Second-hand life insurance policies will face new rules restricting the scope of capital gains losse...
Second-hand life insurance policies will face new rules restricting the scope of capital gains losses under the government's new Budget.
The Inland Revenue says in its Budget Note 30 that capital losses incurred when second-hand policies are surrendered or mature will be restricted to the amount of "any real economic loss".
Also, any capital gains will not escape tax just because the person making the disposal has received the policy as a gift.
Policies that are free from capital gains charges will remain tax-free when transferred between husbands and wives, ex-spouses as part of a divorce settlement, or within a group of companies.
The Revenue note does not define what "real economic loss" is, although it does say that the new rule is needed because computational rules involving chargeable event gains can, currently, result in capital gains losses that are higher than the actual losses, which can then be off-set against capital gains.
Limiting the losses reduces the amount that can be off-set against capital gains.
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