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Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 1 — Group life policies

    399

 

                              In this subsection—

                    (i)                   “tax avoidance purpose” means any purpose that consists in

securing a tax advantage (whether for the holder of the policy

or any other person); and

                    (ii)                  “tax advantage” has the same meaning as in Chapter 1 of Part

5

17 (tax avoidance).”.

Retrospective exception of past and present pure protection group life policies

  3       (1)      For the purposes of Chapter 2 of Part 13 of the Taxes Act 1988 (and any

former enactment that is re-enacted in that Chapter), any event happening

before 9th April 2003 in relation to a policy of life insurance which, at the

10

time of the event, was a pure protection group life policy shall be deemed

not to have been a chargeable event.

          (2)      For the purposes of this paragraph a policy of life insurance is at any time a

pure protection group life policy if at that time it is a group life policy whose

terms do not provide for any sums or other benefits to be paid or conferred

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except on death or disability.

Existing group life policies: time for compliance with the conditions in section 539A

  4       (1)      Where—

              (a)             on 9th April 2003 a policy of life insurance issued in respect of an

insurance made before that date is a group life policy but the

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conditions in section 539A of the Taxes Act 1988 are not satisfied,

              (b)             on or after that date, the terms of the policy are varied so that those

conditions are satisfied before 6th April 2004, and

              (c)             during the period beginning with 9th April 2003 and ending with the

date when the variation takes effect (“the transitional period”), no

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sums become payable, and no other benefits arise, under the policy

except on death or disability,

                   the conditions in section 539A of the Taxes Act 1988 shall be taken for the

purposes of Chapter 2 of Part 13 of the Taxes Act 1988 to have been satisfied

with respect to the policy throughout the transitional period.

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          (2)      Where, for the purposes of Chapter 2 of Part 13 of the Taxes Act 1988,—

              (a)             on 9th April 2003 a policy of life insurance issued in respect of an

insurance made before that date (“the old policy”) is a group life

policy but the conditions in section 539A of the Taxes Act 1988 are

not satisfied,

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              (b)             on or after that date, the terms of the insurance are varied solely for

the purpose of securing that those conditions are satisfied before 6th

April 2004 with respect to a policy in respect of the insurance, and

              (c)             as a result of the variation, the old policy is replaced by a new policy

(“the new policy”),

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                   sub-paragraph (3) applies.

          (3)      Where this sub-paragraph applies—

              (a)             the old policy and the new policy shall be treated for the purposes

of—

                    (i)                   paragraph 3(1),

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                    (ii)                  sub-paragraph (1), and

                    (iii)                 Chapter 2 of Part 13 of the Taxes Act 1988,

 

 

Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 2 — Charitable and non-charitable trusts

    400

 

                              as a single policy issued in respect of an insurance made at the time

of the making of the insurance in respect of which the old policy was

issued, and

              (b)             that deemed single policy shall be treated for the purposes of sub-

paragraph (1) as if the variation mentioned in sub-paragraph (2)(b)

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had been a variation of its terms taking effect on the date on which

that variation takes effect (but not resulting in the replacement of the

deemed single policy).

Deaths before 6th April 2004: period for insurer to give certificate under section 552(1)(a)

  5       (1)      If any death giving rise to benefits under a group life policy occurs—

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              (a)             on or after 9th April 2003, but

              (b)             before 6th April 2004,

                   subsection (6) of section 552 of the Taxes Act 1988 (relevant three month

period for insurer to give certificate under section 552(1)(a) to policy holder)

shall have effect in relation to that policy and that death as if there were

15

included among the paragraphs of that subsection the unnumbered

paragraph set out in sub-paragraph (2).

          (2)      That paragraph is—

                    “( )                      if the event is a death and the policy in question is a group life

policy, the period of three months following 5th April 2004;”.

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Part 2

Charitable and non-charitable trusts

Interpretation

  6        In section 539 of the Taxes Act 1988 (introductory) in subsection (3), insert

each of the following definitions at the appropriate place—

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                                      ““charitable trust” means any trust established for charitable

purposes only;”

                                      ““non-charitable trust” means any trust other than a charitable

trust.”.

Method of charging gain to tax

30

  7       (1)      Section 547 of the Taxes Act 1988 is amended as follows.

          (2)      In subsection (1) (attribution of gain) in paragraph (a) (which refers to trusts

created by an individual) before “trusts” insert “non-charitable”.

          (3)      In paragraph (b) of that subsection (which refers to trusts created by a

company) before “trusts” insert “non-charitable”.

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          (4)      After paragraph (c) of that subsection (personal representatives) insert—

                    “(cc)                      if, immediately before the happening of that event, those

rights—

                           (i)                          were held on charitable trusts, or

                           (ii)                         were held as security for a debt owed by trustees of a

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charitable trust,

                                          subsection (9) or (10) below (as the case may be) shall apply

in relation to the amount of the gain;”.

 

 

Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 2 — Charitable and non-charitable trusts

    401

 

          (5)      In paragraph (d) of that subsection (trusts) in sub-paragraph (i) (rights held

on trusts etc) before “trusts”, where first occurring, insert “non-charitable”.

          (6)      For the word “or” at the end of sub-paragraph (i) of that paragraph

substitute the following sub-paragraph—

                           “(ia)                             those rights were held on non-charitable trusts and

5

the circumstances were not such as are mentioned in

paragraph (a), (b) or (c) above or sub-paragraph (i)

above, or”.

          (7)      In sub-paragraph (ii) of that paragraph (rights held as security for debt owed

by trustees) after “trustees” insert “of a non-charitable trust”.

10

          (8)      After subsection (4) insert—

              “(4A)                In subsection (1) above—

                    (a)                   paragraph (cc) is subject to paragraph 12(1) of Schedule 34 to

the Finance Act 2003 (which applies paragraph 7(1) of

Schedule 14 to the Finance Act 1998);

15

                    (b)                   paragraph (d)(ia) is subject to paragraph 12(2) of that

Schedule (exception for certain cases where insurance etc

made or effected before 9th April 2003).”.

          (9)      In subsection (5AA) (which, in a case falling within subsection (1)(d),

applies, with modifications, to trustees the tax treatment for individuals

20

under subsection (5)) for “subsection (1)(d)” substitute “subsection (1)(cc) or

(d)”.

          (10)     In subsection (9) (treatment of gains in case falling within subsection (1)(d)

where trustees resident in United Kingdom)—

              (a)             for “(1)(d)” substitute “(1)(cc) or (d)”; and

25

              (b)             in paragraph (b) (gain to be chargeable to income tax at the rate

applicable to trusts) for “the rate applicable to trusts” substitute “the

appropriate rate”.

          (11)     After subsection (9) insert—

              “(9A)                For the purposes of subsection (9) above, the “appropriate rate” for

30

any year—

                    (a)                   in a case falling within subsection (1)(cc) above, is the basic

rate for that year; and

                    (b)                   in a case falling within subsection (1)(d) above, is the rate

applicable to trusts for that year.”.

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          (12)     In subsection (10) (treatment of gains in case falling within subsection (1)(d)

where trustees not resident in United Kingdom) for “(1)(d)” substitute

“(1)(cc) or (d)”.

Method of charging gain to tax: multiple interests

  8       (1)      Section 547A of the Taxes Act 1988 is amended as follows.

40

          (2)      In subsection (3) (the cases where a person has a relevant interest) in

paragraph (a) (which refers to trusts created by an individual) before

“trusts” insert “non-charitable”.

          (3)      In paragraph (b) of that subsection (which refers to trusts created by a

company) before “trusts” insert “non-charitable”.

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Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 2 — Charitable and non-charitable trusts

    402

 

          (4)      After paragraph (c) of that subsection (personal representatives) insert—

                    “(cc)                      in the case of trustees of a charitable trust, if a share in the

rights is held by them or as security for a debt owed by

them;”.

          (5)      In paragraph (d) of that subsection (trustees) after “trustees” insert “of a non-

5

charitable trust”.

          (6)      For the word “or” at the end of sub-paragraph (i) of that paragraph

substitute the following sub-paragraph—

                           “(ia)                             if a share in the rights is held by them which does not

also fall within paragraph (a), (b) or (c) above or sub-

10

paragraph (i) above; or”.

          (7)      In subsection (6) (rights or share held on trusts created by two or more

persons) before “trusts”, where first occurring, insert “non-charitable”.

          (8)      In subsection (10) (case where different shares of the whole trust property

originate from different persons)—

15

              (a)             in paragraph (a), before “trusts” insert “non-charitable”; and

              (b)             in the closing words, before “trusts” insert “non-charitable”.

Deemed surrender of certain loans

  9       (1)      Section 548(1) of the Taxes Act 1988 is amended as follows.

          (2)      In paragraph (a) (condition that gain would be treated under section 547 as

20

part of an individual’s total income or income of a company) after “income

of a company” insert “or of any trustees”.

          (3)      In paragraph (c) (condition that sum is lent to, or at the direction of, the

individual or company by, or by arrangement with, the body issuing etc the

policy or contract) after “company” insert “or those trustees”.

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Right of individual to recover tax from trustees

  10       In section 551 of the Taxes Act 1988, in subsection (1) (individual liable as

settlor) in paragraph (b), for “trust” substitute “non-charitable trusts”.

Right of company to recover tax from trustees

  11       In section 551A of the Taxes Act 1988, in subsection (1) (company liable as

30

settlor) in paragraph (b), for “trust” substitute “non-charitable trusts”.

Section 547(1)(cc) and (d)(ia): exception for certain old policies and contracts

  12      (1)      Paragraph 7(1) of Schedule 14 to the Finance Act 1998 (c. 36) (exception for

certain cases where the trust was created before 17th March 1998, the creator

etc was an individual who died before that date and the insurance etc was

35

made or effected before that date) has effect in relation to section 547(1)(cc)

of the Taxes Act 1988 as it has effect in relation to section 547(1)(d) of that

Act.

          (2)      Paragraph (d) of section 547(1) of the Taxes Act 1988 (trustees of a non-

charitable trust) does not have effect by virtue of sub-paragraph (ia) of that

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paragraph in relation to the amount of a gain if the gain is treated as arising

on the happening of a chargeable event in relation to a pre-commencement

policy or contract.

 

 

Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 4 — Rollover of gain on maturity into new policy

    403

 

          (3)      In this paragraph “pre-commencement policy or contract” means—

              (a)             any policy of life insurance issued in respect of an insurance made

before 9th April 2003,

              (b)             any contract for a life annuity made before that date, or

              (c)             any capital redemption policy where the contract was effected before

5

that date,

                   but does not include any such policy or contract falling within sub-

paragraph (4).

          (4)      A policy or contract falls within this sub-paragraph if, on or after 9th April

2003 (but before the happening of the chargeable event in question),—

10

              (a)             the policy or contract has been varied so as to increase the benefits

secured or to extend the term of the insurance, annuity or capital

redemption policy (any exercise of rights conferred by the policy

being regarded for this purpose as a variation); or

              (b)             there has been an assignment (whether or not for money’s worth) of

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the rights, or a share in the rights, conferred by the policy or contract

to trustees of a non-charitable trust, as defined in section 539(3) of the

Taxes Act 1988.

Part 3

Meaning of “life annuity”

20

Restriction of “life annuity” to contracts to which section 656 of the Taxes Act 1988 applies

  13       In section 539 of the Taxes Act 1988 (introductory) in subsection (3), for the

definition of “life annuity” substitute—

                    ““life annuity” means any annuity to which section 656 (as read with

section 657) applies.”.

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Part 4

Rollover of gain on maturity into new policy

Repeal of section 540(2) of the Taxes Act 1988

  14      (1)      Section 540(2) of the Taxes Act 1988 (maturity not a chargeable event if

option exercised to re-invest whole proceeds of maturing policy in new

30

policy) shall cease to have effect.

          (2)      This paragraph is subject to paragraph 15.

Saving for certain policies maturing on or after 9th April 2003

  15      (1)      The maturity of a policy of life insurance (“the old policy”) on or after 9th

April 2003 is not a chargeable event for the purposes of Chapter 2 of Part 13

35

of the Taxes Act 1988 if—

              (a)             a new policy is issued in consequence of the exercise of an option

conferred by the old policy,

              (b)             all sums becoming payable under the old policy on or after 9th April

2003 are retained by the company with which the insurance was

40

 

 

Finance Bill
Schedule 35 — Gains on policies of life insurance, etc: rate of tax

    404

 

made and applied in the payment of one or more premiums under

the new policy, and

              (c)             sub-paragraph (2) applies.

          (2)      This sub-paragraph applies if—

              (a)             the option was exercised in writing on or before 8th April 2003, or

5

              (b)             the old policy matures on or before 30th April 2003 and has not been

varied on or after 9th April 2003 so as to—

                    (i)                   change the date of maturity of the policy,

                    (ii)                  change any option conferred by the policy, or

                    (iii)                 confer any option.

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Schedule 35

Section 172

 

Gains on policies of life insurance, etc: rate of tax

Application of the lower rate

  1       (1)      Section 1A of the Taxes Act 1988 (application of lower rate to income from

savings and distributions) is amended as follows.

15

          (2)      In subsection (2) (which specifies the income to which the lower rate applies)

omit the word “and” immediately preceding paragraph (c) and at the end of

that paragraph insert “; and

                    (d)                      any amount included in an individual’s total income by

virtue of section 547(1)(a) (chargeable event gains on life

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policies etc).”.

          (3)      In subsection (5) (ordering rule for highest part of income for the purposes

of the Income Tax Acts) after “the Income Tax Acts” insert “(other than

section 550)”.

Method of charging gains from policies of life insurance etc to tax

25

  2       (1)      Section 547 of the Taxes Act 1988 is amended as follows.

          (2)      In subsection (5)(a) (individual to be treated as having paid income tax at the

basic rate on a sum included in his income by virtue of subsection (1)(a)) for

“the basic rate” substitute “the lower rate”.

          (3)      In subsection (9A)(a) (definition of “the appropriate rate” where charitable

30

trustees are liable to income tax on a gain by virtue of subsection (9)) for “the

basic rate for that year” substitute “the lower rate”.

Relief where gain charged at a higher rate

  3        In section 550(3) (rates of tax to be applied in calculating tax which would be

chargeable on gain if calculated by reference to the appropriate fraction) for

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“the basic rate” substitute “the lower rate”.

 

 

Finance Bill
Schedule 36 — Foster carers
Part 1 — Introduction

    405

 

Gains included in aggregate income of estate of deceased

  4        In section 699A(4)(b) (sums included in aggregate income of estate of the

deceased by virtue of section 547(1)(c) to be assumed to bear tax at the basic

rate) for “the basic rate” substitute “the lower rate”.

Income to be disregarded in determining highest part of person’s income

5

  5        In section 833(3)(b) of the Taxes Act 1988 (which provides that, where

income falls to be treated as the highest part of a person’s income, his income

shall be calculated without regard to any amount included in total income

by virtue of section 547(1)(a)) after “section 547(1)(a)” add “which is a sum

in relation to which section 547(5) applies”.

10

Schedule 36

Section 175

 

Foster carers

Part 1

Introduction

Introductory

15

  1       (1)      This Schedule provides relief on income from the provision by an individual

of foster care (see paragraph 4).

          (2)      The form of relief available depends on whether his total foster care receipts

(see paragraph 5) exceed his limit (see paragraphs 6 to 9).

          (3)      If they do not, paragraph 10 provides for the income to be exempt from

20

income tax.

          (4)      If they do, the individual may elect for an alternative method of calculating

the income (see paragraphs 11 to 14).

Individuals qualifying for relief

  2       (1)      An individual qualifies for relief under this Schedule for a year of

25

assessment for which the following conditions are met.

          (2)      The first condition is that the individual has foster care receipts (see

paragraph 3).

          (3)      The second condition is that the individual does not derive any taxable

income, other than foster care receipts, from any relevant trade, profession

30

or vocation, or from any relevant foster care arrangement.

          (4)      For the purposes of sub-paragraph (3)—

              (a)             “taxable income” means receipts or other income in respect of which

the individual is chargeable to tax for the year of assessment;

              (b)             a relevant trade, profession or vocation, or a relevant foster care

35

arrangement, is one from which the individual derives any foster

care receipts for that year.

 

 

 
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