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Whole of Life Insurance - Legal & General - Restricted relief qualifying policies

edited 8 August at 11:43AM in Insurance & Life Assurance
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db570ukdb570uk Forumite
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edited 8 August at 11:43AM in Insurance & Life Assurance
Hi there, I am posting of my parent who are both pensioners. They have two Whole of Life policies with Legal & General since the 1980's and are currently paying into the policies. My mum told me Legal and General had written recently to ask for premiums to be raised to keep up with inflation. My parents paid the raised  premiums as requested.

Legal & General wrote my parents again about 6 weeks ago asking for permission to declare the policies with HMRC and that there would be tax to pay. Is all this normal?

I was wondering if the terms and conditions of the policies have changed as a result of them paying extra to keep up with inflation. They are quoting the following 

"We recently reviewed your Whole of Life policy on the 6th July 2020. As a result of the review and to maintain the sums assured, we have issued you with a new policy.
Normally you don't have to pay any additional income tax on any money you recieve from the policy as it has special tax status, known as 'qualifying policy'.
The Government changed the rules around qualifying policies on 21 March 2012, and policies issued after this date are known as "restricted relief qualifying policies'.
We now need to collect certain information from you that we then need to provide to Her Majesty's Revenue and Customs (HMRC). The information we collect from you will help determine whether there will be a tax liability at the time of a valid claim

Please see the enclosed form for the information we need.
If the total amount you are contributing to all your policies issued after 21 March 2012 that now fall under the restricted relief qualifying policy rule exceeds £3600 per annum, the eligibility for tax relief on each policy is restricted on a pro rota basis
Please complete the attached form fully and return it to us in the pre paid envelope as soon as possible. We will issue a reminder in 6 weeks if we havent received a reply.
Please refer to the enclosed guide for information on who needs to complete and return the form"
 
It does look like the new policies are being treated as "restricted relief qualifying policies" as a result of them paying an increase in premiums. It also sounds from the letter below my mum and dad were issued new policies. Is this fair practice? They certainly did not know there would be possible tax implications

 I have no idea on the insurance industry. My mum said Legal and General had told her the policy was only worth £5500 when she asked about the surrender value. They have been paying into monthly for over 25 years. Is there a savings component and a sums insured component (on death) for a policy like this?  Is the value quoted for surrender off in any way?

My mum doesnt understand any of this and have been putting off dealing with the paper work. I am wanting to help but have no idea and so very grateful for any help
My concern is were Legal & General within their rights to ask for an inflation top up and then are what they are doing with wanting my parents to authorise the policy being subject to tax/scrutiny  with HMRC okay?. She has 3 months in total to respond before they automatically declare the policy with HMRC for tax purposes. 
Anyone else in the same or similar situation or know of anyone who had to do something similar. 

Is it correct that if my mum and dad do not pay more than £3600 a year into each policy that they dont have to worry about paying additional income tax on any money thay they may recieve from each policy? Is so would they need to do anything?

Very grateful for any help and advice

Kind Regards
Dave

Replies

  • Old_LiferOld_Lifer Forumite
    494 posts
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    It is the issue of new policies which has caused the problem.
    We do not know the history of these policies  and what has triggered the issue of new policies.    My understanding is that the new rules only apply to policies issued after 6th April 2013. 

     My own experience is of older products.    Others on the Forum  with recent experience may be better able to respond  but if not , I would ask the Life Office for an explanation as only they  will have the full history of the policies.


  • Old_LiferOld_Lifer Forumite
    494 posts
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    ✭✭
    A normal  review  under  a old whole life policy which was carried-out  as laid down  in the terms of the policy would not result in a new policy  being issued.        If a new policy has  been issued this suggests that there has been a significant  alteration to the policy terms  ( for example, extension of the payment term ).   

    You really need to ask  the Life Office why new policies have been issued.
  • Old_LiferOld_Lifer Forumite
    494 posts
    100 Posts First Anniversary
    ✭✭
    For anyone who has a morbid interest in this particular subject and who doesn't want to wade through the legislation,  the Chartered Insurance Institute  has some easy to read technical  notes :

    CII    learning index    premium limitation on qualifying  life policies and restricted relief qualifying policies :

                          18.9.2018         Part 1
                          16.10.2018       Part 2
                          11.12.2018       Part 3
                          12. 2  2019       Part 4

    I spent  four years taking my CII exams  and when I worked for a Life Office I would have known this sort of thing   but keeping abreast of modern stuff  when I no longer need to  seems too much of a chore at my age.

    For anyone wanting to know about insurance topics, the CII  website is always a good starting point.     Trying to  acquire  instant  knowledge   by searching  on the internet   will often  provide a result in isolation ,   which needs to be viewed in  wider  context to give the full story.   This is especially true with a subject as complex as insurance legistation.
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