Purchased life annuity rates in the UK are quoted per buyer. It is an annuity bought with savings, and part of each payment can be tax-free if claimed.

A purchased life annuity (PLA) turns a lump sum of ordinary money, such as savings or an inheritance, into an income that lasts for life. Because the money did not come from a pension, HMRC taxes it by different rules, and those rules matter more to the outcome than most of the headline figures. This guide covers what a PLA is, how the tax works, one insurer's published terms as an example, and why a single "rate" is hard to pin down.

Pension Wise, from MoneyHelper, is free, impartial and backed by government, though it covers taking a defined contribution pension, so it sits on the pension side of this choice. Your savings, tax and other income are best judged as a whole. One way to get that is a ring from an FCA-authorised adviser, arranged from the form on this page, and asking costs you nothing.

What a purchased life annuity is

HMRC's Insurance Policyholder Taxation Manual defines it as "an annuity bought from an insurer that has a life contingency in its terms", and adds that it "does not include a pension annuity". The Act's own definition is that the annuity must be "granted for consideration in money or money's worth in the ordinary course of a business of granting annuities on human life" and "payable for a term ending at a time ascertainable only by reference to the end of a human life". HMRC adds that in the UK only insurance companies and friendly societies may sell life annuities.

The word "purchased" is the dividing line. A pension annuity is bought from a pot that already has tax relief attached and is taxed as pension income; how that works, and its main types, is in what a pension annuity is. A PLA is bought from money you already own outright. It is usually for life, though HMRC notes it could be for a term set by reference to a life; the Act adds that "it does not matter that the annuity may in some circumstances end before or after the life", so annuities with a guarantee period are included. A care fees annuity and a pension-funded fixed-term annuity are covered separately.

Tax-free cash taken from a pension can fund one too: Aviva, for example, says its Immediate Life Annuity can be bought from savings or from pension tax-free cash. Whether that suits you is covered in is an annuity worth it.

How a purchased life annuity is taxed

HMRC's manual describes each payment as, commercially speaking, "a return of part of the capital plus a sum reflecting, in economic terms, interest". The tax rules follow that split, and ITTOIA 2005 is the source. Income tax is charged on annuity payments under a PLA, on "the full amount of the annuity payments arising in the tax year". Section 717 of the Act then removes the part that is a return of your own money: no liability arises "in respect of so much of an annuity payment made under a purchased life annuity as is within this subsection in accordance with section 719".

So the general picture is a tax-free capital element and a taxable remainder, but the conditions matter:

  • It follows a claim. The legislation sets the exempt amount of each payment "following a claim for that purpose", in the manual's words. The insurer sends form PLA6, which GOV.UK says is filled in so the provider "can work out any exempt capital part of the annuity and pay it to you tax free". "Not all Purchased Life Annuities can have a tax free capital amount", so if unsure, ask the provider.
  • The size of the capital element comes from a formula. Where payments depend solely on how long a life lasts, "the same proportion of each payment" is exempt (section 719). In broad terms, that is the purchase price divided by life expectation from prescribed mortality tables. Where the payments also depend on something else, each payment is exempt up to a fixed sum, with any shortfall carried to the next payment.
  • Some annuities are outside the exemption. Section 718 excludes, among others, an annuity "purchased following a direction in a will" and one whose price included sums qualifying for life assurance premium relief.
  • The taxable part is yours to declare, with credit for tax already taken. The manual says the charge falls on the person receiving the payments, "who is given credit for any tax deducted by the payer", and that the annuitant uses PLA6 to help complete the Self Assessment return. A UK resident unlikely to owe Income Tax in the current tax year can use form R89 to ask HMRC for payment without tax taken off; the form is sent to the company paying the annuity.

Nothing here tells you how much of your payment would be exempt or what tax you would owe; both depend on your age, the terms and your other income. Tax rates and allowances are on GOV.UK, and Scotland sets its own income tax rates. Pension annuity income is taxed differently, as how pensions are taxed explains.

One insurer's terms, as an example

Life annuities are sold by insurers and friendly societies, and terms differ between them. As an illustration only, not a recommendation, here is what Aviva's Immediate Life Annuity page, read on 20 October 2026, sets out:

  • It is open to those "aged between 55-95", with at least £7,500 after adviser charges if paying yourself.
  • To open one, "you'll need to talk with an independent financial adviser".
  • A one-year guarantee period applies as standard, extendable "for up to 10 years".
  • Payments can instead start smaller and "increase by 0.5% to 5% annually".
  • There are 30 days to cancel once it has started, and "You cannot cash in the plan once the 30 days has passed."

On tax, the page says the annuity "may be taxed differently from pension annuities", and that HMRC may treat part of each payment as a return of capital, which matches the rules above. Other insurers may sell PLAs on different terms; ask any adviser which providers they can arrange one with.

How purchased life annuity rates are quoted

A rate here means the same as it does for a pension annuity: the yearly income an insurer offers for the money paid in. Aviva's page lists what its payment "depends on": your age, interest rates at the time, the guarantee period, the size of the single payment, and whether the income is fixed or rises. It prints no rate itself, and this page cannot give you one either, because the figure depends on those personal details. A figure quoted today is an offer for one person on one day.

For the same reason, a "best" purchased life annuity rate has no single answer; the highest first-year income and the best terms are not always the same thing, and a lower start usually buys something else, such as a rising income. How quotes are compared like for like is in comparing annuity rates, and what moves rates over time in where annuity rates are heading. For pension pots, see how much annuity income a pot buys.

Purchased life annuity questions

Can I buy an annuity with savings or tax-free cash?

Yes, if a provider offers one. Aviva's Immediate Life Annuity, for instance, is open to buyers "aged between 55-95" paying from savings or pension tax-free cash, subject to a minimum payment. A pension annuity, by contrast, is bought from the pension itself.

Is a purchased life annuity taxed?

Yes, but not on the whole payment. The capital element can be exempt, following a claim on form PLA6, and the rest is taxable income. Not every PLA qualifies for the exemption.

Can I cash it in later?

Aviva's terms say not once the 30-day cancellation window has passed. See can I withdraw from an annuity for the wider picture, and free annuity advice on whether an adviser is needed.

What happens to it when I die?

That depends on the guarantee period or other options you chose. What happens to an annuity when you die covers pension annuities; a PLA's tax on survivors is a question for the provider and an adviser.

Your next step

A purchased life annuity swaps savings for a lifelong income, taxed in part, on terms fixed on the day you buy. Whether any of this fits depends on your own savings and income. An adviser who is FCA-authorised can look at both; the short form on this page requests the call.

Sources: ITTOIA 2005, sections 422 to 424 and 717 to 720; HMRC, Insurance Policyholder Taxation Manual, IPTM4100, IPTM4220, IPTM4300 and IPTM4350; GOV.UK, form PLA6; GOV.UK, form R89; Aviva, Purchased life annuity page; MoneyHelper (archived copy).