Foreign policies i.e. issued by a non-EU insurer say from India will be, usually1, a non-qualifying policy. 43.21 Thus, gains will be taxable.
Gains are treated as interest income not as capital gains thus we do not get Annual CGT
allowancesec 465(5) but personal saving allowance available.
How is gain computed?
Helpsheet HS320 contains a summary of the calculation examples.
Please note gain is computed in foreign currency and converted back to GBP using FX rate on date of chargeable event – method IPTM3700.
Foreign policies do not get notional basic credit but for the purpose of calculating top slicing relief, basic rate of tax is treated as paid. This ensures top slicing relief is calculated in the same way for UK or foreign policies [IPTM3830]. You can also see IPTM3850 for examples.
Summary of Basic rate tax credit:
| Policy Type | Basic rate credit | Top slicing relief calculation |
| UK policy | Yes | Yes |
| Foreign policy | No | Yes |
Deficiency (loss) relief: No relief is provided for any economic loss within a policy. Relief provided only for excess gains on partial surrenders in earlier years of assessment. Please note, a loss on one policy cannot be set against a gain on another. Deficiency relief available only if tax payer has income chargeable at higher rate. see IPTM3860, IPTM3880 and IPTM3870.
Reliefs available
Which tax year?
- End – tax year in which the particular event occurs.
- Partial – part surrender, including loan, it is the date on which the policy was taken out, that determines the tax year in which any gain is taxed. The gain is taxed in the tax year in which the end of the insurance year falls.
Who pays the tax?
Beneficial owner, example parent takes a policy in name of the child, bare trust. Child will be the beneficial owner as they have an immediate, unqualified right to benefit from the policy.
Notes:
1. Foreign life insurance policies issued before 18 November 1983 and capital redemption policies issued before 23 February 1984 are treated same as UK policies. IPTM3330
2. Institute of Chartered Accountants of India has produced a helpful guide for NRI taxation, for exceptions where Life policies taxable in India, please see para 170.2-1 of book – Direct taxes by VK Singhania.
3. Gains under a policy of life assurance are always taxable on arising basis, irrespective of remittance basis or new FIG regime. [RDRM31110]
- For further reading, visit our Worldwide Disclosure blog.
Sources:
- Book – Tolley Annual Income Tax re numeric footnotes in this article.
- HS321 Gains on foreign life insurance policies (2025) – GOV.UK
- Insurance Policyholder Taxation Manual – HMRC internal manual – GOV.UK
- Legislation for taxation of foreign policies is given in ITTOI 2005 Part 4 Savings and investment income Chapter 9 Gains from contracts for life insurance etc.
