by a National Pensions Reserve Fund Commission investment vehicle, or the State acting through a Commission investment vehicle, and the Commission investment vehicle has made a declaration to this effect to the assurance company,
  • (2A)(a), (b)(i)(I), (b)(iii) & (c) the assurance company which commenced the life policy has established a branch in an offshore state (an offshore state means a State which is a member of the European Community or the European Economic Area), the life policy is covered through that branch and the assurance company has received written approval from the Revenue Commissioners that the provisions regarding declarations of non-residency in the State need not apply to the life policies covered by the branch, or
  • (2A)(a), (b)(i)(II), (b)(iii) & (c) the assurance company which commenced the life policy underwrites the business on a freedom of services basis as provided for in Regulation 50 of the European Communities (Life Assurance) Framework Regulations 1994, or under an equivalent arrangement in an EEA State, and the policyholder resides in an EU or EEA Member State other than Ireland. Written approval from the Revenue Commissioners is also required before this exemption can be applied. This provision applies on and from 13 March 2008.

(4) The amount of premiums to be taken into account in determining the gain on a chargeable event is set out.

(5) Transitional arrangements apply in relation to a chargeable event occasioned by the ending of an 8-year period in the case of a policy taken out before 1 May 2006. An assurance company without a declaration of non-residence from the policyholder does not have to deduct exit tax in respect of the ending of a relevant period for policies taken out before 1 May 2006, if it has reasonable grounds to assume that the policyholder is not resident in the State. However, if a declaration of non-residence is not available at the time of a subsequent chargeable event, then exit tax in respect of the earlier chargeable event also becomes payable.

Relevant Date: Finance Act 2019