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Partial surrenders following the Lobler case

Robin Williamson explains how taxpayers can be relieved of ‘wholly disproportionate’ tax liabilities on life policy proceeds through exploring the Upper Tribunal’s case of Joost Lobler v HMRC from 2015.

HMRCIn Joost Lobler v HMRC [2015] UKUT 0152 (TCC), the taxpayer Mr Lobler appealed to the Upper Tribunal (UT) against a tax charge on a partial surrender of several policies with Zurich Life. Under s507, Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), the tax liability on surrender was some $560,000 even though the policy proceeds were only $65,656 in excess of the original investment.

If Mr Lobler had been sufficiently well advised to surrender his life policies in full, he would have been taxed at 40% of the economic gain, but because he chose a partial surrender of 97.5% of them, he incurred a tax charge of some 779%.