A chargeable event gain is the profit HMRC taxes when something specific happens to a non qualifying life insurance policy, such as an investment bond: full surrender, maturity, death of the last life assured, sale of the policy, or withdrawals above the 5% allowance. The gain is taxed as savings income, not as a capital gain, on the person who owns the policy or who created the trust that holds it. On a UK bond basic rate tax is treated as already paid; on an offshore bond it is not.

What is a chargeable event gain and which policies produce one?

The rules are in Chapter 9 of Part 4 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), with HMRC’s guidance in the Insurance Policyholder Taxation Manual (IPTM) and helpsheet HS320. HS320 states that chargeable event gains are taxable as income and are not capital gains, so capital losses and the Capital Gains Tax annual exempt amount cannot be set against them. Section 18 of the Income Tax Act 2007 classes them as savings income when an individual, trustees or personal representatives are liable.

The key distinction is between qualifying and non qualifying policies. Qualifying policies generally have a minimum term of 10 years with fairly even regular premiums and, for policies taken out or varied on or after 21 March 2012, premiums below £3,600 a year. They usually produce no gain. Single premium investment bonds are almost always non qualifying, which is why bonds are where these rules bite.

What events trigger a gain?

Section 484 lists the chargeable events. IPTM3400 summarises them as:

  • surrender of all rights under the policy;
  • assignment of all rights for money or money’s worth, meaning a sale;
  • maturity of the policy;
  • a death that gives rise to benefits under the policy;
  • an excess event, where part surrenders in an insurance year exceed the cumulative 5% allowance (see the 5% withdrawal rule);
  • a part surrender or assignment event under the transaction related calculation rules;
  • a personal portfolio bond event, an annual deemed gain on bonds where the policyholder can choose the underlying assets beyond a permitted list.

A loan made by the insurer, or by arrangement with it, to the person who would be chargeable is treated as a part surrender (IPTM3545). Some things are not chargeable events: an assignment by way of gift, a transfer between spouses or civil partners living together, an assignment as security for a debt and its release, and an assignment under a court order such as on divorce (IPTM3400 and IPTM3420).

How is the gain calculated?

For events that end the policy, section 491 sets the formula. There is a gain if total benefits (TB) exceed total allowable deductions (TD) plus previous gains (PG). In plain terms:

  • TB is what is received on the event plus everything previously taken out, including earlier part surrenders.
  • TD is the premiums paid.
  • PG is any gains already taxed on earlier events, such as excess events, so nothing is taxed twice.

Two variations are important. On death, TB uses the surrender value immediately before death, not the death benefit, which confines the gain to investment growth (IPTM3515). On a sale between connected persons, market value replaces the price (IPTM3515).

Part surrenders are calculated differently, at the end of each insurance year, by comparing amounts withdrawn with the cumulative allowance of one twentieth of each premium per year. HS320 explains that all part surrenders in an insurance year are treated as arising at the end of that insurance year, which may fall in a later tax year than the withdrawal itself.

Who is taxed on the gain?

Section 465 makes a UK resident individual liable if they beneficially own the policy, if the policy is held on non charitable trusts they created, or if it is held as security for their debt. IPTM3220 adds that domicile is irrelevant and that an individual is not liable on gains arising in a tax year in which they are not UK resident.

  • Bare trusts: the beneficiary is chargeable as beneficial owner, and IPTM3250 says this applies even where the beneficiary is a minor. If a parent provided the funds, the parental settlements rule should also be considered.
  • Other trusts: the settlor is chargeable, whether or not they can benefit, and can recover the tax from the trustees (HS320).
  • Trustees: UK resident trustees are chargeable instead where the settlor has died or is not UK resident, or the trust is charitable. They pay at the rate applicable to trusts, with a basic rate slice for the first £1,000 where not used elsewhere (IPTM3230).
  • Joint owners: each is taxed on their share; spouses or civil partners holding jointly each report half (HS320).
  • Companies: a company holding an investment life insurance contract is taxed under the loan relationships rules instead (IPTM3900).

Why does it make a difference whether the bond is UK or offshore?

Under section 530, an individual or trustee liable on a gain is treated as having paid income tax at the savings basic rate on it. HMRC explains at IPTM3800 that the gain is not grossed up and the notional tax is never repayable: a £1,000 gain is included in income as £1,000 and £200 is treated as paid. A basic rate taxpayer whose gain stays within the basic rate band therefore has nothing more to pay; a higher or additional rate taxpayer pays the difference.

IPTM3810 states that no tax is treated as paid on foreign policies, which includes policies issued by insurers that are not UK resident unless issued through a UK branch. The full rate applies to an offshore bond gain. HMRC explains that the credit is only given where the insurer itself is taxed on the investment return for policyholders, which is not the case for an offshore insurer. Individuals who were not UK resident during part of the time they held the policy may also be entitled to a time apportioned reduction in the gain (HS320).

A worked example

HS320 gives these figures, which show how the formula works:

Event Total benefits Premiums Gain
Maturity or full surrender paying £10,000 £10,000 £4,000 £6,000
Death benefit of £10,000; surrender value just before death £8,000 £8,000 £4,000 £4,000, taxed as the deceased’s income for the year of death
Sale of the policy for £10,000 £10,000 £5,000 £5,000

Illustration only. Take the £6,000 surrender gain on a UK bond in the 2026 to 2027 tax year. If the owner’s other income leaves at least £6,000 of the £37,700 basic rate band unused, the gain is taxed at 20% and the 20% treated as paid covers it in full. If all of the gain falls in the higher rate band, ignoring the Personal Savings Allowance, tax at 40% is £2,400, less £1,200 treated as paid, leaving £1,200 to pay before any top slicing relief. On an offshore bond the same higher rate taxpayer would owe the full £2,400 before relief.

How is the gain reported?

UK insurers must issue a chargeable event certificate when they know a gain has arisen, and they also report larger gains to HMRC (IPTM3210). HS320 sets out what the policyholder must do:

  • if already in Self Assessment, enter the gain on the return, under Other UK income for UK policies or the Foreign section for offshore policies;
  • if not in Self Assessment and the gain plus other savings and investment income exceeds £10,000, register for Self Assessment;
  • otherwise, contact HMRC or send a copy of the certificate with a National Insurance number.

If a certificate went to trustees, a nominee, a lender or an old address, the person chargeable still has to report. See Self Assessment deadlines and penalties.

What reliefs apply and what mistakes are common?

Individuals can claim top slicing relief, which spreads the gain over the years the policy has run to set the rate. Deficiency relief may help where earlier part surrender gains were taxed but the final calculation shows a negative result. A plain loss on a policy cannot be set against other income or other policies (HS320).

Common errors include reporting the gain as a capital gain, entering the sliced figure instead of the full gain, assuming an offshore bond carries the 20% credit, and forgetting that the settlor, not the trustees, is usually taxed on a bond held in trust. The full gain also counts towards income for the Personal Allowance taper. Looking ahead, the government has announced that the savings basic, higher and additional rates will be 22%, 42% and 47% for 2027 to 2028 across the UK.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.