The Finance Act, 2006 changed how the investment returns made by Life Policies are taxed. All policies taken out in Ireland since January 2001 are invested in a Gross Roll Up fund. Any investment returns made on such policies is subject to tax on the occurrence of a Chargeable Event.

The legislation defines these Chargeable Events as:

  • Policy Maturity.
  • Full or partial surrender of the policy.
  • Payment of a regular income/withdrawal.
  • Payment following the death of the Life Insured
  • Transfer of ownership of the policy by assignment, unless such transfer is between legally married spouses.

On 1 January 2009, a new Chargeable Event came into place. When a policy reaches its eighth anniversary and on each subsequent 8th anniversary, a Chargeable Event is deemed to have occurred.

Tax is deducted from any investment returns made by the policy since the inception of the policy or since the previous 8th anniversary. Only your investment returns are subject to exit tax. The capital sum or any regular premiums paid into the contract are unaffected. Account is taken of any tax already paid following a previous Chargeable Event during the preceding eight years.

This tax is deducted from your policy and submitted to the Revenue Commissioners directly by the Life Insurance Company.

The exemptions from this tax are policyholders who are not tax resident in Ireland.

Even if you are not liable for income tax you have to pay this tax and because it’s not an income tax, you cannot use unused tax credits to offset it.

If your Policy falls in value after tax is deducted, in the event of a full encashment, a tax refund will be included in the encashment amount paid and if you make a partial encashment, a proportionate tax refund will be included.

If you take a part encashment from your policy, a proportion of the investment gain on your policy will be taxed.  Unfortunately, you cannot avoid paying this tax by encashing your policy in full before an eighth anniversary because any investments gains will be taxed at 41% on encashment.