HMRC to recalculate chargeable gains to avoid a ‘Lobler’ situation recurring

Wed 08 Mar 2017

HMRC to recalculate chargeable gains on a just and reasonable basis where a disproportionate chargeable gain arises in order to avoid a Lobler situation recurring.

A policyholder (“Lobler”) took out 100 non-qualifying life policies and subsequently surrendered 97.5% of each policy before surrendering the remaining 2.5% several years later. Under the existing legislation, a chargeable gain on which tax would be paid was calculated as the proceeds of the policy less 5% of the premium paid per year. As the policies were only in place for a short time, the chargeable gain was in excess of the economic gain made by the policyholder. This was then subject to litigation which took place over a number of years.

The basis of calculating a chargeable gain, particularly where there are a number of policies, has been the subject of discussion and consultation between HMRC and the industry. The current rules are complex and do not necessarily provide a fair result in every case. HMRC have announced a change to the legislation where, in cases where the chargeable gain is disproportionate to the economic gain, the policyholder can apply to HMRC to have the chargeable gain recalculated on a just and reasonable basis. This is to be welcomed as it should avoid a Lobler situation arising in future.

For more information contact Stephen Brown (Stephen.J.Brown@mazars.co.uk) Paul Clement (Paul.Clement@mazars.co.uk) or Ian Thomson (Ian.Thomson@mazars.co.uk).