Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
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470
Interests in rights under a policy or contract for section 469
(1)
This section sets out the circumstances in which a person has a material interest
in the rights under a policy or contract for the purposes of section 469.
(2)
An individual has such an interest if—
(a)
the individual beneficially owns a share in the rights,
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(b)
a share in them is held on non-charitable trusts which the individual
created, or
(c)
a share in them is held as security for the individual’s debt.
(3)
A company has such an interest if—
(a)
the company beneficially owns a share in the rights,
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(b)
a share in them is held on non-charitable trusts which the company
created, or
(c)
a share in them is held as security for the company’s debt.
(4)
Personal representatives have such an interest if they hold a share in the rights.
(5)
Trustees of a charitable trust have such an interest if a share in the rights—
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(a)
is held by them, or
(b)
is held as security for a debt owed by them.
(6)
Trustees of a non-charitable trust have such an interest if—
(a)
a share in the rights is held by the trustees and one of the absent settlor
conditions specified in section 467(4) is met,
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(b)
a share in the rights is held by them, none of those conditions is met and
no individual, company or personal representatives have an interest in
the share, or
(c)
a share in them is held as security for a debt owed by the trustees.
(7)
A foreign institution has such an interest if—
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(a)
the institution beneficially owns a share in the rights,
(b)
the rights are held for the institution’s purposes, or
(c)
a share in them is held as security for the institution’s debt.
471
Determination of shares etc.
(1)
For the purposes of this Chapter—
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(a)
rights under a policy or contract which are beneficially owned by two
or more persons jointly, and
(b)
an interest in such rights which is so owned,

are treated as if they were beneficially owned by those persons in equal shares.
(2)
Subsections (3) and (4) apply if immediately before a chargeable event the
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rights under the policy or contract are, or a share in those rights is, held as
security for one or more debts owed by two or more persons.
(3)
Each of those persons is treated for the purposes of this Chapter as the sole
debtor for a separate debt.
(4)
The appropriate share of the security for the actual debt or debts, so far as it
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consists of the rights under the policy or contract or a share in them, is treated
for the purposes of this Chapter as the security for each separate debt.
(5)
In subsection (4) “the appropriate share” means—

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
203

(a)
if there is only one actual debt for which the person is liable as between
the debtors, a share proportionate to the share of that debt for which the
person is so liable, and
(b)
if there are two or more such actual debts, a share proportionate to the
share of the total such debts for which the person is so liable.
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(6)
For the purposes of this section, property held for the purposes of a foreign
institution is treated as being beneficially owned by the institution.
(7)
An interest in some or all of the rights under a policy or contract which is not
a share in all those rights is treated for the purposes of this Chapter as such a
share in those rights as may, on a just and reasonable apportionment, be
10
regarded as representing the interest.
472
Trusts created by two or more persons
(1)
For the purposes of this Chapter, if immediately before a chargeable event—
(a)
the rights under a policy or contract are held on non-charitable trusts
created by two or more persons, or
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(b)
a share in those rights is so held,

each of the persons is treated as the sole settlor of a separate share of the rights
or share held on trusts.
(2)
Each settlor’s separate share is proportionate to the share originating from that
settlor of the whole of the property subject to the trusts immediately before the
20
event.
(3)
If immediately before a chargeable event non-charitable trusts apply to
property originating from different persons (for example, where property is
added by different persons to an existing settlement)—
(a)
as respects that event the trusts are taken to have been created by them
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all, and
(b)
accordingly, each of them is treated as a sole settlor under subsection
(1).
(4)
Property originates from a person for the purposes of subsections (2) and (3)
if—
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(a)
it is property provided by the person for the purposes of the trusts,
(b)
it is property representing such property, or
(c)
in a case where property represents both property within paragraph (a)
and other property, it is so much of that property as, on a just and
reasonable apportionment, is to be taken to represent the property
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within paragraph (a).
(5)
References in subsection (4) to property representing other property include
property representing accumulated income from other property.
(6)
For the purposes of this section, property is treated as provided by a person
(“A”) if—
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(a)
it is provided by A directly or indirectly, or
(b)
it is provided directly or indirectly by another person under reciprocal
arrangements with A.
(7)
Property is not treated as provided by A if it is provided by A directly or
indirectly under reciprocal arrangements with another person.
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Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
204

Policies and contracts to which Chapter 9 applies
473
Policies and contracts to which Chapter 9 applies: general
(1)
This Chapter applies to—
(a)
policies of life insurance,
(b)
contracts for life annuities, and
5
(c)
capital redemption policies.
(2)
In this Chapter—
“capital redemption policy” means a contract made in the course of a
capital redemption business, as defined in section 458(3) of ICTA, and
“life annuity” means—
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(a)
an annuity that—
(i)
is a purchased life annuity for the purposes of Chapter 7 of
this Part (see section 423), and
(ii)
is not specified in section 718 (annuities excluded from the
exemption for part of purchased life annuity payments
15
under section 717), or
(b)
an annuity to which section 656 of ICTA (as read with section
657 of that Act) applies.
(3)
Subsection (1) is subject to—
section 478 (exclusion of mortgage repayment policies),
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section 479 (exclusion of pension policies),
section 480 (exclusion of excepted group life policies), and
section 483 (exclusion of credit union group life policies).
474
Special rules: qualifying policies
(1)
In the application of this Chapter to policies of insurance that are qualifying
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policies for the purposes of Chapter 1 of Part 7 of ICTA (policies within the
conditions in Schedule 15 to that Act that qualify for special tax treatment)
special rules apply.
(2)
See, in particular—
section 485 (disregard of certain events in relation to qualifying policies),
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section 503 (exception from section 501 for certain loans under qualifying
policies),
section 542 (replacement of qualifying policies), and
section 543 (issue time of qualifying policy replacing foreign policy).
(3)
Policies within the definition of “foreign policy of life insurance” in section
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476(3) that would otherwise be qualifying policies are treated for the purposes
of this Chapter as not being qualifying policies in the cases specified in
subsections (4) and (5).
(4)
Policies within paragraph (a) of that definition are so treated once the
conditions in paragraph 24(3) of Schedule 15 to ICTA have ceased to be met
40
with respect to them (conditions that are required to be met for certain policies
issued by non-UK resident companies to be qualifying policies).
(5)
Policies within paragraph (b) of that definition immediately before an event do
not count as qualifying policies in relation to that event.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
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475
Special rules: personal portfolio bonds
(1)
In the application of this Chapter to personal portfolio bonds, certain special
rules apply.
(2)
See, in particular—
section 515 (requirement for annual calculations in relation to personal
5
portfolio bonds), and
sections 522 to 525 (method for making calculations and chargeable
events where calculations show gains).
(3)
For the meaning of “personal portfolio bond” see section 516.
476
Special rules: foreign policies
10
(1)
In the application of this Chapter to foreign policies of life insurance and
foreign capital redemption policies, certain special rules apply.
(2)
See, in particular—
section 474(3) to (5) (certain foreign policies treated as not being
qualifying policies),
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section 528 (reduction in amount charged: non-UK resident policy
holders),
sections 531 to 534 (under which foreign policies are excepted from
section 530 (income tax treated as paid etc.) subject to certain reliefs),
and
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section 536(6) (method of calculating top slicing relief).
(3)
In this Chapter—
“foreign policy of life insurance” means—
(a)
a policy of life insurance issued by a non-UK resident company,
and
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(b)
a policy of life insurance which forms part of the overseas life
assurance business of an insurance company or friendly society
as a result of section 431D(1)(a) of ICTA (business with a non-
UK resident policy holder),
“foreign capital redemption policy” means—
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(a)
a capital redemption policy issued by a non-UK resident
company, and
(b)
a capital redemption policy which forms part of the overseas
life assurance business of an insurance company as a result of
section 431D(1)(a) of ICTA, and
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“overseas life assurance business” has the same meaning as in Part 12 of
ICTA (see section 431D of that Act).
477
Special rules: certain older policies and contracts
(1)
In the case of—
(a)
certain contracts made before particular dates, and
40
(b)
certain policies issued, or issued in respect of insurances made, before
particular dates,

this Chapter applies subject to Parts 6 and 7 of Schedule 2 (special provisions
for older policies and contracts).

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
206

(2)
See the table in section 546 for the provisions affected.
478
Exclusion of mortgage repayment policies
(1)
This Chapter does not apply to a mortgage repayment policy.
(2)
In this section “mortgage repayment policy” means a policy of life insurance
with the sole object of providing, on an individual’s death or disability, a sum
5
substantially the same as any amount then outstanding under a repayment
mortgage—
(a)
of the individual’s residence, or
(b)
of any premises occupied by the individual for the purposes of a
business.
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(3)
In this section “repayment mortgage” means a mortgage securing a principal
amount which is repayable by instalments payable annually or at shorter
regular intervals.
479
Exclusion of pension policies
This Chapter does not apply to a policy of insurance which—
15
(a)
constitutes a registered pension scheme, or
(b)
is issued or held in connection with such a scheme.
480
Exclusion of excepted group life policies
(1)
This Chapter does not apply to an excepted group life policy.
(2)
In this Chapter “group life policy” means a policy of life insurance whose terms
20
provide—
(a)
for the payment of benefits on the death of more than one individual,
and
(b)
for those benefits to be paid on the death of each of those individuals.
(3)
In this section “excepted group life policy” means a group life policy with
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respect to which the conditions specified in the following sections are met—
(a)
section 481 (conditions about benefits), and
(b)
section 482 (conditions about persons intended to benefit).
481
Excepted group life policies: conditions about benefits
(1)
Conditions A to D are the conditions referred to in section 480(3)(a) (definition
30
of “excepted group life policy”).
(2)
Condition A is that under the terms of the policy a sum or other benefit of a
capital nature is payable or arises—
(a)
on the death in any circumstances of each of the individuals insured
under the policy who dies under an age specified in the policy that does
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not exceed 75, or
(b)
on the death, except in the same specified circumstances, of each of
those individuals who dies under such an age.
(3)
Condition B is that under the terms of the policy—
(a)
the same method is to be used for calculating the sums or other benefits
40
of a capital nature payable or arising on each death, and

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
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(b)
any limitation on those sums or other benefits is the same in the case of
any death.
(4)
Condition C is that the policy does not have, and is not capable of having, on
any day—
(a)
a surrender value that exceeds the proportion of the amount of
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premiums paid which, on a time apportionment, is referable to the
unexpired paid-up period beginning with the day, or
(b)
if there is no such period, any surrender value.
(5)
In subsection (4) “the unexpired paid-up period”, in relation to a period
beginning with a day, means the period beginning then and ending with the
10
earliest subsequent day on which a payment of premium falls due under the
policy or the term of the policy ends.
(6)
Condition D is that no sums or other benefits may be paid or conferred under
the policy, except as mentioned in condition A or C.
482
Excepted group life policies: conditions about persons intended to benefit
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(1)
Conditions A to C are the conditions referred to in section 480(3)(b) (definition
of “excepted group life policy”).
(2)
Condition A is that any sums payable or other benefits arising under the policy
must (whether directly or indirectly) be paid to or for, or conferred on, or
applied at the direction of—
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(a)
an individual or charity beneficially entitled to them, or
(b)
a trustee or other person acting in a fiduciary capacity who will secure
that the sums or other benefits are paid to or for, or conferred on, or
applied in favour of, an individual or charity beneficially.
(3)
Condition B is that no person who is, or is connected with, an individual whose
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life is insured under the policy may, as a result of a group membership right
relating to that individual, receive (directly or indirectly) any death benefit in
respect of another individual whose life is so insured.
(4)
In subsection (3)—
“death benefit in respect of an individual” means any sums or other
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benefits payable or arising under the policy on the individual’s death
or anything representing any such sums or benefits, and
“group membership right”, in relation to an individual insured by a group
life policy, means any right (including the right of any person to be
considered by trustees in their exercise of a discretion) that is referable
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to that individual being one of the individuals whose lives are insured
by the policy.
(5)
Condition C is that a tax avoidance purpose is not the main purpose, or one of
the main purposes, for which a person is at any time—
(a)
the holder, or one of the holders, of the policy, or
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(b)
the person, or one of the persons, beneficially entitled under the policy.
(6)
In subsection (5)—
“tax advantage” has the same meaning as in Chapter 1 of Part 17 of ICTA
(tax avoidance) (see section 709(1) of that Act), and

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
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“tax avoidance purpose” means any purpose that consists in securing a
tax advantage (whether for the holder of the policy or any other
person).
483
Exclusion of credit union group life policies
(1)
This Chapter does not apply to a credit union group life policy.
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(2)
In this section “credit union group life policy” means a group life policy with
the sole object of providing, on the death or disability of any of the individuals
insured under it, a sum substantially the same as any amount then outstanding
under a loan made to that individual by a credit union.
(3)
In this section “credit union” means a society registered as a credit union
10
under—
(a)
the Industrial and Provident Societies Act 1965 (c. 12), or
(b)
the Credit Unions (Northern Ireland) Order 1985 (S.I. 1985/1205 (N.I.
12)).
When chargeable events occur: general
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484
When chargeable events occur
(1)
The following are chargeable events—
(a)
in the case of any kind of policy or contract—
(i)
the surrender of all rights under the policy or contract,
(ii)
the assignment of all those rights for money or money’s worth,
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(iii)
the falling due of a sum payable as a result of a right under a
policy or contract to participate in profits, if there are no
remaining rights under it,
(iv)
a chargeable event treated as occurring under section 509(1)
(chargeable events in certain cases where periodic calculations
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show gains),
(v)
a surrender or assignment treated as a chargeable event under
section 514(1) (chargeable events where transaction-related
calculations show gains), and
(vi)
a chargeable event treated as occurring under section 525(2)
30
(chargeable events where annual personal portfolio bond
calculations show gains),
(b)
in the case of a policy of life insurance, a death giving rise to benefits
under it,
(c)
in the case of a policy of life insurance or a capital redemption policy,
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its maturity,
(d)
in the case of a contract for a life annuity which provides for the
payment of a capital sum on death, the death, and
(e)
in the case of a contract for a life annuity which provides for a capital
sum to be taken as a complete alternative to the annuity payments (or
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any further annuity payments), taking the capital sum.
(2)
Subsection (1) is subject to—
section 485 (disregard of certain events in relation to qualifying policies),
section 486 (exclusion of maturity of capital redemption policies in certain
circumstances),
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