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.
239

Supplementary
542
Replacement of qualifying policies
(1)
A qualifying policy (“the replaced policy”) and a policy of life insurance (“the
replacement policy”) which replaces the replaced policy are treated as a single
policy for the purposes of sections 484 to 497 if conditions A to D are met.
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(2)
Condition A is that the replacement policy is also a qualifying policy under the
rules in paragraph 17 of Schedule 15 to ICTA.
(3)
Condition B is that the replacement results from a change in the life or lives
insured.
(4)
Condition C is that any sum becoming payable by the insurance company on
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or in connection with the termination of the replaced policy is retained by it
and applied in the discharge of some or all of the liability for any premium
becoming due under the replacement policy.
(5)
Condition D is that no consideration in money or money’s worth (other than
the benefits for which provision is made by the replacement policy) is
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receivable by any person on or in connection with—
(a)
the termination of the replaced policy, or
(b)
the coming into existence of the replacement policy.
(6)
The single policy is treated for the purposes of sections 484 to 497 as issued in
respect of an insurance made at the time of the making of the insurance in
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respect of which the replaced policy was issued.
(7)
So long as the replacement policy continues to be a qualifying policy, the single
policy is also treated as a qualifying policy for those purposes.
(8)
This section applies equally to a second or subsequent replacement policy.
(9)
References in Schedule 2 (transitionals and savings) to—
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(a)
a policy of life insurance,
(b)
the time of the making of the insurance in respect of which a policy of
life insurance is issued, and
(c)
a qualifying policy,

are to be read in accordance with this section.
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543
Issue time of qualifying policy replacing foreign policy
(1)
This section applies if—
(a)
there has been a substitution of policies falling within paragraph 25(1)
or (3) of Schedule 15 of ICTA (replacement of a policy issued by a non-
UK resident company by a policy which is not so issued), and
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(b)
the new policy is a qualifying policy.
(2)
The new policy is treated for the purposes of sections 484 to 497 as having been
issued in respect of an insurance made on the day on which the insurance was
made in respect of which the old policy was issued.
(3)
References in Schedule 2 (transitionals and savings) to the time of the making
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of the insurance in respect of which a policy of life insurance is issued are to be
read in accordance with this section.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
240

544
Application of Chapter to policies and contracts in which companies
interested
(1)
This section applies where, for the purposes of determining the application of
this Chapter in relation to a policy or contract at any time, it is necessary to
have regard to its application at another time.
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(2)
It makes no difference to the application of this Chapter at that other time
whether liability in respect of a gain arising at that time would have arisen or
(as the case may be) would arise because of the application of this Chapter or
the corporation tax provisions.
(3)
In subsection (2) “the corporation tax provisions” means—
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(a)
Chapter 2 of Part 13 of ICTA (which makes provision for corporation
tax purposes corresponding to that made by this Chapter),
(b)
paragraph 20 of Schedule 15 to that Act (replacement of qualifying
policies), and
(c)
section 79 of FA 1997 (payments under certain life insurance policies).
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545
Minor definitions
(1)
In this Chapter—
“charitable trust” means a trust established for charitable purposes only,
“contract of insurance” has the meaning given by Article 3(1) of the
Financial Services and Markets Act 2000 (Regulated Activities) Order
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2001 (S.I. 2001/544),
“friendly society” has the meaning given in the Friendly Societies Act 1992
(c. 40) and includes a society which under section 96(2) of that Act is to
be treated as a registered friendly society,
“insurance company” means an undertaking carrying on the business of
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effecting or carrying out contracts of insurance,
“market value” has the meaning given by sections 272 and 273 of TCGA
1992,
“non-charitable trust” means a trust other than a charitable trust, and
“policy” means a policy of life insurance or a capital redemption policy.
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(2)
References in this Chapter to a premium include a reference to—
(a)
lump sum consideration, and
(b)
property other than cash transferred to the insurance company in
satisfaction of a premium.
(3)
References in this Chapter to the amount of premiums paid include a reference
35
to—
(a)
the amount of lump sum consideration paid by way of premium, and
(b)
the market value at the date of transfer of property other than cash
transferred to the insurance company in satisfaction of any premium.
546
Table of provisions subject to special rules for older policies and contracts
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(1)
Column 1 of the table in subsection (4) specifies provisions of this Chapter
which are subject to Part 6 or 7 of Schedule 2 (transitionals and savings), and
column 2 of the table specifies the provisions of that Schedule to which they are
subject.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 9 — Gains from contracts for life insurance etc.
241

(2)
See also paragraphs 85 to 91 of that Schedule.
(3)
The provisions of that Schedule referred to in subsections (1) and (2) are to be
read as if they were in this Chapter.
(4)
This is the table—

Provisions of
Provisions of Schedule 2

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Chapter 9

Section 467
paragraph 112 (pre-17th March 1998 policies and

contracts) and paragraph 114 (pre-9th April 2003

policies and contracts)

Section 473
paragraph 96 (exclusion of pre-20th March 1968

10

policies and contracts) and paragraph 102 (exclusion

of certain pre-26th June 1982 policies and contracts)

Section 476(3)
paragraphs 103 and 111 (certain pre-18th November

1983 and pre-17th March 1998 policies not foreign

policies of life insurance) and paragraphs 104 and

15

113 (certain pre-23rd February 1984 and pre-23rd

March 1999 policies not foreign capital redemption

policies)

Section 480
paragraph 116 (pre-9th April 2003 policies)

Section 484
paragraph 99 (pre-10th December 1974 contracts for

20

a life annuity: disregard of death)

Section 485(2) and
paragraph 107 (pre-14th March 1989 qualifying

(3)
policies)

Section 494(1)
paragraph 105(a) (pre-14th March 1984 policies:

disregard of amounts deducted and repaid after tax

25

relief by deduction from premiums abolished)

Section 500(c)
paragraph 97 (disapplication in relation to pre-27th

March 1974 policies and contracts) and paragraph

102(9) (exclusion of certain pre-26th June 1982

policies and contracts)

30

Section 501
paragraph 102(9) (exclusion of certain pre-26th June

1982 policies and contracts), paragraph 108 (pre-

14th March 1989 policies and contracts) and

paragraph 115 (pre-9th April 2003 policies and

contracts: loans to trustees)

35

Section 507
paragraph 100 (pre-14th March 1975 policies and

contracts) and paragraph 105(b) (pre-14th March

1984 policies: disregard of amounts deducted and

repaid after tax relief by deduction from premiums

abolished)

40

Section 516
paragraph 119 (pre-17th March 1998 policies and

contracts)

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 10 — Distributions from unauthorised unit trusts
242

Provisions of
Provisions of Schedule 2

Chapter 9

Section 525
paragraph 124(3) (pre-17th March 1998 policies and

contracts) and paragraph 125(3) (pre-17th March

1998 policies and contracts)

5

Section 529
paragraph 106 (disapplication of section 529(1)(a)

and (b) for certain pre-20th March 1985 policies) and

paragraph 110 (disapplication of section 529(1)(c)

for certain pre-17th March 1998 policies)

Section 530
paragraph 109(2) (disapplication for contracts for

10

life annuities made in accounting periods beginning

before 1st January 1992)

Section 531
paragraph 98 (pre-27th March 1974 policies and

contracts: disapplication of section 531(3)(c)) and

paragraph 118 (pre-1st January 2005 contracts for

15

immediate needs annuities: income tax treated as

paid)

Section 539(3)
paragraph 109(4) (contracts made in accounting

periods beginning before 1st January 1992)

Section 541(4)
paragraph 117 (pre-3rd March 2004 contract or

20

policy: calculation of deficiencies)

Section 542
paragraph 101 (disapplication in the case of pre-25th

March 1982 replacement policies)

Chapter 10
Distributions from unauthorised unit trusts
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547
Charge to tax under Chapter 10
(1)
Income tax is charged on income treated as received by a unit holder from a
scheme to which section 469 of ICTA applies (unauthorised unit trust
schemes).
(2)
For the purposes of this Chapter, a unit holder is treated as receiving such
30
income if an amount is shown in the scheme’s accounts as income available for
payment to unit holders or for investment.
548
Income charged
(1)
Tax is charged under this Chapter on the gross amount of the income treated
as received by the unit holder in the tax year.
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(2)
To calculate the gross amount of the income treated as received by a unit
holder for a distribution period—

Step 1

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 10 — Distributions from unauthorised unit trusts
243


Calculate the unit holder’s share of the scheme’s available income by applying
the formula—

where—
SAI is the total amount shown in the scheme’s accounts as income
available for payment to unit holders or for investment,
5
R is the unit holder’s rights, and
TR is all the unit holders’ rights.

Step 2

Gross up the unit holder’s share of the scheme’s available income by reference
to the basic rate for the tax year in which the income from the scheme is treated
10
as received.
(3)
The income from a scheme for a distribution period is treated as received on
the date or latest date provided by the terms of the scheme for any distribution
for the period, unless that date is more than 12 months after it ends.
(4)
If—
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(a)
that date is more than 12 months after the distribution period ends, or
(b)
no date is so provided,

the income for the period is treated as received on the last day of the period.
(5)
In this section “distribution period” means a period over which income from
the investments subject to the trusts is aggregated to ascertain the amount
20
available for distribution to unit holders.

This is subject to subsections (6) and (7).
(6)
If the scheme does not provide for distribution periods, its distribution periods
are taken to be successive periods of 12 months, the first of which began with
the day on which the scheme took effect.
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(7)
If the scheme provides for a distribution period of more than 12 months, each
successive period of 12 months within that period and any remaining period
of less than 12 months are taken to be distribution periods.
549
Person liable
The person liable for any tax charged under this Chapter is the unit holder
30
treated as receiving the income under section 547(2).
550
Income tax treated as paid
Income tax treated as deducted from income within this Chapter as a result of
section 469(3) of ICTA (treatment of income within this Chapter as annual
payments for certain purposes) is treated as income tax paid by the recipient.
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Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 11 — Transactions in deposits
244

Chapter 11
Transactions in deposits
551
Charge to tax on profits from disposal of deposit rights
(1)
Income tax is charged on profits and gains from the disposal of deposit rights.
(2)
For the purposes of this section, the exercise of a deposit right is a disposal of
5
it, except so far as the right is a right to receive interest.
552
Meaning of “deposit rights”
(1)
In this Chapter “deposit rights” means—
(a)
a right to receive, with or without interest, a principal amount stated in,
or determined in accordance with, the current terms of issue of an
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eligible debt security, where in accordance with those terms the issue of
uncertificated units of the eligible debt security corresponds to the issue
of a certificate of deposit,
(b)
a right to receive the principal amount stated in a certificate of deposit,
with or without interest,
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(c)
an uncertificated right to receive a principal amount, with or without
interest, as a result of a deposit of money,
(d)
a right which—
(i)
is not within paragraph (c),
(ii)
is acquired in a transaction in which no certificate of deposit or
20
security or uncertificated eligible debt security units are issued,
and
(iii)
is a right to receive a principal amount payable with interest by
a bank or similar institution or a person regularly engaging in
similar transactions, and
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(e)
the right to receive the interest mentioned in paragraph (d).
(2)
In this section—
“certificate of deposit” means a document—
(a)
relating to the deposit of money in any currency,
(b)
recognising an obligation to pay a stated principal amount to
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bearer or to order, with or without interest, and
(c)
by the delivery of which, with or without endorsement, the
right to receive that stated amount, with or without interest, is
transferable,
“eligible debt security” has the meaning given in regulation 3(1) of the
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Uncertificated Securities Regulations 2001 (S.I. 2001/3755),
“security” (except in relation to an eligible debt security) includes any loan
stock or similar security, whether secured or unsecured and whether
issued by—
(a)
the Government of the United Kingdom or another
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government,
(b)
any local or other public authority in the United Kingdom or
elsewhere, or
(c)
any company,

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 12 — Disposals of futures and options involving guaranteed returns
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“uncertificated”, in relation to a unit, has the meaning given in regulation
3(1) of the Uncertificated Securities Regulations 2001,
“uncertificated eligible debt security units” means uncertificated units of
an eligible debt security where the issue of the units corresponds, in
accordance with the current terms of issue of the eligible debt security,
5
to the issue of a certificate of deposit,
“uncertificated right” means a right in respect of which no certificate of
deposit has been issued, although the person for the time being entitled
to it is entitled to call for the issue of such a certificate, and
“unit” has the meaning given in regulation 3(1) of the Uncertificated
10
Securities Regulations 2001.
553
Income charged
Tax is charged under this Chapter on the full amount of profits or gains arising
in the tax year.
554
Person liable
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The person liable for any tax charged under this Chapter is the person
receiving or entitled to the profits or gains.
Chapter 12
Disposals of futures and options involving guaranteed returns
Charge to tax under Chapter 12
20
555
Charge to tax under Chapter 12
(1)
Income tax is charged on profits and gains from a disposal of a future or option
that is a disposal involving guaranteed returns.
(2)
Those profits and gains are treated as income for income tax purposes even if
they would otherwise be taken to be a capital item.
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556
Income charged
(1)
Tax is charged under this Chapter on the full amount of profits or gains arising
in the tax year.
(2)
The profits and gains from a disposal are taken to arise when the disposal
occurs.
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557
Person liable
The person liable for any tax charged under this Chapter is the person realising
the profits or gains.
558
Meaning of “future”, “option” etc.
(1)
In this Chapter “future” means outstanding rights and obligations under a
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commodity or financial futures contract.