Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

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.
197

section 454 (listed securities held since 26th March 2003: relief for losses).
(3)
In this section “settlement” has the same meaning as in Chapter 5 of Part 5 (see
section 620).
Miscellaneous and supplementary
459
Transfer of assets abroad
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(1)
This section applies if profits are taken to arise on the disposal of a deeply
discounted security by a person resident or domiciled outside the United
Kingdom (“A”).
(2)
For the purpose of determining whether an individual ordinarily UK resident
is liable for income tax in respect of the profits, sections 739 and 740 of ICTA
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(transfer of assets abroad) have effect as if the profits, when arising, constituted
income becoming payable to A.
(3)
For this purpose it does not matter if A is not liable to income tax under this
Chapter because of section 458 (non-UK resident trustees).
460
Minor definitions
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(1)
In this Chapter “share”, in the case of a share in a company, means any share
under which an entitlement to receive distributions may arise, but does not
include a share in a building society.
(2)
In this Chapter “tax advantage” has the meaning given by section 709(1) of
ICTA.
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(3)
In this Chapter “market value” has the same meaning as in TCGA 1992 (see
sections 272 to 274 of that Act), except as provided in section 450 or 451 (market
value of strips etc.).
Chapter 9
Gains from contracts for life insurance etc.
25
Charge to tax under Chapter 9
461
Charge to tax under Chapter 9
(1)
Income tax is charged on gains treated as arising from policies and contracts to
which this Chapter applies.
(2)
For the policies and contracts to which this Chapter applies, see sections 473 to
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483.
(3)
See also sections 530 to 538 (provisions relating to tax treated as paid on gains
and to reliefs).
(4)
For exemptions, see in particular Chapter 3 of Part 6 (income from individual
investment plans).
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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.
198

(5)
For the application of this Chapter where corresponding provision for
corporation tax purposes is also relevant, see section 544 (application of
Chapter to policies and contracts in which companies interested).
462
When gains arise from policies and contracts
(1)
For the purposes of this Chapter, a gain from a policy or contract arises when
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a chargeable event occurs in relation to the policy or contract (see section 484).
(2)
But certain chargeable events are only treated as occurring because a
calculation required to be made as at a particular time shows that the gain has
arisen.
(3)
See, in particular—
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(a)
section 509(1) (under which a chargeable event is treated as occurring
where a periodic calculation following a part surrender or assignment
shows a gain),
(b)
section 514(1) (under which a part surrender or assignment is treated as
a chargeable event where a calculation related to it shows a gain), and
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(c)
section 525(2) (under which a chargeable event is treated as occurring
where an annual personal portfolio bond calculation shows a gain).
463
Income charged
(1)
Tax is charged under this Chapter on the amount of the gains arising in the tax
year.
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(2)
Subsection (1) is subject to section 514(4) (under which certain gains are
charged for a later tax year).
(3)
See section 469(3) for the apportionment of gains where two or more persons
are interested in a policy or contract.
(4)
See sections 491 to 497, 507, 508, 511 to 513, 522 to 524 and 527 to 529 for the
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rules as to how the gains are calculated.
Person liable etc.
464
Person liable for tax: introduction
(1)
The person liable for any tax charged under this Chapter is the person
indicated by—
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section 465 (person liable: individuals),
section 466 (person liable: personal representatives), and
section 467 (person liable: UK resident trustees),

according to how the rights under the policy or contract are owned or held
immediately before the chargeable event in question occurs.
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(2)
References in those sections to the ownership or holding of those rights are
references to their ownership or holding at that time.
(3)
If there has been a surrender or assignment of only a part of or share in rights
under the policy or contract, the references in this section and those sections to
the rights are references to that part or share.
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(4)
For cases where such surrenders or assignments are taken to occur, see—

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
199

section 500 (events treated as part surrenders), and
section 505 (assignments etc. involving co-ownership).
(5)
This section and sections 470 to 472 are subject to section 469(4) (application of
this section and those sections where two or more persons are interested in the
policy or contract in question).
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(6)
See also—
section 468 (non-UK resident trustees and foreign institutions),
section 471 (determination of shares etc.), and
section 472 (trusts created by two or more persons).
465
Person liable: individuals
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(1)
An individual is liable for tax under this Chapter if the individual is UK
resident in the tax year in which the gain arises and condition A, B or C is met.
(2)
Condition A is that the individual beneficially owns the rights under the policy
or contract in question.
(3)
Condition B is that those rights are held on non-charitable trusts which the
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individual created.
(4)
Condition C is that those rights are held as security for the individual’s debt.
(5)
For the purposes of calculating the total income of an individual liable for tax
under this Chapter, the amount charged is treated as income.
(6)
References in this Chapter to trusts which an individual created include
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references to trusts arising under any of the following provisions (and
references to a settlor or to a person creating trusts are to be read
accordingly)—
(a)
section 11 of the Married Women’s Property Act 1882 (c. 75),
(b)
section 2 of the Married Women’s Policies of Assurance (Scotland) Act
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1880 (c. 26), and
(c)
section 4 of the Law Reform (Husband and Wife) Act (Northern
Ireland) 1964 (c. 23 (N.I.)).
(7)
For the right of an individual to recover certain amounts from the trustees of
non-charitable trusts, see section 538 (recovery of tax from trustees).
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466
Person liable: personal representatives
(1)
Personal representatives are liable for tax under this Chapter if the rights under
the policy or contract are held by them and the condition in subsection (2) is
met (and accordingly the gain is treated for income tax purposes as income of
the personal representatives in that capacity).
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(2)
The condition is that if an individual were liable for tax on a gain in respect of
the policy or contract, section 530(1) (individual treated as having paid tax at
the lower rate) would be disapplied as a result of—
(a)
section 531(1) (exceptions from section 530 for policies and contracts
specified in section 531(3)), or
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(b)
paragraph 109(2) of Schedule 2 (contracts in accounting periods
beginning before 1st January 1992).

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
200

(3)
For cases where the condition in subsection (2) is not met, see section 664 of this
Act and section 701(8) of ICTA (under which the gain is treated as part of the
aggregate income of the estate for the purposes of Chapter 6 of Part 5 of this
Act and Part 16 of ICTA respectively).
467
Person liable: UK resident trustees
5
(1)
Trustees are liable for tax under this Chapter if immediately before the
chargeable event in question occurs they are UK resident and condition A, B,
C or D is met.
(2)
Condition A is that the rights under the policy or contract are held by the
trustees on charitable trusts.
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(3)
Condition B is that—
(a)
those rights are held by the trustees on non-charitable trusts, and
(b)
one or more of the absent settlor conditions is met.
(4)
The absent settlor conditions are that the person who created the trusts—
(a)
is non-UK resident,
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(b)
has died, or
(c)
in the case of a company or foreign institution (see section 468(5)), has
been dissolved or wound up or has otherwise come to an end.
(5)
Condition C is that—
(a)
the rights under the policy or contract are held by the trustees on non-
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charitable trusts,
(b)
condition B does not apply, and
(c)
neither section 465 or 466 above nor section 547(1)(b) of ICTA
(circumstances in which a company is liable for tax under Chapter 2 of
Part 13 of ICTA) applies.
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(6)
Condition D is that the rights under the policy or contract are held as security
for a debt owed by the trustees.
(7)
If trustees are liable for tax under this Chapter, it is charged—
(a)
at the lower rate if—
(i)
condition A is met, or
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(ii)
condition D is met and the trustees are trustees of a charitable
trust, and
(b)
at the rate applicable under section 686(1A) of ICTA (rate applicable to
trusts) in any other case.
468
Non-UK resident trustees and foreign institutions
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(1)
This section applies if a gain is treated as arising under this Chapter and
either—
(a)
trustees who are non-UK resident would be liable for tax in respect of
the gain as a result of section 467 if the trustees were UK resident
immediately before the chargeable event in question occurs, or
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(b)
immediately before that event occurs—
(i)
a foreign institution beneficially owns a share in the rights,
(ii)
the rights are held for the purposes of a foreign institution, or

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
201

(iii)
a share in them is held as security for a foreign institution’s
debt.
(2)
Section 740 of ICTA (which prevents avoidance of tax where an individual who
is ordinarily UK resident benefits from a transfer of assets) applies with the
modifications specified in subsection (3) or (4).
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(3)
In a case within subsection (1)(a), section 740 applies as if—
(a)
the gain were income becoming payable to the trustees, and
(b)
that income arose to the trustees in the tax year in which the gain arises.
(4)
In a case within subsection (1)(b), section 740 applies as if—
(a)
the gain were income becoming payable to the institution, and
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(b)
that income arose to the institution in the tax year in which the gain
arises.
(5)
In this Chapter “foreign institution” means a company or other institution
resident or domiciled outside the United Kingdom.
(6)
If there has been a surrender or assignment of only a part of or share in rights
15
under the policy or contract, the references in this section to those rights are
references to that part or share.
469
Two or more persons interested in policy or contract
(1)
This section applies if immediately before a chargeable event two or more
persons have material interests in the rights under the policy or contract.
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(2)
Section 470 sets out the circumstances in which persons have such interests for
the purposes of this section (which correspond to the circumstances referred to
in sections 465 to 468 above and section 547(1) of ICTA (persons liable for tax
etc.)).
(3)
Section 463 (income charged) applies in the case of any of the persons with such
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interests as if the amount of the gain arising when the event occurs were such
part of it as is proportionate to the share of the rights to which the person’s
interest relates.
(4)
Sections 464 to 468 (persons liable for tax etc.) apply in relation to each of those
persons as if that person were the only person with such an interest at that
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time.
(5)
Section 539(1) (relief for deficiencies) applies in relation to each of those
persons as if the amount of deficiency arising when that event occurs were
such part of it as is proportionate to the share of the rights to which that
person’s interest relates.
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(6)
If a person (“A”) has two or more material interests in the rights under a policy
or contract, this section applies in the same way as where two or more persons
have separate such interests, unless A—
(a)
is the only person with such interests, and
(b)
has all those interests in the same capacity.
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(7)
If there has been a surrender or assignment of only a part of or share in rights
under the policy or contract, the references to those rights in this section and
sections 470 to 472 are references to that part or share.