05.02 – Pre-existing Cash Value Insurance Contracts or Annuity Contracts unable to be sold to US residents

Pre-existing Cash Value Insurance Contracts or Annuity Contracts that are unable to be sold to US residents because of legal or regulatory restrictions do not need to be reviewed, identified or reported. This also applies to similar Insurance policies written in Trust or assigned to a Trust on or before 30 June 2014.

This exemption only applies where both of the following conditions are met:

  • The Financial Institution’s Cash Value Insurance Contracts and Annuity Contracts cannot be sold into the US without legal or regulatory authority, and
  • UK law requires reporting or withholding in respect of these products.

No existing UK law prevents the sale of Cash Value Insurance products or Annuity Contracts to US residents. However, the sale of contracts to US residents will be considered effectively prevented if the issuing Specified Insurance Company (not including any US branches) is not licensed to sell insurance in any state of the US and the products are not registered with the Securities and Exchange Commission.

Under UK law there will either be reporting or withholding on such Pre-existing Contracts through or under one of the following mechanisms:

  • Chargeable events reporting regime.
  • Income minus Expense Regime (I-E).
  • Basic rate tax deducted from the interest portion of a Purchased Life Annuity.

Assignment of Pre-existing Insurance Contracts

When a Pre-existing Cash Value Insurance Contract or Annuity Contract is assigned to another person, then this will be treated as a New Account. This is to ensure that Pre-existing Insurance Contracts assigned after 1 July 2014 to US Persons are correctly identified and reported where necessary.

Once the Financial Institution becomes aware that an assignment has been made, the Financial Institution will need to carry out the due diligence applicable for New Accounts. If the Financial Institution is unable to obtain a valid self-certification, the account should be treated as reportable.