Taxation - General Questions

[Rahul]

1. It has been mentioned that the insurance company pays tax at basic rate on the policyholder profit and the excess of marginal rate over basic rate is then paid by the policyholder.
What if the policyholder falls under the slab where marginal rate is 0%. Then how is this case treated, as the benefits received by policyholder are net of tax when he is actually not liable to pay any. Isn't it an extra cost to policyholder.

2. Is tax payable on Term Insurance? If so, does it qualify as inheritance tax?

Thank you in Advance.

 

[Lindsay Smitherman]

1. It has been mentioned that the insurance company pays tax at basic rate on the policyholder profit and the excess of marginal rate over basic rate is then paid by the policyholder.
What if the policyholder falls under the slab where marginal rate is 0%. Then how is this case treated, as the benefits received by policyholder are net of tax when he is actually not liable to pay any. Isn't it an extra cost to policyholder.

I assume you are referring specifically to the situation in the UK?
The Core Reading doesn't cover that situation so this very much feels like a detail that goes beyond what is needed for SA2. I suspect that in such cases, it would not be possible to reclaim any tax (in which case yes, this would not be a particularly tax-advantageous form of investment for that individual) - but you would need to find a tax expert or ask HMRC if you wanted a definitive answer!

 

[Lindsay Smitherman]

2. Is tax payable on Term Insurance? If so, does it qualify as inheritance tax?

This will depend on jurisdiction.
In the UK, as stated in Section 1.2 of Chapter 7, there is no direct taxation of benefits payable from term assurance business.
However, it might be the case that the proceeds would be subject to inheritance tax - that would depend on the overall size of assets within the estate relative to the inheritance tax threshold.
The Core Reading states that inheritance tax is 'not covered further' in the Taxation content of the SA2 course so, again, is not something that you would need to know the details of (and, of course, would vary from jurisdiction to jurisdiction).