Revenue Note for Guidance

730K Disposal of foreign life policy

Summary

This section sets out the taxation regime applicable when a policyholder wholly or partly disposes of a foreign life policy. It also covers the deemed disposal of a policy at the ending of each period of 8 years following the inception of the policy.

Details

Introduction of provisions

The following provisions apply to the whole or part disposal of a foreign life policy on or after 26 September 2001 in the case of a personal portfolio life policy. In any other case they apply from 1 January 2001.

Taxation regime for companies and individuals

(1) Where a policyholder of a foreign life policy is a company and disposes of the whole or part of the policy then the amount of the gain on disposal, if correctly included in a return, will be chargeable to tax under Case IV of Schedule D.

Where a policyholder is an individual and disposes of the whole or part of the foreign life policy on or after 1 January 2001, then the amount of the gain on disposal, if correctly included in a return, will be chargeable to income tax as detailed below –

Chargeable event arising —	Gains (excluding PPLPs)	*PPLPs – see section 730BA* – applicable from 26 September 2001**
Before 1 January 2009	Standard rate of income tax (20%) plus 3%	Standard rate of income tax (20%) plus 23%
Between 1 January 2009 and 7 April 2009	Standard rate of income tax (20%) plus 6%	Standard rate of income tax (20%) plus 26%
Between 8 April 2009 and 31 December 2010	28%	Standard rate of income tax (20%) plus 28%
Between 1 January 2011 and 31 December 2011	30%	Standard rate of income tax (20%) plus 30%
Between 1 January 2012 and 31 December 2012	33%	Standard rate of income tax (20%) plus 33%
Between 1 January 2013 and 31 December 2013	36%	Standard rate of income tax (20%) plus 36%
Between 1 January 2014 and 31 December 2014	41%	60%
On or after 1 January 2015	41%	60%*

* With effect from 1 January 2015, any gain from a PPLP which is not correctly included in a return, will be liable at the rate of 80%.

Loss on disposal

(2) to (4) The gain on disposal of a foreign life policy is computed on the same basis as it would be for capital gains tax purposes under section 594 (however, where the computation produces a loss, the gain is treated as “nil”). Furthermore a gain on disposal cannot be reduced by a claim to relief under sections 381, 383, 396 or 399.

Where a gain is treated as “nil” and tax was chargeable in respect of an earlier deemed disposal of the policy, the overpaid amount is refundable/available for set-off.

Capital acquisitions tax: set-off

(5) The amount of any income tax paid by an individual on a gain generated by the disposal of a foreign life policy is treated as being an amount of capital gains tax paid for the purposes of section 104 of the Capital Acquisitions Tax Consolidation Act 2003.

Deemed disposal/reacquisition of foreign life policy

(6) There is a deemed disposal and reacquisition of a foreign life policy at the ending of each 8-year period beginning with the inception of the policy. For the purposes of the section, the policyholder is deemed to have disposed of the whole of the policy immediately before the ending of the period and to have immediately reacquired it at market value at that time.

Relevant Date: Finance Act 2019