Taxation of LIC policy in UK

How to compute tax on maturity of Life Insurance Corporation India insurance policy

Amounts received under LIC Insurance policies are exempt1 from tax in India thus are received without any tax deduction but in case it is received by an UK tax resident they will need to pay tax on any gain to UK tax authorities.

First thing to note is that gains is treated as income not as capital gains thus we do not get Annual CGT allowance.

Recently, my LIC life insurance policy matured. It was a Jeevan Surbhi policy with following payouts.

Income : Receipts

Details of premium paid is given below:

Time apportioned reductions

As I was non-resident for 8 years out of 20 years of insurance term. I could reduce the gain proportionately i.e. 66,540 divided by 20 (policy term) x 12 (years tax resident in UK) = INR 39,924

FX rate to convert foreign gain – method

Now we can convert this foreign gain to GBP using the monthly FX rates published by HMRC of the month in which gain received say September 2020 which is 98.65.

Gain in £405.

As this gain is lower than Personal savings allowance, thus no tax is payable.

Please note we will still need to disclose the gain even if not tax is payable.

Source:

  1. Institute of Chartered Accountants of India has produced a helpful guide for NRI taxation.
  2. HMRC Help sheet HS321

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s