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 6 — Savings and investment income: insurance contracts and policies made before certain dates
551


where Y is the number of insurance years in the period beginning
with the year in which the payment is made and ending with the last
insurance year before the reference period or, if it is less, 20.”
      (6)
In subsection (6) insert the following definition in the appropriate place—
““the reference period” means the period beginning with the
5
first insurance year which falls wholly after 13th March 1975
and ending with the insurance year as at the end of which the
calculation under this section is required to be made,”.
Pre-25th March 1982 replacement policies: disapplication of section 542
101
Section 542 (replacement of qualifying policies) does not apply if the
10
replacement policy comes into existence before 25th March 1982.
Certain pre-26th June 1982 policies and contracts excluded from Chapter 9 of Part 4
102   (1)
Chapter 9 of Part 4 does not apply to a pre-1982 assigned policy or contract
unless on a date after 23rd August 1982 it has met condition A, B or C.
      (2)
In sub-paragraph (1) “pre-1982 assigned policy or contract” means—
15
(a)
a policy of life insurance issued in respect of an insurance made
before 26th June 1982, or
(b)
a contract for a life annuity made before that date,

the rights under which were assigned for money or money’s worth before
that date and are not held by the original beneficial owner.
20
      (3)
Condition A is that the rights under the policy or contract are again assigned
for money or money’s worth.
      (4)
Condition B is that a payment is made under the policy or contract by way
of premium.
      (5)
Condition C is that a sum is lent—
25
(a)
by, or by arrangement with, the body issuing the policy or the body
with which the contract was made, and
(b)
to or at the direction of an individual falling within sub-paragraph
(6).
      (6)
An individual falls within this sub-paragraph at any time if—
30
(a)
were a gain to arise in respect of the policy or contract at that time the
individual—
(i)
would be liable for tax in respect of it as a result of section 465
(person liable: individuals), or
(ii)
would be so liable apart from the requirement in section
35
465(1) that the individual must be UK resident in the tax year
in which the gain arises, or
(b)
at that time the rights under the policy or contract are held on
charitable trusts created by the individual.
      (7)
In the case of a qualifying policy, condition C is not met if—
40
(a)
interest is payable on the loan at a commercial rate, or
(b)
the loan is to a full-time employee of the body to assist the employee
in purchasing or improving a dwelling to be used as the employee’s
only or main residence.

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
552

      (8)
In the case of a policy issued in respect of an insurance made before 27th
March 1974 or a contract made before that date, this paragraph applies as if
sub-paragraph (1) did not refer to condition C.
      (9)
A loan which causes condition C to be met is treated for the purposes of
sections 500(c) and 501 (loans treated as part surrenders) as having been
5
made at a time when Chapter 9 of Part 4 does apply to gains on the policy or
contract.
Certain pre-18th November 1983 policies not foreign policies of life insurance
103   (1)
A policy of life insurance is not a “foreign policy of life insurance” for the
purposes of Chapter 9 of Part 4 (see the definition in section 476(3)) if it is
10
issued in respect of an insurance made before 18th November 1983.
      (2)
For the purposes of sub-paragraph (1), a policy issued in respect of an
insurance made before 18th November 1983 is treated as issued in respect of
one made on or after that date if it is varied on or after that date so as—
(a)
to increase the benefits secured, or
15
(b)
to extend the term of the insurance.
      (3)
A change in the terms of a policy counts as its variation for the purposes of
sub-paragraph (2) if it results from the exercise of an option conferred by the
policy to have another policy substituted for it or to have any of its terms
changed.
20
Certain pre-23rd February 1984 policies not foreign capital redemption policies
104
A capital redemption policy is not a “foreign capital redemption policy” for
the purposes of Chapter 9 of Part 4 (see the definition in section 476(3)) if it
is issued in respect of a contract made before 23rd February 1984.
Pre-14th March 1984 policies: disregard of amounts deducted and repaid after tax relief by
25
deduction from premiums abolished
105
In the case of a policy issued in respect of an insurance made before 14th
March 1984, any amount treated under section 72(9) of FA 1984 as an
additional premium is to be ignored for the purposes of—
(a)
calculating the total allowable deductions for the policy under
30
section 494(1), and
(b)
the definition of “allowable payment” in section 507(6).
Certain pre-20th March 1985 policies: application of section 529(1)
106   (1)
This paragraph makes provision for the application of section 529(1)
(exceptions to section 528) in relation to—
35
(a)
a foreign policy of life insurance issued in respect of an insurance
made on or before 19th March 1985, and
(b)
a foreign capital redemption policy issued in respect of a contract
made on or before that date.
      (2)
Section 529(1)(a) (which disapplies section 528 if when the chargeable event
40
occurs or at any time during the policy period the policy is or was held by a
non-UK resident trustee) does not apply if the policy was held by a non-UK
resident trustee on 19th March 1985.

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
553

      (3)
Section 529(1)(b) (which disapplies section 528 if when the chargeable event
occurs or at any time during the policy period the policy is or was held by
non-UK resident trustees) does not apply if on 19th March 1985 the policy
was held by a non-UK resident trustee or by two or more trustees any of
whom was non-UK resident.
5
Pre-14th March 1989 qualifying policies: application of section 485(2)(b) and (3)(b)
107   (1)
In the case of a policy issued in respect of an insurance made before 14th
March 1989, section 485(2) and (3) (by virtue of which certain events are only
chargeable events if the conditions in paragraphs (a) and (b) are met) have
effect with the omission of paragraph (b) (no company interest in the rights
10
under the policy) and the word “and” preceding that paragraph.
      (2)
For this purpose a policy is treated as issued in respect of an insurance made
on or after 14th March 1989 if it is varied on or after that date so as—
(a)
to increase the benefits secured, or
(b)
to extend the term of the insurance.
15
      (3)
Any exercise of rights conferred by a policy counts as its variation for the
purposes of sub-paragraph (2).
Pre-14th March 1989 policies and contracts: application of section 501
108   (1)
In the case of a policy issued in respect of an insurance made before 14th
March 1989 or a contract made before that date, section 501 (part surrenders:
20
loans) does not apply if—
(a)
a company beneficially owns the rights under the policy,
(b)
they are held on trusts which a company created, or
(c)
they are held as security for a company’s debt.
      (2)
For the purposes of this paragraph, a policy is treated as issued in respect of
25
an insurance made on or after 14th March 1989 if it is varied on or after that
date so as—
(a)
to increase the benefits secured, or
(b)
to extend the term of the insurance.
      (3)
Any exercise of rights conferred by a policy counts as its variation for the
30
purposes of sub-paragraph (2).
Contracts in accounting periods beginning before 1st January 1992: disapplication of sections
530 and 539(3)
109   (1)
This paragraph applies to a contract for a life annuity made—
(a)
after 26th March 1974, but
35
(b)
in an accounting period of the insurance company or friendly society
beginning before 1st January 1992.
      (2)
Section 530 (income tax treated as paid etc.) does not apply to gains from
such a contract, except for the purposes of calculating relief under section
535 (top slicing relief).
40
      (3)
Sub-paragraph (2) is subject to—
(a)
section 532 (relief for policies and contracts with European Economic
Area insurers), and

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
554

(b)
section 534 (regulations providing for relief in other cases where
foreign tax chargeable).
      (4)
Section 539(3) (relief for deficiencies: application of section 539(1) only for
determining individual’s extra liability) does not apply where the deficiency
arises from such a contract.
5
      (5)
In sub-paragraph (1) “accounting period” is to be read in accordance with
section 12 of ICTA.
Certain pre-17th March 1998 policies: application of section 529(1)
110   (1)
This paragraph makes provision for the application of section 529(1)
(exceptions to section 528) in relation to—
10
(a)
a foreign policy of life insurance issued in respect of an insurance
made before 17th March 1998, and
(b)
a foreign capital redemption policy issued in respect of a contract
made before that date.
      (2)
Section 529(1)(c) (which disapplies section 528 if when the chargeable event
15
occurs or at any time during the policy period the policy is or was held by a
foreign institution) does not apply if the policy was held by a foreign
institution on 16th March 1998.
Certain pre-17th March 1998 policies not foreign policies of life insurance
111   (1)
A policy of life insurance issued in respect of an insurance made before 17th
20
March 1998 is only a “foreign policy of life insurance” for the purposes of
Chapter 9 of Part 4 if—
(a)
it falls within paragraph (a) of the definition of that expression in
section 476(3), and
(b)
it is not excluded by paragraph 103 (certain pre-18th November 1983
25
policies not foreign policies of life insurance).
      (2)
For the purposes of sub-paragraph (1), a policy issued in respect of an
insurance made before 17th March 1998 is treated as issued in respect of one
made on or after that date if it is varied on or after that date so as—
(a)
to increase the benefits secured, or
30
(b)
to extend the term of the insurance.
      (3)
Any exercise of rights conferred by a policy counts as its variation for the
purposes of sub-paragraph (2).
Pre-17th March 1998 policy or contract: UK resident trustees
112   (1)
In the case of a 1998 Act excluded policy or contract, section 467 (person
35
liable: UK resident trustees) does not apply if—
(a)
the trusts were created before 17th March 1998, and
(b)
the person or at least one of the persons who created them was an
individual who died before that date.
      (2)
For the purposes of sub-paragraph (1)(b), section 472(1) is ignored.
40
      (3)
In this paragraph “a 1998 Act excluded policy or contract” means—
(a)
a policy of life insurance issued in respect of an insurance made
before 17th March 1998,

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
555

(b)
a contract for a life annuity made before that date, or
(c)
a capital redemption policy where the contract was made before that
date,

but excluding a policy or contract within sub-paragraph (4).
      (4)
A policy or contract is within this sub-paragraph if it has been varied on or
5
after 17th March 1998 so as—
(a)
to increase the benefits secured, or
(b)
to extend the term of the insurance, annuity or capital redemption
policy.
      (5)
Any exercise of rights conferred by a policy or contract counts as its variation
10
for the purposes of sub-paragraph (4).
Certain pre-23rd March 1999 policies not foreign capital redemption policies
113
A capital redemption policy where the contract was made before 23rd
March 1999 is only a “foreign capital redemption policy” for the purposes of
Chapter 9 of Part 4 if—
15
(a)
it falls within paragraph (a) of the definition of that expression in
section 476(3), and
(b)
it is not excluded by paragraph 104 (certain pre-23rd February 1984
policies not foreign capital redemption policies).
Pre-9th April 2003 policy or contract: UK resident trustees
20
114   (1)
In the case of a 2003 Act excluded policy or contract, section 467(1) (person
liable: UK resident trustees) has effect with the omission of the reference to
condition C (the effect of which is to extend the circumstances in which
trustees holding rights under a policy or contract on non-charitable trusts
may be liable for tax).
25
      (2)
In this paragraph “a 2003 Act excluded policy or contract” means—
(a)
a policy of life insurance issued in respect of an insurance made
before 9th April 2003,
(b)
a contract for a life annuity made before that date, or
(c)
a capital redemption policy where the contract was made before that
30
date,

but excluding a policy or contract within sub-paragraph (3).
      (3)
A policy or contract is within this sub-paragraph if—
(a)
it has been varied on or after that date (but before the chargeable
event on which the gain arises) so as to increase the benefits secured
35
or extend the term of the insurance, annuity or capital redemption
policy, or
(b)
there has been an assignment of the rights, or a share in the rights,
conferred by the policy or contract to trustees of a non-charitable
trust.
40
      (4)
Any exercise of rights conferred by a policy or contract counts as its variation
for the purposes of sub-paragraph (3)(a).

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
556

Pre-9th April 2003 policy or contract: loans to trustees
115   (1)
This paragraph makes provision for the application of section 501 (part
surrenders: loans) in relation to—
(a)
a policy of life insurance issued in respect of an insurance made
before 9th April 2003,
5
(b)
a contract for a life annuity made before that date, or
(c)
a capital redemption policy where the contract was made before that
date.
      (2)
In the case of a loan made before that date that section applies with the
omission—
10
(a)
of subsections (1)(b) and (3) (by virtue of which the section applies to
loans to trustees), and
(b)
in subsection (5)(b) of the words “, trustees” and “, trustees’”.
Pre-9th April 2003 policy: excepted group life policies
116   (1)
Sub-paragraph (2) applies to a policy if—
15
(a)
it was issued in respect of an insurance made before 9th April 2003,
and
(b)
immediately before 6th April 2005, paragraph 4(1) (excepted group
life policies: time for compliance with conditions in section 539A of
ICTA) of Schedule 34 to FA 2003 applied to it.
20
      (2)
The policy is to be taken to have met the conditions referred to in section
480(3) (conditions to be met by an excepted group life policy) throughout the
period mentioned in that paragraph.
      (3)
Sub-paragraphs (3) and (4) apply where immediately before 6th April 2005
paragraph 4(3) of Schedule 34 to FA 2003 applied to treat two policies as a
25
single policy issued in respect of an insurance made at the time of the
making of the insurance in respect of which the earlier of those policies was
issued.
      (4)
Those policies are to be treated as a single policy so issued for the purposes
of—
30
(a)
Chapter 9 of Part 4,
(b)
paragraph 90 of this Schedule, and
(c)
this Part of this Schedule (and, in particular, sub-paragraph (2)).
      (5)
Sub-paragraph (2) applies to that single policy taking the reference to the
period mentioned in paragraph 4(1) of Schedule 34 to FA 2003 as a reference
35
to the period so mentioned as a result of the application of paragraph 4(3)(b)
of that Schedule.
Pre-3rd March 2004 policy or contract: calculation of deficiencies
117   (1)
In the case of a 2004 Act excluded policy or contract, section 541(4)
(calculation of deficiencies) applies with the omission of paragraph (b) and
40
the word “and” immediately preceding it.
      (2)
In this paragraph “a 2004 Act excluded policy or contract” means—
(a)
a policy of life insurance issued in respect of an insurance made
before 3rd March 2004,

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 7 — Savings and investment income: gains from contracts for life insurance etc. (personal portfolio bonds)
557

(b)
a contract for a life annuity made before that date, or
(c)
a capital redemption policy where the contract was made before that
date,

but excluding a policy or contract within sub-paragraph (3).
      (3)
A policy or contract is within this sub-paragraph if on or after 3rd March
5
2004—
(a)
it is varied so as to increase the benefits secured,
(b)
there is an assignment of the rights, or a share of the rights, conferred
by it, or
(c)
all or part of those rights become held as security for a debt.
10
      (4)
Any exercise of rights conferred by a policy or contract counts as its variation
for the purposes of sub-paragraph (3)(a).
Pre-1st January 2005 contracts for immediate needs annuities: income tax treated as paid
118   (1)
A contract for a life annuity made before 1st January 2005 is not to be treated
for the purposes of paragraph (c) of section 531(3) (policies and contracts
15
excluded from section 530) as having not formed part of any insurance
company’s or friendly society’s basic life assurance and general annuity
business the income and gains of which are subject to corporation tax by
reason only of the immediate needs annuities exclusion.
      (2)
In sub-paragraph (1) “the immediate needs annuities exclusion” means the
20
words from “other than” onwards in the definition of “annuity business” in
section 431(2) of ICTA.
Part 7
Savings and investment income: gains from contracts for life insurance etc.
(personal portfolio bonds)
25
Pre-17th March 1998 contract or policy: conditions to be met for contract or policy not to be a
personal portfolio bond
119
For the purposes of Chapter 9 of Part 4, a policy or contract is not a personal
portfolio bond if—
(a)
it meets the date condition (see paragraph 120),
30
(b)
it meets the non-variation condition (see paragraph 121), and
(c)
it meets either the first selection condition (see paragraph 122) or the
second selection condition (see paragraph 123).
The date condition
120   (1)
A policy meets the date condition if it is a policy issued in respect of an
35
insurance made before 17th March 1998.
      (2)
A contract meets the date condition if it was made before that date.
The non-variation condition
121   (1)
A policy or contract meets the non-variation condition if it has not been
varied on or after 16th July 1998 so as—
40
(a)
to increase the benefits secured, or