Corporation Tax Act 2009 section 562

Contract to be loan relationship

Section 562 explains how investment life insurance contracts held by companies are treated as loan relationships for corporation tax purposes, and provides an exemption for certain lump sum payouts on death or critical illness.

• Where a relevant company holds an investment life insurance contract, that contract is treated as a creditor relationship of the company under the loan relationship rules in Part 5 of the Act.
• This means the company accounts for gains and losses on the contract using the loan relationship framework, rather than other tax rules.
• If a lump sum becomes payable under the contract because of death or the onset of critical illness, and that lump sum exceeds the contract's surrender value immediately before it becomes payable, the excess is not taxed as a loan relationship credit.
• The exemption applies only to the excess of the lump sum over the surrender value; it does not exempt other profits or credits arising from the contract under the loan relationship rules.