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Where Taxpayers and Advisers Meet

Maturing German life insurance policy

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Maturing German life insurance policy

Postby Brightonian » Fri Aug 19, 2011 12:19 pm

My client, a German national now resident in the UK, took out one of these policies 12 years ago and it will mature shortly. It is a 'capital life insurance' and appears to be similar to an endowment policy. There will be a gain on the policy. The proceeds are atxfree in Germany.

I have researched the HMRC manuals and it appears that it is a non-qualifying policy because of the date it was taken out. The gain is therefore treated as though ti were an offshore investment bond and the client will benefit from the fact that she was resdient in Germany for part of the policy term.

IPTM3810 states that some overseas policies can be deemed as having suffered basic rate tax. It states : 'basic rate tax is only treated as paid when the insurer is taxed on the investment return accruing for the benefit of the policyholders under the so-called 'I minus E' system. Some countries within the EEA employ similar systems'. Does anyone know if Germany is one of these countries?

Also, I understand that the time-apportionment between resdience abroad and residence in the UK has to be done using days. I had assumed that, if the client had been resident in the UK for a tax year, then that woudl count as 365 days of residence. But someone has suggested that one has to take account of all days spent outside the UK in a year of (otherwise) UK residence - counting, for example, 20 days working in an overseas office or 14 days' holiday abroad! I can't believe taht this is the case - has anyone else encountered this suggestion?

I should be grateful for any assistance.

maths
Posts: 7550
Joined: Wed Aug 06, 2008 3:25 pm

Re: Maturing German life insurance policy

Postby maths » Fri Aug 19, 2011 2:04 pm

Unfortunately I do not know about how German insurers are taxed.

Re your other query, any gain is reduced to the fraction: A/B of the gain where ‘A’ is the number of days the policyholder was resident in the UK in the total period ‘B’, where ‘B’ is the number of days between the date the policy was taken out and the date when the gain is treated as arising. I interpret this as meaning that if, for example, an individual is resident for the tax year 2010-2011 but in that tax year spends 14 days abroad on holiday, the 14 days are days of residence.

If an individual resides abroad and takes up UK residence part way through a tax year (eg 1st June) then UK residency begins 1st June.

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Re: Maturing German life insurance policy

Postby Brightonian » Fri Aug 19, 2011 2:07 pm

Thank you. I was a little surprised that HMRC would want to include holidays etc. But it was an employee of a company taht markets offshore bonds wjo mentioned this to em and that makde me wonder. Thanky ou for the reassurance.


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