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Posted Sun, 31 Dec 2023 15:23:23 GMT by Nella
I am a UK tax resident but hold a non-UK life and saving insurance policy. I have to pay a monthly insurance premium of US$300 and the policy will have a life cover of US$50,0000 (i.e. my beneficiary will receive US$50,000 when I passed away). I will receive an annual dividend and interest from the insurance company for this policy if I do not cancel / surrender the policy of about US$200 per annum. If I choose to surrender the policy, the insurance company will pay out the accrued dividend, interest and policy value (for example, surrender in 6 years, the policy value may have accrued to US$4000). In other words, if I surrender the policy (earlier than I passed away) at the end of 6 years, I will get US$5200 (US$4000 policy value PLUS 6 years of US$200 dividend & interest). My questions are: 1) For the dividend & interest accrued to me annually, do I need to include in tax filing and pay any UK tax (note: I have not withdrawn the dividend or interest)? 2) For the increase in policy value every year, do I need to report for UK tax? Will the increase in policy value induce any capital gain tax? 3) If I surrendered the insurance policy, do I need to pay UK tax? If yes, should the surrendered value to be deducted by the total premium paid to arrive at the capital gain for tax consideration?
Posted Tue, 09 Jan 2024 15:04:35 GMT by HMRC Admin 5

HMRC cannot comment on future events as legislation may change. however, for current guidlines, please refer to HS321 Gains on foreign life insurance policies (2023)
For any interest/dividends that are received, that could be taken by you, are classed as taxable income and should be declared.
You do not need to report any increase in value of the policy until it is surrendered/matured and is subject to possible income tax rather than capital gains.

Thank you
Posted Thu, 07 Mar 2024 09:54:23 GMT by Nella
I read the HS321 and it seems that I only need to report the gain on foreign life insurance policies when surrender, matured, death, sold or was a personal portfolio bonds. As you said above, for the increase in policy value (while I still maintain the policy), I do not need to report until surrender or matured. BUT, you also said interest or dividends arising from the insurance policy has to be declared. My understanding is that this year's Policy Value equals to "last year policy value" plus "any interest and dividends accrued during the year". If we have to declare interest and dividend for tax assessment each year, it will be double-taxed when the policy surrendered (as the policy value included past interests and dividends accrued). Can you please clarify whether those interests / dividend accrued (not withdrawn, remain in policy) has to report in self-assessment annually or wait until the policy surrender?
Posted Fri, 08 Mar 2024 15:13:46 GMT by HMRC Admin 32

If the dividends and interest are from the insurance policy, these will form part of the surrender value and should only be declared at that point.

Thank you.

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