House of Commons portcullis
House of Commons
Session 2004 - 05
Internet Publications
Other Bills before Parliament

Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 7 — Purchased life annuity payments

314

 

(a)   

any amount relating to changes in the value of a FOTRA security, or

(b)   

expenses related to holding it or to any transaction concerning it.

(2)   

Condition A is that the person is the beneficial owner of the security.

(3)   

Condition B is that the person is a person who would be exempt from tax on

the security under this Chapter.

5

Chapter 7

Purchased life annuity payments

Partial exemption for purchased life annuity payments

717     

Exemption for part of purchased life annuity payments

(1)   

No liability to income tax arises under Chapter 7 of Part 4 in respect of so much

10

of an annuity payment made under a purchased life annuity as is within this

subsection in accordance with section 719 (extent of exemption).

(2)   

Subsection (1) is subject to section 718.

(3)   

The exemption under this section requires a claim.

(4)   

In this Chapter “purchased life annuity” has the same meaning as in Chapter 7

15

of Part 4 (see section 423).

718     

Excluded annuities

(1)   

The exemption in section 717(1) does not apply to payments made under the

annuities specified in subsection (2).

(2)   

The annuities are—

20

(a)   

an annuity the whole or part of the consideration for which consisted

of sums satisfying the conditions for relief under section 266 of ICTA

(life assurance premiums),

(b)   

an annuity purchased following a direction in a will, and

(c)   

an annuity purchased to provide for an annuity payable as a result of a

25

will or settlement out of income of property disposed of by the will or

settlement.

(3)   

For the purposes of subsection (2)(c), it does not matter whether or not capital

could also be used to pay the annuity.

719     

Extent of exemption under section 717

30

(1)   

This section sets out the rules for determining the extent to which an annuity

payment is within the exemption in section 717(1).

(2)   

The rules depend on—

(a)   

whether or not the amount of the annuity payments under the annuity

depends solely on the duration of a human life or lives (see subsections

35

(3) to (5)), and

(b)   

whether or not the annuity’s term depends solely on the duration of a

human life or lives (see subsections (6) to (8)).

 
 

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 7 — Purchased life annuity payments

315

 

(3)   

If the amount of the annuity payments depends solely on the duration of a

human life or lives, the same proportion of each payment (“the exempt

proportion”) is exempt.

(4)   

But if the amount of the annuity payments also depends on another

contingency, each payment is exempt so far as it does not exceed a fixed sum

5

(“the exempt sum”).

(5)   

If an annuity payment within subsection (4) is less than the exempt sum, the

shortfall is added to the exempt sum for the next payment (and so on).

(6)   

The ways to determine the exempt proportion and the exempt sum differ

according to whether or not the annuity’s term depends solely on the duration

10

of a human life or lives.

(7)   

If the annuity’s term depends solely on the duration of a human life or lives—

(a)   

the exempt proportion is determined as set out in section 720, and

(b)   

the exempt sum is determined as set out in section 721.

(8)   

If the annuity’s term also depends on another contingency—

15

(a)   

the exempt proportion is the proportion which is just and reasonable,

having regard to the contingencies affecting the annuity and to section

720, and

(b)   

the exempt sum is the amount which is just and reasonable, having

regard to the contingencies affecting the annuity and to section 721.

20

720     

Exempt proportion: term dependent solely on duration of life

(1)   

In the case of an annuity within section 719(7) (term dependent solely on

duration of life), the exempt proportion is —equation: cross[times[char[A],char[P]],over[times[char[P],char[P]],times[char[A],char[V]]]]

   

where—

AP is the annuity payment,

25

PP is the purchase price of the annuity, and

AV is the actuarial value of the annuity payments.

(2)   

The purchase price of the annuity is the total amount or value of the

consideration given for the annuity.

(3)   

The actuarial value of the annuity payments is their value at the date when the

30

first of the payments starts to accrue.

(4)   

That value is determined—

(a)   

by reference to tables of mortality prescribed under section 724,

(b)   

taking the age at that date of a person during whose life the annuity is

payable as that person’s age in whole years on that date, and

35

(c)   

without discounting any payment for the time to elapse before it is

payable.

(5)   

But if it is not possible to determine that actuarial value by reference to the

tables mentioned in subsection (4)(a), it is such amount as may be certified by

the Government Actuary or the Deputy Government Actuary.

40

 
 

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 7 — Purchased life annuity payments

316

 

721     

Exempt sum: term dependent solely on duration of life

(1)   

In the case of an annuity within section 719(7) (term dependent solely on

duration of life), the exempt sum is —equation: cross[cross[times[char[P],char[P]],over[num[1.0000000000000000,"1"],times[char[T],

char[Y]]]],over[times[char[P],char[M]],num[12.0000000000000000,"12"]]]

   

where—

PP is the purchase price of the annuity,

5

TY is the expected term of the annuity in years (and any odd fraction of a

year), and

PM is the period in months (and any odd fraction of a month) in respect

of which the annuity payment is made.

(2)   

The purchase price of the annuity is the total amount or value of the

10

consideration given for the annuity.

(3)   

The expected term of the annuity is the period from the date when the first

annuity payment starts to accrue to the date when it is expected that the last

payment will become payable.

(4)   

The expected term of the annuity is determined—

15

(a)   

as at the date when the first annuity payment starts to accrue,

(b)   

by reference to tables of mortality prescribed under section 724, and

(c)   

taking the age at that date of a person during whose life the annuity is

payable as that person’s age in whole years on that date.

(5)   

But if it is not possible to determine that term by reference to the tables

20

mentioned in subsection (4)(b), it is such period as may be certified by the

Government Actuary or the Deputy Government Actuary.

722     

Consideration for the grant of annuities

(1)   

This section applies if the amount or value given for an annuity is to be

determined for the purposes of sections 720(2) or 721(2) and either—

25

(a)   

consideration is not given solely for the annuity, or

(b)   

it appears that the amount or value of the consideration nominally

given for it affected, or was affected by, the consideration given for

something else.

(2)   

For the purposes of subsection (1), consideration given for a right to a return of

30

premiums or of other consideration for an annuity is treated as given solely for

the annuity.

(3)   

If subsection (1)(a) applies, the consideration is to be apportioned in such way

as is just and reasonable.

(4)   

If subsection (1)(b) applies, the total amount or value of the considerations

35

given is to be apportioned in such way as is just and reasonable.

723     

Determinations

(1)   

Any question—

 
 

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 7 — Purchased life annuity payments

317

 

(a)   

whether an annuity is a purchased life annuity for the purposes of

section 717, or

(b)   

how much of an annuity payment is exempt,

   

is to be determined by the Inland Revenue.

(2)   

A person aggrieved by the Inland Revenue’s determination may appeal to the

5

Special Commissioners.

(3)   

If a person making a payment under an annuity—

(a)   

has been given notice of such a determination in the way prescribed

under section 724, and

(b)   

has not been notified of any alteration of it,

10

   

the determination is conclusive for determining the amount of income tax the

person may or must deduct from it or for which the person is liable in respect

of it.

(4)   

A notification of an alteration of a previous determination of any question is

itself a determination for the purposes of this Chapter.

15

(5)   

Subsection (6) applies if a person making an annuity payment to which the

exemption in section 717(1) applies has not been given notice in the way

prescribed under section 724 of the amount which is exempt.

(6)   

The amount of income tax the person may or must deduct, or for which the

person is liable, is the amount it would be if none of the payment were exempt.

20

(7)   

A person who knowingly makes any false statement or false representation for

the purpose of obtaining any exemption from or repayment of tax for any

person under sections 717 to 722, this section or section 724 is liable to a penalty

not exceeding £3,000.

724     

Regulations

25

(1)   

The Board of Inland Revenue may by regulations—

(a)   

prescribe the procedure to be used in giving effect to sections 717 to 723

and this section where no provision is made in those provisions,

(b)   

apply any provision of the Income Tax Acts, with or without

modifications, for the purposes of those provisions or the regulations,

30

(c)   

prescribe tables of mortality for the purposes of sections 720(4) and

721(4).

(2)   

The regulations may, in particular, make provision about—

(a)   

the time limit for making a claim for exemption from tax under section

717(1) or any consequential repayment of tax,

35

(b)   

the information to be provided in connection with the determination of

the questions mentioned in section 723(1) and the persons who may be

required to provide it,

(c)   

the way in which such a determination is to be notified to the person

making the annuity payments,

40

(d)   

the way in which such a determination is to be given effect and the

making of assessments for that purpose on the person entitled to the

annuity,

(e)   

the extent to which such a determination is to be binding and the

circumstances in which it may be reviewed, and

45

(f)   

the time limit for appealing against such a determination.

 
 

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 7 — Purchased life annuity payments

318

 

(3)   

Subsection (2)(d) applies despite anything in section 348 of ICTA (charges on

income).

Immediate needs annuities

725     

Annual payments under immediate needs annuities

(1)   

No liability to income tax arises under Chapter 7 of Part 4 in respect of so much

5

of an annual payment made under an immediate needs annuity as is made—

(a)   

for the benefit of the person protected under that annuity, and

(b)   

to a care provider or a local authority in respect of the provision of care

for that person.

(2)   

In this section “immediate needs annuity” means a contract for a purchased life

10

annuity—

(a)   

the purpose or one of the purposes of which is to protect a person

against the consequences of the person being unable, at the time the

contract is made, to live independently without assistance because of a

condition to which subsection (3) applies, and

15

(b)   

under which benefits are payable in respect of the provision of care for

the person protected.

(3)   

This subsection applies to—

(a)   

mental or physical impairment, or

(b)   

injury, sickness or other infirmity,

20

   

which is expected to be permanent.

(4)   

In this section and section 726 “care” means accommodation, goods or services

which it is necessary or desirable to provide to a person because of a condition

to which subsection (3) applies.

(5)   

In this section—

25

“care provider” has the meaning given in section 726, and

“purchased life annuity” has the same meaning as in Chapter 7 of Part 4

(see section 423).

(6)   

The Treasury may by order amend—

(a)   

subsection (2), and

30

(b)   

subsection (3), so far as it applies for the purposes of subsection (2).

726     

Meaning of “care provider”

(1)   

In section 725 “care provider” means a person who—

(a)   

carries on a trade, profession or vocation which consists of or includes

the provision of care, and

35

(b)   

meets the care registration requirement.

(2)   

A person meets the care registration requirement in relation to care provided

in England and Wales if the person is registered under Part 2 of the Care

Standards Act 2000 (c. 14) in respect of the provision of care.

(3)   

A person meets the care registration requirement in relation to care provided

40

in Scotland if the person provides care as, or as part of, a service which is

registered under Part 1 of the Regulation of Care (Scotland) Act 2001 (asp 8).

 
 

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 8 — Other annual payments

319

 

(4)   

A person meets the care registration requirement in relation to care provided

in Northern Ireland if the person is registered in respect of the provision of care

under—

(a)   

Part 2 or 3 of the Registered Homes (Northern Ireland) Order 1992 (S.I.

1992/3204 (N.I. 20)), or

5

(b)   

Part 3 of the Health and Personal Social Services (Quality,

Improvement and Regulation) (Northern Ireland) Order 2003 (S.I.

2003/431 (N.I. 9)).

(5)   

A person meets the care registration requirement in relation to care provided

in a territory outside the United Kingdom if the person meets requirements

10

under the law of that territory relating to the provision of care that are

comparable to those mentioned in subsections (2) to (4).

(6)   

The Treasury may by order amend this section.

Chapter 8

Other annual payments

15

Certain annual payments by individuals

727     

Certain annual payments by individuals

(1)   

No liability to income tax arises under Part 5 in respect of an annual payment

if it—

(a)   

is made by an individual, and

20

(b)   

arises in the United Kingdom.

(2)   

Subsection (1) is subject to—

section 728 (commercial payments), and

section 729 (payments for non-taxable consideration).

(3)   

Subsection (1) also applies to a payment made by an individual’s personal

25

representatives if—

(a)   

the individual would have been liable to make it, and

(b)   

that subsection would have applied if the individual had made it.

(4)   

For the purposes of subsection (1) and section 728, “individual” includes a

Scottish partnership if at least one partner is an individual.

30

728     

Commercial payments

A payment by an individual is not exempt from income tax under section

727(1) if it is made for commercial reasons in connection with the individual’s

trade, profession or vocation.

729     

Payments for non-taxable consideration

35

(1)   

A payment that meets condition A is only exempt from income tax under

section 727(1) if condition B or C is met.

(2)   

Condition A is that—

 
 

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 8 — Other annual payments

320

 

(a)   

the payment is made under a liability incurred at any time for

consideration in money or money’s worth, and

(b)   

some or all of the consideration is not required to be brought into

account in calculating the payer’s income for income tax purposes.

(3)   

Condition B is that the payment is income within section 627(1) (payments on

5

divorce or separation) in the recipient’s hands.

(4)   

Condition C is that the payment is made to an individual under a liability

incurred at any time in consideration of the individual surrendering, assigning

or releasing an interest in settled property to or in favour of a person with a

subsequent interest.

10

(5)   

In the application of subsection (4) to Scotland, the reference to settled property

is to be read as a reference to property held in trust.

730     

Foreign maintenance payments

(1)   

No liability to income tax arises under Part 5 in respect of an annual payment

if—

15

(a)   

it is a maintenance payment,

(b)   

it arises outside the United Kingdom, and

(c)   

had it arisen in the United Kingdom it would be exempt from income

tax under section 727 (certain annual payments by individuals).

(2)   

In subsection (1) “maintenance payment” means a periodical payment which

20

meets conditions A and B.

(3)   

Condition A is that the payment is made under a court order or a written or

oral agreement.

(4)   

Condition B is that the payment is made by a person—

(a)   

as one of the parties to a marriage to, or for the benefit of, and for the

25

maintenance of, the other party,

(b)   

to any person under 21 for that person’s own benefit, maintenance or

education, or

(c)   

to any person for the benefit, maintenance or education of a person

under 21.

30

(5)   

In subsection (4) “marriage” includes a marriage that has been dissolved or

annulled.

(6)   

Subsection (1) also applies to a payment made by an individual’s personal

representatives if—

(a)   

the individual would have been liable to make it, and

35

(b)   

that subsection would have applied if the individual had made it.

Periodical payments of personal injury damages etc.

731     

Periodical payments of personal injury damages

(1)   

No liability to income tax arises for the persons specified in section 733 in

respect of periodical payments to which subsection (2) applies or annuity

40

payments to which subsection (3) applies.

(2)   

This subsection applies to periodical payments made pursuant to—

 
 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2005
Revised 4 February 2005