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

Discussion in 'SA2' started by Kamau Boniface, Mar 18, 2020.

  1. Kamau Boniface

    Kamau Boniface Keen 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.
     
  2. mugono

    mugono Ton up Member

    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.
     
  3. Em Francis

    Em Francis ActEd Tutor Staff Member

    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.
     
  4. Kamau Boniface

    Kamau Boniface Keen member

    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?
     
  5. Em Francis

    Em Francis ActEd Tutor Staff Member

    No, they will be treated separately.
     
  6. Kamau Boniface

    Kamau Boniface Keen member

    Thank you for the clarification.
     

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