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.
231

Reductions from gains
527
Reduction for sums taken into account otherwise than under Chapter 9
(1)
This section applies if the whole or part of any receipt or other credit item is
taken into account in calculating both—
(a)
the amount of a gain treated as arising under this Chapter, and
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(b)
an amount on which income tax is charged otherwise than under this
Chapter or on which corporation tax is charged.
(2)
The amount of the gain on which tax is charged under this Chapter is reduced
by so much of the amount of that receipt or other credit item as is taken into
account in both those calculations.
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528
Reduction in amount charged: non-UK resident policy holders
(1)
The gain from a foreign policy of life insurance or foreign capital redemption
policy is reduced for the purposes of this Chapter if the policy holder was not
UK resident throughout the policy period.
(2)
The amount of the reduction is the appropriate fraction of the gain.
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(3)
The appropriate fraction is—

where—
A is the number of days on which the policy holder was not UK resident
in the policy period, and
B is the number of days in that period.
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(4)
In this section and section 529 (exceptions from this section), “the policy
period” means the period for which the policy has run before the chargeable
event occurs.
(5)
If the gain is from a policy of life insurance which is a new policy in relation to
another policy, for the purposes of subsection (4) the new policy is taken to
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have run—
(a)
from the issue of the other policy, or
(b)
if it also was a new policy in relation to an earlier policy, from the issue
of the earlier policy,

and so on.
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(6)
In subsection (5) “new policy” has the meaning given in paragraph 17 of
Schedule 15 to ICTA.
(7)
This section is subject to section 529.
529
Exceptions to section 528
(1)
Section 528 does not apply if, when the chargeable event occurs or at any time
35
during the policy period, the policy is or was held—
(a)
by a non-UK resident trustee,
(b)
by non-UK resident trustees, or

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
232

(c)
by a foreign institution.
(2)
Section 110 of FA 1989 (residence of trustees) applies for the purposes of
subsection (1)(b) despite section 110(6) of that Act (which provides that it only
applies for 1989-90 and subsequent tax years).
Income tax treated as paid and reliefs
5
530
Income tax treated as paid etc.
(1)
An individual or trustees who are liable for tax on an amount under this
Chapter are treated as having paid income tax at the lower rate on that amount.
(2)
The income tax treated as paid under subsection (1) is not repayable.
(3)
The amount on which an individual is treated under subsection (1) as having
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paid income tax is reduced if subsection (4) applies.
(4)
This subsection applies if the individual’s total income is reduced by any
deductions which fall to be made from the part of the income charged to tax
under this Chapter.
(5)
The reduction under subsection (3) is equal to the amount of those deductions.
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(6)
An amount on which an individual is liable to tax under this Chapter is not
charged at the starting rate.
(7)
This section is subject to section 531.
531
Exceptions to section 530
(1)
Section 530 does not apply to gains from the kinds of policies and contracts
20
specified in subsection (3), except for the purposes of calculating relief under
section 535 (top slicing relief).
(2)
Subsection (1) is subject to—
section 532 (relief for policies and contracts with European Economic
Area insurers), and
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section 534 (regulations providing for relief in other cases where foreign
tax chargeable).
(3)
The policies and contracts are—
(a)
a policy of life insurance issued or a contract for a life annuity made by
a friendly society in the course of tax exempt life or endowment
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business,
(b)
a foreign policy of life insurance that does not meet conditions A and B,
(c)
a contract for a life annuity (other than one within paragraph (a)) which
has at any time not formed part of any insurance company’s or friendly
society’s basic life assurance and general annuity business the income
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and gains of which are subject to corporation tax, and
(d)
a foreign capital redemption policy.
(4)
In this section and section 532—
“basic life assurance and general annuity business” has the same meaning
as in Chapter 1 of Part 12 of ICTA (see section 431F), 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.
233

“tax exempt life or endowment business” has the meaning given in section
466(2) of ICTA.
(5)
Condition A is that the policy falls within paragraph (a) of the definition of
“foreign policy of life insurance” in section 476(3) (policy issued by a non-UK
resident company).
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(6)
Condition B is that the conditions in paragraph 24(3) of Schedule 15 to ICTA
(conditions that are required to be met for certain policies issued by non-UK
resident companies to be qualifying policies) are met throughout the period
between—
(a)
the date on which the policy was issued, and
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(b)
the date on which the gain arises.
532
Relief for policies and contracts with European Economic Area insurers
(1)
Section 530 applies to a gain from a foreign policy of life insurance or a foreign
capital redemption policy or to a gain from a contract for a life annuity (and
accordingly section 531 and paragraph 109(2) of Schedule 2 do not apply) if a
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claim is made that conditions A to C have been met throughout the policy
period.
(2)
Condition A is that the company liable to make payments under the policy or
contract (“the insurer”) has not been UK resident.
(3)
Condition B is that a comparable EEA tax charge has applied to the insurer (see
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section 533).
(4)
Condition C is that no excluded reinsurance contract has been made in relation
to the policy or contract.
(5)
In this section—
“excluded reinsurance contract”, in relation to a policy or contract, means
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any reinsurance contract—
(a)
wholly or partly covering any of the insurer’s obligations to pay
any sum or to meet any other liability arising under the policy
or contract, and
(b)
relating to risk other than that the individual whose life is
30
insured by the policy or the annuitant will die or suffer any
sickness or accident,
“policy period”—
(a)
in relation to a policy, means the period between—
(i)
the making of the insurance or contract, and
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(ii)
the date on which the gain arises,

but excluding any period when the conditions in paragraph
24(3) of Schedule 15 to ICTA are met (conditions that are
required to be met for certain policies issued by non-UK
resident companies to be qualifying policies), and
40
(b)
in relation to a contract for a life annuity, means the period
between—
(i)
the date the insurer entered into the contract, and
(ii)
the date on which the gain arises,

but excluding any period when the contract fell to be regarded
45
as forming part of a basic life assurance and general annuity

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
234

business the income and gains of which were subject to
corporation tax.
533
Meaning of “comparable EEA tax charge”
(1)
In section 532 “comparable EEA tax charge” in relation to the company liable
to make payments under the policy or contract under which the gain has arisen
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(“the insurer”) means a charge that meets conditions A to F.
(2)
Condition A is that the charge is imposed on the insurer under the laws of a
territory outside the United Kingdom that is within the European Economic
Area when the gain arises.
(3)
Condition B is that the charge has applied to the insurer—
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(a)
as a body deriving its status as a company from those laws,
(b)
as a company with its place of management there, or
(c)
as a company falling under those laws to be regarded for any other
reason as resident or domiciled there.
(4)
Condition C is that the charge applies at a rate of at least 20% in relation to the
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amounts subject to tax in the insurer’s hands, other than amounts arising or
accruing in respect of investments of a description for which a special relief or
exemption is generally available.
(5)
Condition D is that the charge is made otherwise than by reference to the
insurer’s profits.
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(6)
Condition E is that the charge requires sums payable and other liabilities
arising under policies or contracts of the same class as the policy or contract in
question to be treated as falling to be met out of amounts subject to tax in the
insurer’s hands.
(7)
Condition F is that the charge so requires them by disallowing their deduction
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in calculating the amount chargeable.
534
Regulations providing for relief in other cases where foreign tax chargeable
(1)
This section applies if—
(a)
apart from this section, as a result of section 531 or paragraph 109(2) of
Schedule 2, section 530 would not apply to gains from a policy or
30
contract (except for the purposes of section 535 (top slicing relief)), and
(b)
the Board of Inland Revenue consider it appropriate to disapply section
531 and paragraph 109(2) of Schedule 2 in relation to such gains by
reference to tax chargeable under the laws of a territory outside the
United Kingdom in cases other than those where they are disapplied as
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a result of section 532.
(2)
The Board of Inland Revenue may by regulations provide for section 530 to
apply to those gains (and accordingly section 531 and paragraph 109(2) of
Schedule 2 not to apply to them) if a claim is made that the conditions specified
in the regulations are met in relation to any time.
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(3)
That time may be a time before the regulations are made or a later time.