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
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
544

Part 5
Savings and investment income: general
Open-ended investment companies: saving for powers to make provision corresponding to
provisions applicable to unit trusts
78    (1)
Despite the enactment by this Act in the OEIC sections of provisions
5
previously contained in regulations made under section 152 of FA 1995, the
Treasury may continue to make regulations under that section for achieving
any purpose that could be achieved by such regulations before the coming
into force of the OEIC sections.
      (2)
Accordingly—
10
(a)
regulations under that section may make provision for securing, in
relation to the matters mentioned in subsection (1)(a) to (c) of that
section, that the provision made by the OEIC sections corresponds,
subject to such modifications as the Treasury consider appropriate,
to the provision made by the enactments mentioned in subsection (2)
15
of that section in relation to—
(i)
unit trusts,
(ii)
rights under, and the assets subject to, such trusts, and
(iii)
transactions for purposes connected with such trusts, and
(b)
that section has effect with such modifications as are required for the
20
purposes of this paragraph.
      (3)
In this paragraph—
“the OEIC sections” means—
(a)
sections 373 to 375 of this Act (under which certain amounts are
treated as interest paid by open-ended investment companies),
25
and
(b)
sections 386 to 388 of this Act (under which certain amounts are
treated as dividends paid by open-ended investment
companies), and
“unit trust” has the same meaning as in section 152 of FA 1995 (see
30
subsection (7)).
Deeply discounted securities issued in accordance with qualifying earn-out right
79
Despite the repeal by this Act of section 104(4) of FA 2002, sections 430(5)
and 442 (securities issued in accordance with qualifying earn-out right)
apply whenever the security was issued.
35
Deeply discounted securities: deemed transfers of strips on 5th April
80    (1)
Despite the repeal by this Act of paragraph 14(4) of Schedule 13 to FA 1996,
a person who was deemed under that paragraph to have transferred a strip
on 5th April 2005 is treated for the purposes of Chapter 8 of Part 4 (profits
from deeply discounted securities) as if the person had re-acquired the strip
40
under that paragraph on 6th April 2005 for an amount equal to the amount
for which it was deemed to have been transferred.
      (2)
That Chapter and this Part of this Schedule apply to a deemed transfer and
reacquisition under that paragraph (including a reacquisition within sub-

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
545

paragraph (1)) as if it were a transfer and reacquisition under section 445(2)
and (3).
      (3)
Section 452 (power to modify that Chapter for strips) applies as if this
paragraph were in that Chapter.
Deeply discounted securities: restriction of profits and losses on strips
5
81    (1)
Sections 447 and 448 (restriction of profits and losses on strips by reference
to original acquisition cost) do not apply to a strip acquired before 15th
January 2004.
      (2)
For the purposes of paragraph (1) any deemed acquisitions under paragraph
14(4) of Schedule 13 to FA 1996 or section 445(3) of this Act are ignored.
10
Deeply discounted securities: saving for charities’ losses
82
The references in section 454(4) and (5) to trustees include any person who,
had the loss been a profit—
(a)
would have been eligible for relief from tax for the tax year in which
the loss is sustained as a result of section 505(1) of ICTA (exemption
15
from income tax for certain income forming part of the income of a
charity), or
(b)
would have been so eligible but for section 505(3) of that Act (income
that is not exempt in some circumstances for charities incurring non-
qualifying expenditure).
20
Deeply discounted securities: saving for pension trustees’ losses
83
The references in section 454(4) and (5) to trustees include any person who,
had the loss been a profit, would have been eligible for relief from tax for the
tax year in which the loss is sustained as a result of—
(a)
section 592(2) of ICTA (exemption from income tax for income from
25
investments or deposit held for exempt approved pension schemes),
(b)
section 608(2)(a) of ICTA (corresponding exemption for
superannuation funds approved before 6th April 1980),
(c)
section 613(4) of ICTA (corresponding exemption for parliamentary
pension funds),
30
(d)
section 614(2), (3), (4) or (5) of ICTA (corresponding exemption for
certain overseas pension funds),
(e)
section 620(6) of ICTA (corresponding exemption for retirement
annuity funds), or
(f)
section 643(2) of ICTA (corresponding exemption for approved
35
personal pension schemes).
Exclusion of deeply discounted securities from section 711 to 728 of ICTA (accrued income
profits)
84
Securities only fall within paragraph (f) of section 710(3) of ICTA (meaning
of “securities” for purposes of sections 711 to 728), as substituted by
40
Schedule 1 to this Act, if the disposal of the securities on or after 6th April
2005 would be a disposal of deeply discounted securities for the purposes of
Chapter 8 of Part 4 of this Act.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
546

Gains from contracts for life insurance etc: foreign policies of life insurance
85    (1)
This paragraph modifies the application of—
(a)
section 474(4) (foreign policies of life insurance which are not
qualifying policies),
(b)
section 531(6) (foreign policies of life insurance to which section 530
5
applies), and
(c)
section 532 (relief for policies and contracts with European Area
Insurers),

in relation to a policy of life insurance which meets conditions A and B.
      (2)
Condition A is that the policy is a foreign policy of life insurance by virtue
10
of paragraph (a) of the definition of that term in section 476(3).
      (3)
Condition B is that the income of the company which issued the policy was
charged to corporation tax under section 445 of ICTA for an accounting
period ending on or after the day on which the policy was issued.
      (4)
The policy is treated as having been a qualifying policy for any part of the
15
chargeable period when—
(a)
it would have been treated as a qualifying policy apart from section
474(4), and
(b)
the conditions in either sub-paragraph (3) or sub-paragraph (4) of
paragraph 24 of Schedule 15 to ICTA (as it then had effect) were met.
20
      (5)
The policy meets condition B in section 531(6) if—
(a)
the conditions in either sub-paragraph (3) or sub-paragraph (4) of
paragraph 24 of Schedule 15 to ICTA (as it then had effect) were met
throughout the chargeable period, and
(b)
the conditions in sub-paragraph (3) of that paragraph are met
25
throughout the period—
(i)
beginning immediately after the end of the chargeable
period, and
(ii)
ending with the date on which the gains mentioned in section
531(1) arise.
30
      (6)
Despite the definition of “policy period” in section 532(5), for the purposes
of determining whether conditions A to C in that section have been met in
relation to the policy or contract throughout the policy period, that period is
to be taken not to include—
(a)
any part of the chargeable period when the conditions in either sub-
35
paragraph (3) or sub-paragraph (4) of paragraph 24 of Schedule 15 to
ICTA (as it then had effect) were met, and
(b)
any subsequent period when the conditions in sub-paragraph (3) of
that paragraph are met.
      (7)
In this paragraph “the chargeable period” means the period—
40
(a)
beginning with the date on which the policy was issued, and
(b)
ending with the last day of the last accounting period for which the
company which issued the policy was liable to tax under section 445
of ICTA.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
547

Gains from contracts for life insurance etc: exclusion of pension policies
86    (1)
Subject to sub-paragraph (4), before 6th April 2006 Chapter 9 of Part 4
applies with the following amendments.
      (2)
For section 479 (exclusion of pension policies) substitute—
“479
  Exclusion of pension policies
5
“(1)
This Chapter does not apply to a pension policy.
(2)
In this section “pension policy” means—
(a)
a policy of life insurance issued in connection with an
approved scheme,
(b)
a policy of insurance which is, or is evidence of, a contract for
10
the time being approved under section 621 of ICTA (contracts
to provide for surviving spouses and dependants), or
(c)
a policy of life insurance held in connection with an approved
personal pension scheme.
(3)
In this section—
15
“approved scheme” has the meaning given by section 612(1) of
ICTA, and
“personal pension scheme” and “approved”, in relation to such
a scheme, have the meaning given by section 630(1) of ICTA.”
      (3)
In section 486 (exclusion of maturity of capital redemption policies in certain
20
circumstances) for “non-registered occupational pension” substitute
“sponsored superannuation”.
      (4)
The power of the Treasury to make an order under section 281 or 283 of FA
2004 has effect as if Schedule 35 to that Act contained amendments—
(a)
substituting section 479 of this Act for that section as substituted by
25
sub-paragraph (2), and
(b)
substituting “non-registered occupational pension” for “sponsored
superannuation” in section 486 of this Act.
Gains from contracts for life insurance etc: rights partially assigned
87
Section 505 (assignments involving co-ownership) does not have effect in
30
relation to any transaction which—
(a)
took place in relation to a policy or contract in an insurance year
beginning on or before 5th April 2001, and
(b)
would otherwise and by reason only of the application of that section
fall to be taken into account as an assignment of a part of or a share
35
in the rights conferred by the policy or contract in a calculation
under—
(i)
section 507 (periodic calculations in part surrender and
assignment cases), or
(ii)
section 511 (transaction-related calculations in part surrender
40
and assignment cases).
88    (1)
This paragraph applies if a calculation under section 507 or 511 in relation to
a policy or contract requires account to be taken of any part of or share in the
rights conferred by the policy or contract which has been assigned for

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
548

money or money’s worth in an insurance year beginning on or before 5th
April 2001.
      (2)
Section 508 (the value of rights partially assigned) applies for the purposes
of the valuation of each such part or share as if—
(a)
in subsection (1) after “surrendered” (in both places where it occurs)
5
there were inserted “or assigned”,
(b)
in that subsection after “surrender” there were inserted “or
assignment”, and
(c)
subsection (4) were omitted.
Gains from contracts for life insurance etc: regulations providing for relief where foreign tax
10
chargeable
89
Regulations made under section 534 by virtue of paragraph 4 of this
Schedule may apply—
(a)
in relation to gains arising on or after 29th November 1994, and
(b)
in relation to any gain arising before that date the income tax on
15
which has not been the subject of an assessment that became final
and conclusive before that date.
Gains from contracts for life insurance etc: pure protection group life policies
90    (1)
For the purposes of Chapter 9 of Part 4, any event occurring before 9th April
2003 in relation to a policy of life insurance which, at the time of the event,
20
was a pure protection group life policy is deemed not to be 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
25
except on death or disability.
Gains from contracts for life insurance etc: assessment of trustees etc
91
Despite paragraph 4(1) of this Schedule, the references in section 151(2) of
FA 1989 (assessment of trustees etc.) to gains treated as arising under
Chapter 9 of Part 4 of this Act do not include references to gains treated as
30
arising under Chapter 2 of Part 13 of ICTA on chargeable events before 6th
April 1998.
Transactions in deposits
92
Section 551 (charge to income tax on profits from disposal of deposit rights)
does not apply if the person disposing of the rights acquired them before 7th
35
March 1973.
93    (1)
This paragraph applies if—
(a)
a right falling within the definition of “uncertificated right” in section
552(2) is a right under an arrangement made on or before 16th July
1992, and
40
(b)
the right to call for the issue of a certificate of deposit (as defined in
that section) is a right under that arrangement.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
549

      (2)
Chapter 11 of Part 4 (transactions in deposits) applies with the omission of
section 552(1)(c) and (d)(i).
Disposals of futures and options involving guaranteed returns: certain pre-6th February 1998
transactions
94    (1)
A transaction consisting in the running of a future to delivery or the exercise
5
of an option is not treated as a disposal for the purposes of Chapter 12 of Part
4 if it took place before 6th February 1998.
      (2)
Sub-paragraph (1) is to be read as if it were part of section 564 (deemed
disposal where futures run to delivery or options are exercised) (see, in
particular, section 565).
10
Disposals of futures and options involving guaranteed returns: rates of tax for pension trustees
95
For the tax year 2005-06 section 568(4) (by virtue of which income within
Chapter 12 of Part 4 arising to certain pension trustees is not treated as
income to which section 686 of ICTA applies) has effect with the substitution
for the words from “held” onwards of the words “held—
15
(a)
for the purposes of a fund or scheme established for the sole
purpose of providing relevant benefits (within the meaning
of section 612 of ICTA), or
(b)
for the purposes of a personal pension scheme (within the
meaning of section 630 of ICTA) making provision only for
20
such benefits as are mentioned in section 633 of ICTA
(annuities and lump sums meeting certain conditions).”
Part 6
Savings and investment income: insurance contracts and policies made before
certain dates
25
Pre-20th March 1968 policies and contracts excluded from Chapter 9 of Part 4
96    (1)
Chapter 9 of Part 4 does not apply to—
(a)
a policy of life insurance issued in respect of an insurance made
before 20th March 1968,
(b)
a contract for a life annuity made before that date, or
30
(c)
a capital redemption policy where the contract was made before that
date.
      (2)
For this purpose a policy of life insurance is treated as issued in respect of an
insurance made on or after 20th March 1968 if it is varied on or after that date
so as to extend its term or increase the benefits secured.
35
      (3)
A variation is ignored for the purposes of sub-paragraph (2) if—
(a)
before the variation the policy complied with paragraph 2 of
Schedule 9 to FA 1968 (general requirements for qualifying
endowment policies) except for the amount guaranteed on death,
(b)
the variation’s only effect was to make the policy comply with that
40
paragraph,
(c)
the variation was effected before 1st January 1969, and
(d)
the variation did not increase the premiums payable under the
policy.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
550

Pre-27th March 1974 policies and contracts: disapplication of section 500(c)
97
Section 500(c) (events treated as part surrenders: loan by insurer) does not
apply to a policy issued in respect of an insurance made before 27th March
1974 or a contract made before that date.
Pre-27th March 1974 contracts: disapplication of section 531(3)(c)
5
98
Section 531(3)(c) (certain contracts for life annuities excluded from section
530) does not apply to a contract made before 27th March 1974.
Pre-10th December 1974 contracts for a life annuity: disapplication of section 484(1)(d)
99
Section 484(1)(d) (chargeable events: death in case of contract for a life
annuity which provides for payment of a capital sum on death) does not
10
apply if the contract was made before 10th December 1974.
Pre-14th March 1975 policies and contracts: calculation of gains under section 507
100   (1)
This paragraph applies to—
(a)
a policy in respect of an insurance made before 14th March 1975, and
(b)
a contract made before that date.
15
      (2)
Section 507 (method for making periodic calculations under section 498)
applies to a policy or contract to which this paragraph applies with the
following modifications.
      (3)
In subsection (4) (calculation of net total value of rights assigned and
surrendered)—
20
(a)
in paragraph (a) of step 1 after “at any time”, in both places where it
occurs, and
(b)
in paragraph (b) of step 1 after “assigned”,

insert “during the reference period”.
      (4)
In subsection (5) (calculation of net total allowable payments), for step 1
25
substitute—

“Step 1

Find the allowable element in each allowable payment made during
the reference period by multiplying the amount of the payment by—

where X is the number of insurance years in the period beginning
30
with the year in which the payment is made and ending with the
reference period or, if it is less, 20.”
      (5)
After that step insert—

“Step 1A

Find any allowable element in any allowable payment made before
35
the reference period by multiplying the amount of the payment by—