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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.

218

 

502     

Exception from section 501 for loans to buy life annuities

(1)   

Section 501 does not apply to a loan made under a contract for a life annuity if

all the interest on the loan is eligible for tax relief.

(2)   

If part of the interest is eligible for tax relief, section 501 only applies to the part

of the loan carrying ineligible interest.

5

(3)   

For the purposes of this section, interest is eligible for tax relief if it is eligible

for relief under section 353 of ICTA (general provision for relief for interest) as

a result of section 365 of ICTA (loan to buy life annuity).

503     

Exception from section 501 for certain loans under qualifying policies

(1)   

Section 501 does not apply to a loan made by the body issuing a qualifying

10

policy if either or both of conditions A and B are met.

(2)   

Condition A is that interest is payable on the loan at a commercial rate.

(3)   

Condition B is that the loan was made—

(a)   

before 6th April 2000,

(b)   

to a full-time employee of the body issuing the policy, and

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(c)   

to assist the employee in purchasing or improving a dwelling to be

used as the employee’s only or main residence.

504     

Part surrenders: payments under guaranteed income bonds etc.

(1)   

This section applies to so much of any payment of an amount by an insurer

under a guaranteed income bond contract as meets conditions A to C (and so

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it falls within section 500(d)).

(2)   

Condition A is that it is a sum which, but for subsection (6), would be treated

for income tax purposes as interest or an annual payment.

(3)   

Condition B is that it is not a sum paid or falling to be paid because of

provisions of the guaranteed income bond contract which, taken alone, would

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constitute a contract of insurance—

(a)   

within Part 1 or 2 of Schedule 1 to the Financial Services and Markets

Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544), but

(b)   

not within paragraph 1 or 3 of Part 2 of that Schedule (life and annuity

contracts including certain linked long-term contracts).

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(4)   

Condition C is that it does not represent late payment interest.

(5)   

This section does not apply if the payment comprises the whole of the last

benefit to be paid under the contract (ignoring late payment interest).

(6)   

A sum to which this section applies is not regarded as interest or as an annual

payment for any income tax purposes.

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(7)   

In this section—

“guaranteed income bond contract” means a policy of life insurance that

is a contract of insurance which—

(a)   

is within paragraph 1 or 3 of Part 2 of Schedule 1 to the Financial

Services and Markets Act 2000 (Regulated Activities) Order

40

2001, and

 
 

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

219

 

(b)   

is neither an annuity contract nor a contract effected in the

course of a company’s pension business,

“late payment interest”, in relation to a contract, means interest on an

amount payable under the contract which is paid for a period

beginning on or after the date of the occurrence as a result of which the

5

amount is payable, and

“pension business” has the meaning given by section 431B of ICTA (or the

corresponding enactment in force when the contract was effected).

505     

Assignments etc. involving co-ownership

(1)   

For the purposes of this Chapter (except this section and section 506)—

10

(a)   

a transaction to which this section applies is taken to be one or more

assignments of part only of the rights under the policy or contract in

respect of which the transaction occurs, and

(b)   

those assignments are the ones specified in section 506.

(2)   

If subsection (1) applies to a transaction that is an assignment—

15

(a)   

of the whole of the rights under a policy or contract, or

(b)   

of a part of or a share in those rights,

   

any reference to the assignment in this Chapter (except this section and section

506) is to be read as a reference to the assignment or assignments that the

transaction is taken to be under subsection (1).

20

(3)   

This section applies to a transaction in respect of which conditions A and B and

either condition C or D or E are met.

(4)   

Condition A is that—

(a)   

immediately before the transaction the whole or part of, or a share in,

the rights under the policy or contract (“the ownership interest”) was in

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the beneficial ownership of one person or of two or more persons

jointly (“the old ownership”), and

(b)   

as a result of the transaction the ownership interest becomes

beneficially owned by one person or by two or more persons jointly or

in common (“the new ownership”).

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(5)   

Condition B is that at least one person who is a member of the old ownership

is also a member of the new ownership.

(6)   

Condition C is that there is only one member of the old ownership and there

are two or more members of the new ownership.

(7)   

Condition D is that there are two or more members of the old ownership and

35

at least one of them is not a member of the new ownership.

(8)   

Condition E is that there are two or more members of the old ownership and

the share in the ownership interest of at least one of those members (see section

506(5)) exceeds that member’s share in the ownership interest as a member of

the new ownership (see section 506(6)).

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506     

Assignments occurring when there is a co-ownership transaction

(1)   

This section sets out the assignment or assignments that are taken to occur

under section 505 when there is a transaction to which that section applies (“a

co-ownership transaction”).

 
 

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

220

 

(2)   

If there is only one member of the old ownership, that member is to be treated

as if the co-ownership transaction had been the assignment by that member of

so much of the ownership interest as exceeds that member’s share in the

ownership interest as a member of the new ownership.

(3)   

If there are two or more members of the old ownership, each such member who

5

is not a member of the new ownership is to be treated as if the co-ownership

transaction had been the assignment by that member of that member’s share in

the ownership interest.

(4)   

If there are two or more members of the old ownership, each such member

whose share in the ownership interest as a member of the old ownership

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exceeds that member’s share in the ownership interest as a member of the new

ownership is to be treated as if the co-ownership transaction had been the

assignment by that member of that excess.

(5)   

If the old ownership consists of two or more persons beneficially entitled

jointly, the members of the old ownership are to be treated as if the ownership

15

interest had been in their beneficial ownership in equal shares instead of

jointly.

(6)   

If the new ownership consists of two or more persons beneficially entitled

jointly, the members of the old ownership are to be treated as if the result of the

co-ownership transaction had been that the ownership interest was in the

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beneficial ownership of the members of the new ownership in equal shares

instead of jointly.

(7)   

In this section “the ownership interest”, “the old ownership” and “the new

ownership” are to be read as indicated in section 505(4).

507     

Method for making periodic calculations under section 498

25

(1)   

This section deals with the calculation required to be made in relation to a

policy or contract as at the end of an insurance year under section 498(2)

(requirement for periodic calculations in part surrender and assignment cases)

to determine—

(a)   

whether a gain has arisen, and

30

(b)   

if so, the amount of the gain.

(2)   

There is a gain if the net total value of rights surrendered or assigned exceeds

the net total allowable payments (see subsections (4) and (5)).

(3)   

The gain is equal to the excess.

(4)   

To calculate the net total value of rights surrendered or assigned—

35

   

Step 1

   

Find—

(a)   

the value, as at the time of its surrender or assignment, of any part of or

share in the rights under the policy or contract which has been

surrendered at any time or assigned at any time for money or money’s

40

worth, and

(b)   

the value, as at the time of its assignment, of any part of or share in the

rights under the policy or contract which has been assigned otherwise

than for money or money’s worth in an insurance year beginning on or

before 5th April 2001,

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in each case determining the value in accordance with section 508.

 
 

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

221

 

   

Step 2

   

Add together those values.

   

Step 3

   

If any previous calculation events (other than personal portfolio bond events)

have occurred in relation to the policy or contract—

5

(a)   

add together each such value which has been brought into account

under this subsection on those events, and

(b)   

subtract the result of paragraph (a) from the result of step 2.

(5)   

To calculate the net total allowable payments—

   

Step 1

10

   

Find the allowable element in each allowable payment by multiplying the

amount of the payment by—equation: over[string["X"],num[20.0000000000000000,"20"]]

   

where X is the number of insurance years in the period beginning with the year

in which the payment is made and ending with the insurance year as at the end

of which the calculation under this section is required to be made or, if it is less,

15

20.

   

Step 2

   

Add together the allowable elements for all allowable payments.

   

Step 3

   

Add together all the allowable elements brought into account under this

20

subsection on a previous calculation event.

   

Step 4

   

Subtract the result of step 3 from the result of step 2.

(6)   

In this section—

“allowable payment” means a premium, other than a retained

25

replacement policy premium, and

“retained replacement policy premium” has the meaning given in section

495(2).

508     

The value of rights partially surrendered or assigned

(1)   

For the purposes of sections 507, 511 and 512, where any part of or share in

30

rights conferred by a policy or contract is surrendered, the value of the part of

or share in the rights surrendered is the amount or value of the sum payable or

other benefits arising because of the surrender, except where subsection (2) or

(3) applies.

(2)   

In the case of a surrender within section 500(c) (loans by insurers to which

35

section 501 applies), the value for those purposes is an amount equal to the

loan.

(3)   

In the case of a surrender within section 500(d) (payments by insurers under

guaranteed income bonds etc.), the value for those purposes is the amount to

which section 504 applies.

40

(4)   

For the purposes of sections 507, 511 and 512, where any part of or share in

rights conferred by a policy or contract is assigned, the value of the part or

share as at the time of the assignment is its surrender value at that time.

 
 

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

222

 

(5)   

For the requirement to ignore certain benefits, see section 497 (disregard of

trivial inducement benefits).

509     

Chargeable events in certain cases where periodic calculations show gains

(1)   

If the calculation in section 507 shows that a gain has arisen as at the end of the

insurance year, the gain is treated as arising on the occurrence of a chargeable

5

event at the end of that year, unless condition A, B or C is met.

(2)   

Subsection (1) is subject to section 485(3) (which restricts the circumstances in

which such events occur in relation to qualifying policies).

(3)   

Condition A is that during the insurance year there has been an assignment for

money or money’s worth of part of or a share in the rights conferred by the

10

policy or contract.

(4)   

Condition B is that during the insurance year there has been both—

(a)   

a surrender of part of or a share in the rights conferred by the policy or

contract, and

(b)   

a later assignment, otherwise than for money or money’s worth, of the

15

whole or part of or a share in the rights conferred by the policy or

contract.

(5)   

Condition C is that the insurance year is the final insurance year.

(6)   

See section 510 (transaction-related calculations in certain part surrender and

assignment cases) if one or both of conditions A and B are met.

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Transaction-related calculations and part surrender or assignment events

510     

Requirement for transaction-related calculations in certain part surrender and

assignment cases

(1)   

This section applies if—

(a)   

the calculation in section 507 shows that a gain has arisen as at the end

25

of the insurance year, but

(b)   

one or both of the conditions specified in section 509(3) and (4) are met

(and so no chargeable event is treated as occurring at the end of the year

under section 509).

(2)   

A calculation is to be made in accordance with section 511 in relation to each

30

relevant transaction during the insurance year to determine—

(a)   

whether the transaction resulted in a gain arising on the policy or

contract, and

(b)   

if so, the amount of the gain.

(3)   

In this section and sections 511 to 514 “relevant transaction” means—

35

(a)   

a surrender of part of or a share in the rights under the policy or

contract, or

(b)   

an assignment of such a part or share for money or money’s worth.

(4)   

If two or more relevant transactions occurred during the insurance year, a

calculation in accordance with section 511 is to be made in relation to each of

40

them successively in the order in which they occurred.

 
 

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

223

 

(5)   

A calculation falling to be made in accordance with section 511 in relation to a

relevant transaction occurring in the final insurance year is to be made before

any calculation under section 491 for the chargeable event that ends that year.

(6)   

But, in the case of a relevant transaction so occurring, subsections (2) and (4)

are subject to section 513(5) (under which those subsections do not apply to

5

some such relevant transactions).

511     

Method for making transaction-related calculations under section 510

(1)   

This section deals with the calculation required to be made under section 510

to determine—

(a)   

whether a relevant transaction which has occurred during an insurance

10

year resulted in a gain arising on the policy or contract, and

(b)   

if so, the amount of the gain.

(2)   

There is a gain if the transaction value for the relevant transaction (see

subsection (4)) exceeds the amount of available premium left for the relevant

transaction as calculated in accordance with section 512.

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(3)   

The gain is equal to the excess.

(4)   

The transaction value for the relevant transaction is the value in accordance

with section 508, as at the time of its surrender or assignment, of the part of or

share in the rights under the policy or contract which has been surrendered or

assigned in the transaction.

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(5)   

Subsections (2) and (4) are subject to section 513(4) (under which the

transaction value is to be reduced in certain cases where the relevant

transaction occurs in the final insurance year).

512     

Available premium left for relevant transaction

(1)   

For the purposes of section 511(2), the amount of available premium left for a

25

relevant transaction is the amount, if any, by which the available net allowable

payments (see subsection (3)) exceed the available net total values for the year

(see subsection (4)).

(2)   

But the amount of available premium left for the relevant transaction is nil if—

(a)   

one or more other relevant transactions have occurred in respect of the

30

relevant contract earlier in the insurance year, and

(b)   

for the latest of them the calculation in section 511(2) produced a gain.

(3)   

To calculate the available net allowable payments—

   

Step 1

   

Calculate the net total allowable payments as at the end of the insurance year

35

in accordance with section 507(5).

   

Step 2

   

If

(a)   

one or more other relevant transactions (“the earlier transactions”) have

occurred in respect of the policy or contract earlier in the insurance

40

year, and

(b)   

for the latest of them the calculation in section 511(2) produced no gain,

   

subtract the sum of the transaction values for the earlier transactions from the

result of step 1.

 
 

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

224

 

(4)   

To calculate the available net total values for the year—

   

Step 1

   

Calculate the net total value of rights surrendered or assigned, as at the end of

the insurance year, in accordance with section 507(4), ignoring for the purposes

of step 3 in that section any relevant transactions in that year that are treated as

5

chargeable events under section 514.

   

Step 2

   

Subtract from the result of step 1 the value, as at the time of its surrender or

assignment, of any part of or share in the rights under the policy or contract

which has been surrendered in the insurance year or assigned in that year for

10

money or money’s worth, determining the value in accordance with section

508.

513     

Special rules for part surrenders and assignments in final insurance year

(1)   

This section applies if—

(a)   

the calculation in section 511 falls to be made in relation to a relevant

15

transaction occurring in the final insurance year,

(b)   

the total transaction value for that transaction exceeds the gains limit

(see subsections (2) and (3)), and

(c)   

paragraph (b) has not applied to a relevant transaction occurring earlier

in the final insurance year in respect of the policy or contract in

20

question.

(2)   

The total transaction value is the total of—

(a)   

the transaction value for the transaction in question in accordance with

section 511(4), and

(b)   

the transaction values for any relevant transactions occurring earlier in

25

the final insurance year in respect of the policy or contract in

accordance with that section.

(3)   

The gains limit is the amount calculated, as at the end of the final insurance

year, as the amount of the gain that would have been treated as arising on the

occurrence of the chargeable event that ends that year if in relation to that

30

year—

(a)   

section 509(1) did not refer to condition C, and

(b)   

sections 510(2) and (4) and 514(1) did not apply.

(4)   

The transaction value for the relevant transaction used for the calculation in

section 511(2) is reduced by the excess mentioned in subsection (1)(b).

35

(5)   

No calculations are required to be made under section 510(2) and (4) in relation

to any subsequent relevant transaction in respect of the policy or contract.

514     

Chargeable events where transaction-related calculations show gains

(1)   

If the calculation in section 511 shows that a relevant transaction resulted in a

gain arising on the policy or contract, the relevant transaction is treated as a

40

chargeable event.

(2)   

Subsection (1) is subject to section 485(5) (which restricts the circumstances in

which such events occur in relation to qualifying policies).

(3)   

Subsection (4) applies if—

 
 

 
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