Life assurance
Life Assurance Exit Tax
When you, as a policyholder, invest in a life assurance policy, with a life assurance company in Ireland, no tax arises on your:
from the underlying policy assets as they arise. Instead, the life assurance company in Ireland must apply Exit Tax once a ‘chargeable event’ occurs.
What is a chargeable event?
A chargeable event occurs when:
- the life policy matures
- you fully or partially surrender the life policy
- you fully or partially assign the life policy
- or
- the life policy reaches the 8th anniversary of the date it commenced, and every subsequent 8 years after that. This is called an “8-year deemed disposal”.
How is the gain calculated?
Where a chargeable event occurs, the life assurance company must calculate whether any gain arises. Generally, they calculate the gain as the value of the life policy minus the total amount of premiums paid.
If you partially assign or surrender a life policy, the company calculates the gain on the portion surrendered or assigned. In this case, the gain is the value of the portion surrendered or assigned minus an equivalent proportion of the premiums paid.
- Example 1
John invests €100,000 in a life policy on 1 January 2021. On 31 December 2025, the life policy matures. The policy has a value of €200,000 on maturity.
The life assurance company calculates the gain as B - P.
• B is the amount of the benefit (€200,000, the value of the policy when it matures)
and
• P is the premiums paid by John (€100,000).
The gain is calculated as €200,000 - €100,000 = €100,000.
- Example 2
Mary takes out a life policy on 1 January 2021. Starting on that date, Mary pays a premium of €1,000 per month. On 31 December 2025, the policy has a value of €100,000. On this date, Mary surrenders part of her policy with a value of €50,000.
As Mary has partly surrendered her policy, the life assurance company calculates the gain using the formula B – (P × B÷V).
• B is the amount of the benefit (€50,000, the value of the part of the policy surrendered)
• P is the premiums paid by Mary (€1,000 × 60 months = €60,000)
and
• V is the value of the policy prior to the surrender (€100,000).
The gain is calculated as €50,000 – (€60,000 × €50,000÷€100,000) = €20,000.
How is Exit Tax calculated?
The rate of Exit Tax is 41% for Irish individuals and 25% for corporates.
This will decrease to 38% for individuals for chargeable events happening on or after 1 January 2026 on the passing of Finance Bill 2025. There will be no change in the rate for corporates.
- Example 3
In Example 1, John made a gain of €100,000 on the maturity of his life policy on 31 December 2025. This gain is subject to the rate of Exit Tax on this date, which is 41%.
The life assurance company deducts Exit Tax from the payment made to John. The life assurance company calculates the Exit Tax as €100,000 at 41% = €41,000.
How the Exit Tax is deducted
If a life assurance company in Ireland makes a payment to you when a chargeable event occurs, they will deduct Exit Tax from the payment.
If they don’t make a payment, the life assurance company will sell sufficient policy assets to pay the Exit Tax due. This will reduce the value of the life policy.
Where one or more 8-year deemed disposals has applied to the life policy, the Exit Tax deducted is available as a credit. When:
- the policy later matures
- you surrender the policy
- or
- you assign the policy
the Exit Tax from the 8-year deemed disposal(s) of the life policy is credited. This reduces the Exit Tax amount on the maturity, surrender or assignment.
In some cases, the credit from the 8-year deemed disposal(s) exceeds the Exit Tax on a later maturity, surrender or assignment. When this happens, the life assurance company will not deduct Exit Tax on the maturity, surrender or assignment and will refund the excess to you.
Once the life assurance company in Ireland deducts Exit Tax, there is no further tax liability to you. This applies even where your marginal rate of Income Tax, USC and Pay Related Social Insurance (PRSI) exceeds the rate of Exit Tax.
You don’t need to file any tax return for a chargeable event for a life policy with an life assurance company in Ireland.