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.
225

(a)
a relevant transaction that is a chargeable event occurs in a different tax
year from that in which the insurance year ends, and
(b)
apart from subsection (4), a person would be liable to tax on the gain
under this Chapter for the tax year in which the transaction occurs.
(4)
The gain is charged to tax under this Chapter for the tax year in which the
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insurance year ends instead.
(5)
If the relevant transaction occurs in the final insurance year, the chargeable
event within subsection (1) is treated as occurring before the chargeable event
that ends that year.
Personal portfolio bonds
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515
Requirement for annual calculations in relation to personal portfolio bonds
(1)
This section applies if a policy or contract to which this Chapter applies is a
personal portfolio bond at the end of an insurance year.
(2)
But this section does not apply if the insurance year is the final insurance year.
(3)
A calculation is to be made in accordance with section 522 in relation to the
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policy or contract as at the end of the insurance year to determine—
(a)
whether a gain has arisen on the policy or contract in relation to that
year, and
(b)
if so, the amount of the gain.
(4)
The calculation is in addition to any other calculation which is required to be
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made under this Chapter in relation to the policy or contract.
516
Meaning of “personal portfolio bond”
(1)
In this Chapter “personal portfolio bond” means a policy of life insurance,
contract for a life annuity or capital redemption policy which meets conditions
A and B.
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This is subject to section 517.
(2)
Condition A is that, under the terms of the policy or contract, some or all of the
benefits are determined by reference to—
(a)
fluctuations in, or in an index of, the value of property of any
description, or
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(b)
the value of, or the income from, property of any description.
(3)
For this purpose it does not matter whether or not the index or property is
specified in the policy or contract.
(4)
Condition B is that the terms of the policy or contract permit the selection of the
index or some or all of the property by—
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(a)
the holder of the policy or contract,
(b)
a person connected with the holder,
(c)
the holder and such a connected person acting together,
(d)
a person acting on behalf of the holder,
(e)
a person acting on behalf of a person connected with the holder, or
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(f)
a person acting on behalf of the holder and such a connected person
acting together.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
226

(5)
In subsection (4) “holder”, in the case of a policy or contract held by two or
more persons, means any of them.
517
Policies and contracts which are not personal portfolio bonds
(1)
A policy or contract is not a personal portfolio bond merely because its terms
permit the selection of an index as described in section 516(4) if that index—
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(a)
falls within one of the categories listed in section 518, and
(b)
meets one of the index selection conditions (see section 519).
(2)
A policy or contract is not a personal portfolio bond merely because its terms
permit the selection of property as described in section 516(4) if all of the
property which may be so selected—
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(a)
falls within one or more of the categories listed in section 520, and
(b)
meets one or both of the property selection conditions (see section 521).
518
The index categories
(1)
This section sets out the categories of index referred to in section 517(1).
(2)
Category 1 is the retail prices index.
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(3)
Category 2 is any general index which—
(a)
is similar to the retail prices index, and
(b)
is published by the government of any foreign state or an agent of such
a government.
(4)
Category 3 is any published index of prices of shares listed on a recognised
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stock exchange.
519
The index selection conditions
(1)
The index selection conditions are—
(a)
the general selection condition (see subsection (2)), and
(b)
the class selection condition (see subsection (3)).
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(2)
An index meets the general selection condition if, at the time when it may be
selected, the opportunity to select the same index is available to—
(a)
all policy holders of the insurance company, or
(b)
persons acting on behalf of those policy holders.
(3)
An index meets the class selection condition if, at the time when it may be
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selected, the opportunity to select the same index is available to—
(a)
a particular class or classes of policy holders of the insurance company,
or
(b)
persons acting on behalf of the members of that class or those classes.
(4)
A group of policy holders to whom the opportunity to select an index is
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available is a “class” for the purposes of subsection (3) if—
(a)
neither membership of the class nor the opportunity are limited to
connected persons,
(b)
the question whether a policy holder is a member of the class, or has the
opportunity, is determined solely by the insurance company, and
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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.
227

(c)
the opportunity is clearly identified in marketing or other promotional
material published by the insurance company to members of the
public, or members of the public who are intending investors, as
available generally to any person falling within its terms.
(5)
In this section—
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“holder” has the meaning given by section 516(5), and
“policy holder” includes a holder of a life annuity contract.
520
The property categories
(1)
The table in subsection (2) sets out the categories of property referred to in
section 517(2).
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(2)
This is the table—

Category
Property

Category 1
property which the insurance company has

appropriated to an internal linked fund

Category 2
units in an authorised unit trust

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Category 3
shares in an investment trust

Category 4
shares in an open-ended investment company

Category 5
cash

Category 6
a policy or contract to which this Chapter applies,

other than an excluded policy or contract (see

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subsection (3))

Category 7
an interest in a collective investment scheme

constituted by—

(a)
a company which is resident outside the

United Kingdom (other than an open-ended

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investment company),

(b)
a unit trust scheme the trustees of which are

non-UK resident, or

(c)
any other arrangement which takes effect by

virtue of the law of a territory outside the

30

United Kingdom, and which under that law

creates rights in the nature of co-ownership

(without restricting that term to its legal

meaning in any part of the United

Kingdom)

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(3)
A policy or contract is “excluded” if—
(a)
the policy or contract is itself a personal portfolio bond,
(b)
the value of any benefits under the policy or contract is or has at any
time been capable of being determined directly or indirectly by
reference to a personal portfolio bond, or
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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.
228

(c)
a personal portfolio bond is related property in relation to the policy or
contract.
(4)
In this section—
“cash”—
(a)
includes any sum which is deposited—
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(i)
in a building society account (including a share account) or
similar account, or
(ii)
in a bank account or similar account, but
(b)
does not include cash which is acquired wholly or partly for the
purpose of realising a gain from its disposal,
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“collective investment scheme” has the meaning given by section 235 of
FISMA 2000, and “interest”, in relation to such a scheme, means the
beneficial entitlement of a participant in such a scheme,
“internal linked fund” has the meaning given by—
(a)
the Interim Prudential Sourcebook for Insurers made by the
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Financial Services Authority under FISMA 2000, or
(b)
rules made by the Authority under FISMA 2000 and having
effect for the time being in place of the Sourcebook,
“open-ended investment company” has the meaning given by section 236
of FISMA 2000, and
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“related property” has the same meaning as in section 625 (see subsection
(5)).
521
The property selection conditions
(1)
The property selection conditions are—
(a)
the general selection condition (see subsection (2)), and
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(b)
the class selection condition (see subsection (3)).
(2)
Property meets the general selection condition if, at the time when it may be
selected, the opportunity to select property falling within the same category is
available to—
(a)
all policy holders of the insurance company, or
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(b)
persons acting on behalf of those policy holders.
(3)
Property meets the class selection condition if, at the time when it may be
selected, the opportunity to select property falling within the same category is
available to—
(a)
a particular class or classes of policy holders of the insurance company,
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or
(b)
persons acting on behalf of the members of that class or those classes.
(4)
A group of policy holders to whom the opportunity to select property falling
within a particular category is available is a “class” for the purposes of
subsection (3) if—
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(a)
neither membership of the class nor the opportunity are limited to
connected persons,
(b)
the question whether a policy holder is a member of a class, or has the
opportunity, is determined solely by the insurance company, and
(c)
the opportunity is clearly identified in marketing or other promotional
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material published by the insurance company to members of the

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
229

public, or members of the public who are intending investors, as
available generally to any person falling within its terms.
(5)
In this section—
“holder” has the meaning given by section 516(5), and
“policy holder” includes a holder of a life annuity contract.
5
522
Method for making annual calculations under section 515
(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 515 to
determine—
(a)
whether a gain has arisen in relation to that year, and
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(b)
if so, the amount of the gain.
(2)
There is a gain if, as at the end of the insurance year, the sum of PP and TPE
exceeds TSG.
(3)
In subsection (2)—
PP is the total amount of premiums paid up to the end of the insurance
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year,
TPE is the total amount of personal portfolio bond excesses (see section
523), and
TSG is the total amount of part surrender gains (see section 524).
(4)
The gain is equal to 15% of the excess.
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523
The total amount of personal portfolio bond excesses
(1)
To calculate the total amount of personal portfolio bond excesses—

Step 1

Apply the calculation in section 522 in relation to the policy or contract as at the
end of each previous insurance year during its existence in succession starting
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with the first such year.

Step 2

Determine whether in each case the calculation produces a gain and, if so, its
amount.

Step 3
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Add together all the amounts produced by step 2.
(2)
But if there is no previous insurance year during the existence of the policy or
contract, the total amount of personal portfolio bond excesses is nil.
524
The total amount of part surrender gains
(1)
To calculate the total amount of part surrender gains—
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Step 1

Apply the provisions of this Chapter mentioned in subsection (3) as modified
by subsections (4) and (5) in relation to the policy or contract as at the end of
each previous insurance year during its existence.

Step 2
40

Determine whether in each case those provisions produce a gain and, if so, its
amount.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
230


Step 3

Add together all of the amounts produced by step 2.
(2)
But if there is no previous insurance year during the existence of the policy or
contract, the total amount of part surrender gains is nil.
(3)
The provisions of this Chapter which apply for the purposes of the calculation
5
in subsection (1) are—
(a)
subsections (2) to (6) of section 507 (method for making periodic
calculations), and
(b)
subsections (1) to (3) and (5) of section 508 (the value of rights partially
surrendered).
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(4)
The provisions of section 507 mentioned in subsection (3) apply for the
purposes of this section with the omission of all references in that section—
(a)
to the assignment of any part of or share in the rights under the policy
or contract, or
(b)
to the value of any part of or share in the rights under the policy or
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contract so assigned.
(5)
In the application of step 3 in subsection (4) of section 507 for the purposes of
this section, the reference in that step to previous calculation events does not
include a reference to an excess event consisting of the assignment of a part of
or share in the rights under the policy or contract.
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525
Chargeable events where annual calculations show gains
(1)
This section applies if the calculation in section 522 shows that a gain has arisen
in relation to an insurance year.
(2)
The gain is treated as arising at the end of the insurance year on the occurrence
of a chargeable event at that time.
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526
Power to make regulations about personal portfolio bonds
(1)
The Treasury may by regulations make provision about the administration of
the charge to tax on personal portfolio bonds.
(2)
The regulations may modify—
(a)
any provision of this Chapter, or
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(b)
any provision of Chapter 2 of Part 13 of ICTA.
(3)
The regulations may—
(a)
make different provision for different cases, different circumstances or
different periods, and
(b)
make incidental, supplemental, consequential or transitional provision
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or savings.
(4)
In this section “modify” includes amend or repeal.