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.
209

section 487 (disregard of certain assignments), and
section 488 (disregard of certain events following alterations of life
insurance policy terms).
(3)
See also section 490 (last payment under guaranteed income bonds etc. treated
as total surrender).
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485
Disregard of certain events in relation to qualifying policies
(1)
In relation to a qualifying policy, the events that count as chargeable events are
restricted as follows.
(2)
Death or the maturity of the policy is only a chargeable event if—
(a)
the policy has been converted into a paid-up policy before the end of
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whichever of the following periods ends sooner—
(i)
10 years from the making of the insurance, and
(ii)
three-quarters of the term for which the policy is to run
(assuming it is not ended by death or disability), or
(b)
there is a company interest in the rights under the policy immediately
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before the event occurs.
(3)
An event specified in section 484(1)(a)(i) to (iv) (surrender or assignment of all
rights, final participation in profits and chargeable event where periodic
calculation shows gain) is only a chargeable event if—
(a)
the event occurs or the policy has been converted into a paid-up policy
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before the end of whichever of the periods specified in subsection
(2)(a)(i) and (ii) ends sooner, or
(b)
there is a company interest in the rights under the policy immediately
before the event occurs.
(4)
For the purposes of subsections (2)(b) and (3)(b) there is a company interest in
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the rights under a policy if—
(a)
a company beneficially owns them,
(b)
they are held on trusts created by a company, or
(c)
they are held as security for a company’s debt.
(5)
An event specified in section 484(1)(a)(v) (part surrenders and assignments:
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chargeable events where transaction-related calculations show gains) is only a
chargeable event if—
(a)
the time as at which the calculation showing the gain is required to be
made under section 498(2) is before the end of whichever of the periods
specified in subsection (2)(a)(i) and (ii) ends sooner, or
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(b)
the policy has been converted into a paid-up policy before that time.
(6)
If the policy has been varied so as to increase the premiums payable under it,
subsections (2), (3) and (5) apply as if they referred instead to the following
periods—
(a)
10 years from the variation taking effect, and
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(b)
three-quarters of the term for which the policy is to run from the
variation (assuming it is not ended by death or disability).
(7)
If a qualifying policy is substituted for another policy in circumstances where
paragraph 25(1) or (3) of Schedule 15 to ICTA applies (replacement of a policy
issued by a non-UK resident company by a policy which is not so issued), the
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surrender of the rights conferred by the other policy is not a chargeable event.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
210

486
Exclusion of maturity of capital redemption policies in certain circumstances
The maturity of a capital redemption policy is not a chargeable event if the
sums payable on maturity—
(a)
are chargeable to income tax because they fall within—
(i)
Chapter 7 (purchased life annuities),
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(ii)
Chapter 7 of Part 5 (annual payments not otherwise charged),
(iii)
section 609 of ITEPA 2003 (annuities for the benefit of
dependants),
(iv)
section 610 of that Act (annuities under non-registered
occupational pension schemes), or
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(v)
section 611 of that Act (annuities in recognition of another’s
services), or
(b)
are chargeable to corporation tax under Schedule D.
487
Disregard of certain assignments
For the purposes of this Chapter, an assignment of rights under a policy or
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contract or a share in such rights is ignored if it is—
(a)
by way of security for a debt,
(b)
on the discharge of a debt secured by the rights or share, or
(c)
between spouses living together.
488
Disregard of some events after alterations of life insurance policy terms
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(1)
This section applies if—
(a)
the terms of a policy of life insurance are altered,
(b)
the alteration is not itself a chargeable event, and
(c)
the conditions specified in section 489 are met.
(2)
After the alteration a chargeable event is only treated as occurring in relation
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to the policy if one would have been treated as occurring had the alteration not
occurred.
(3)
If the alteration results in the policy being regarded as replaced by another, this
section and section 489 apply as if they were a single policy.
489
Conditions applicable to alterations of life insurance policy terms
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(1)
Conditions A to E are the conditions referred to in section 488.
(2)
Condition A is that the policy was issued in respect of an insurance made at
least 20 years before the alteration.
(3)
Condition B is that the alteration results from a decision by the insurance
company that it will not collect further premiums due from any of the holders
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under a number of policies of the same description if a particular period of time
has elapsed since the contracts were made.
(4)
Condition C is that no premiums are payable or paid after the date of the
alteration.
(5)
Condition D is that the benefits to be provided under the policy after the
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alteration are the same or substantially the same as those before the alteration.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
211

(6)
A deduction from the benefits is ignored for the purposes of subsection (5) if it
does not exceed the total net premiums which, apart from the alteration, would
have been payable under the policy between—
(a)
the date of the alteration, and
(b)
the date on which the benefits become payable.
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(7)
In subsection (6) “net premiums” means the premiums reduced by any tax
relief which would have been due on the premiums had they been paid.
(8)
Condition E is that the premiums payable under the policy before the
alteration—
(a)
have not been reduced to a nominal amount on the exercise of an
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option, in circumstances where the reduction is connected with a right
to surrender in part the rights conferred by the policy after the date of
the reduction, and
(b)
are not capable of being so reduced in such circumstances.
490
Last payment under guaranteed income bonds etc. treated as total surrender
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(1)
This section applies to a payment that would fall within section 500(d)
(payments under guaranteed income bonds etc. treated as surrenders of part
of the rights under the contract) apart from section 504(5) (which prevents
payments comprising the whole of the last benefit to be paid under such
contracts from being so treated).
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(2)
The payment is treated for the purposes of this Chapter as the surrender of all
the rights under the contract.
(3)
A payment to which this section applies is not regarded as interest or as an
annual payment for any income tax purposes.
Calculating gains: general
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491
Calculating gains: general rules
(1)
This section deals with calculating—
(a)
whether a gain has arisen on a chargeable event within section
484(1)(a)(i) to (iii) or (b) to (e) (surrender or assignment of all rights,
final participation in profits, death, maturity, or taking a capital sum as
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a complete alternative to annuity payments), and
(b)
if so, the amount of the gain.
(2)
There is a gain if TB exceeds the sum of TD and PG where—
TB is the total benefit value of the policy or contract (see section 492),
TD is the total allowable deductions for the policy or contract (see section
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494), and
PG is the total amount of gains treated as arising on calculation events
occurring in relation to the policy or contract before the chargeable
event in question.
(3)
The gain is equal to the excess.
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(4)
In this Chapter—
“calculation event” means an excess event, a part surrender or assignment
event or a personal portfolio bond event,

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
212

“excess event” means a chargeable event within section 509(1),
“part surrender or assignment event” means a chargeable event within
section 514(1), and
“personal portfolio bond event” means a chargeable event within section
525(2).
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(5)
The reference to the policy in the definition of “PG” in subsection (2) includes
any related policy.
(6)
For the purposes of this Chapter, a policy (“policy A”) is a related policy as
respects another (“policy B”) if—
(a)
policy B is a new policy (as defined in paragraph 17 of Schedule 15 to
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ICTA (substitutions and variations)) in relation to policy A, or
(b)
policy B is a new policy (as so defined) in relation to another policy
(“policy C”) and policy C is a new policy (as so defined) in relation to
policy A,

and so on.
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(7)
See section 539 (relief for deficiencies) if there is no gain under subsection (2),
but a gain arose on a calculation event occurring in relation to the policy or
contract before the chargeable event in question.
(8)
For the rules about calculating gains on calculation events, see—
section 507 (method for making periodic calculations under section 498),
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section 511 (method for making transaction-related calculations under
section 510), and
section 522 (method for making annual calculations under section 515).
492
The total benefit value of a policy or contract
(1)
To calculate the total benefit value of a policy or contract for the purposes of
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section 491, add together—
(a)
its value in accordance with section 493,
(b)
any capital sum paid under the policy or contract before the event,
(c)
the value of any other benefit of a capital nature conferred by the policy
or contract before the event,
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(d)
the amount of any loan made before the event, the making of which is
treated as the surrender of a part of the rights under the policy or
contract under section 500(c) (loans by insurers to which section 501
applies),
(e)
in the case of a guaranteed income bond contract, as defined in section
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504(7), any amount paid before the event, the payment of which is
treated as a surrender of a part of the rights under the contract under
section 500(d) of this Act (payments by insurers under such contracts),
and
(f)
in the case of an assignment, the amount or value of any share in the
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rights under the policy or contract that was assigned before the event.
(2)
References to the policy in subsection (1)(b) to (e) include any related policy.
(3)
This section is subject to—
section 495 (disregard of certain amounts in calculating gains under
section 491), and
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section 497 (disregard of trivial inducement benefits).