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This example shows how the gains limit is applied successively to relevant transactions during the final year.

Transactions

Miguel and Saira took out a joint policy on 15 June 2010 for a single premium of £60,000. Annual part surrenders of £3,500 are taken on 21 August each year. »Ê¹ÚÌåÓýapp remaining transactions are:

• On 2 April 2018 Miguel assigns his share to Saira for cash of £55,000, equivalent to half the surrender value at that date
• On 15 September 2018 Saira makes a part surrender of £10,000
• On 10 January 2019 Saira surrenders the policy for £91,000.

Chargeable events

»Ê¹ÚÌåÓýapp final insurance year is 15 June 2017 to 10 January 2019. »Ê¹ÚÌåÓýapp annual part surrenders of £3,500 exceed the annual allowable element of £3,000 (5% x £60,000) so there are gains of £500 on excess events for each of the seven years before the final insurance year, taxable half each on Miguel and Saira. »Ê¹ÚÌåÓýappre are relevant transactions in the final insurance year so a gains limit calculation is necessary and the events and gains in the final year are as follows:

Gains limit calculation: »Ê¹ÚÌåÓýapp gains limit is £69,000 calculated as

(9 x £3,500 + £10,000 + £91,000) � £60,000 � (7 x £500)

being total payments from the policy less premiums less total of excess event gains from earlier years.

21 August 2017: Gain on part surrender of £3,500 is £500 (that is, £3,500 less allowable element of 5% x £60,000). It is unaffected by the gains limit as the transaction value is below the gains limit. This is taxable half each on Miguel and Saira in 2018-2019.

2 April 2018: Total transaction value in year to date is £58,500 (that is, £55,000 + £3,500) which is still less than the gains limit so the calculation is again unaffected by the gains limit. »Ê¹ÚÌåÓýapp gain on the part assignment is £55,000, taxable on Miguel in 2018-2019.

21 August 2018: Total transaction value to date is 62,000 (that is, 58,500 + 3,500), which is still less than the gains limit so the gain is simply £3,500, taxable on Saira in 2018-2019.

15 September 2018: Total transaction value to date is 72,000 (that is, 62,000 + 10,000), so the transaction value is limited to 7,000, namely the gains limit minus the previous transaction values (£69,000 â€� £3,500 â€� £55,000 â€� £3,500). »Ê¹ÚÌåÓýapp gain is £7,000, taxable on Saira in 2018-2019.

10 January 2019: Total proceeds from the policy are £132,500 (that is, £91,000 + £31,500 + £10,000), total of gains on all excess events and part surrender or assignment events is £69,500 (that is, £3,500 + £500 + £55,000 + £3,500 + £7,000) and premium paid is £60,000. »Ê¹ÚÌåÓýapp £69,500 includes the gains of £3,500, that is 7 x £500, made during the first 7 years of the policy. »Ê¹ÚÌåÓýapprefore, the gain on the full surrender is £3,000, taxable on Saira in 2018-2019.