Hi Admin 20,
I really don't know whether you are fully understand my questions or not. I don't think the withdrawls up to 5% is applicable to this case. In my case example, let assume that the premium paid is GBP100,000, the tax payer has already paid up the premium before the tax payer become the UK tax resident. The tax payer receive GBP3,000 each year from this insurance policy (which is like a saving plan). I believe this GBP3,000 should be treated as interest income. The tax payer has not withdrawn any premium paid, the premium paid in this case is still GBP100,000. The tax payer receives only the GBP3,000 as a annual return for this premium paid GBP100,000. If the tax payer surrender the policy at the beginning of a anniversary date, the tax payer can still receive GBP100,000 premium paid, there is no gain/loss. The tax payer only earn GBP3,000 as an a return for the premium paid GBP100,000. So I don't think the HS321 is applicable to this case.
If HS321 is applicable to this case, does it mean that the tax payer has no gain for the annual return GBP3,000 (need not to pay tax on this amount). The tax payer will need to pay the tax on the final year when surrender the policy. For this policy, the tax payer can receive GBP3,000 up to 100 years old, are you saying that the tax payer only need to pay tax at 100 year old if he won't surrender the policy before 100 years old? Then the gain would be GBP3,000 x 45 (assuming that the tax payer is 55 years old when become UK tax resident) at 100 years old. It sounds strange that the tax payer doesn't need to pay when receives the annual return on a yearly basis but to tax it on the final year.