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There is a maximum of 100% of each premium in the case of a contract that lasts more than 20 years

K

Kamau Boniface

Member
The Core Reading notes on page 208 reads...
Let’s say there is a long-term regular premium contract, which the policyholder part surrenders
after five years. Tax is payable only on the excess paid over (formula) where P* is the annual premium payable.
(There is a maximum of 100% of each premium in the case of a contract that lasts more than 20
years.)

My query: What does does the last sentence(in brackets) mean please.
 
Kamau Boniface said:
The Core Reading notes on page 208 reads...
Let’s say there is a long-term regular premium contract, which the policyholder part surrenders
after five years. Tax is payable only on the excess paid over (formula) where P* is the annual premium payable.
(There is a maximum of 100% of each premium in the case of a contract that lasts more than 20
years.)

My query: What does does the last sentence(in brackets) mean please.
Click to expand...

I've not read the relevant Core Reading notes. Nevertheless:

The tax authorities will allow the policyholder to reduce their taxable benefit by the premium paid (in presumably, present value terms). The full taxable benefit is earned over time; and can be thought of as a reward for paying regularly into the long-term contract. It would appear to be the tax authorities attempt to support a long-term savings mindset.
 
The brackets are just saying that the amount deducted from the surrender value cannot exceed 100% of any premiums paid - which will happen after 20 years. (5% = 1/20).

And as Mugono states this allows the full taxable benefit to be earned over time.
 
Thank you for the clarification.

I also have another question.

If a company is selling both BLAGAB and non-BLAGAB business, will the non-BLAGAB trade profits be considered (included) when determining the BLAGAB minimum profit?
 
Kamau Boniface said:
Thank you for the clarification.

I also have another question.

If a company is selling both BLAGAB and non-BLAGAB business, will the non-BLAGAB trade profits be considered (included) when determining the BLAGAB minimum profit?
Click to expand...
No, they will be treated separately.
 
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