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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.

25

   

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—

5

(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

30

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

35

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

 

20

  

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

 

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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—

5

(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

25

(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

30

(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,

35

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

15

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

25

with the first such year.

   

Step 2

   

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

amount.

   

Step 3

30

   

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—

35

   

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

15

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.

 
 

 
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