Income Tax (Trading and Other Income) Bill

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
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
548

money or money’s worth in an insurance year beginning on or before 5th
April 2001.
      (2)
Section 508 (the value of rights partially assigned) applies for the purposes
of the valuation of each such part or share as if—
(a)
in subsection (1) after “surrendered” (in both places where it occurs)
5
there were inserted “or assigned”,
(b)
in that subsection after “surrender” there were inserted “or
assignment”, and
(c)
subsection (4) were omitted.
Gains from contracts for life insurance etc: regulations providing for relief where foreign tax
10
chargeable
89
Regulations made under section 534 by virtue of paragraph 4 of this
Schedule may apply—
(a)
in relation to gains arising on or after 29th November 1994, and
(b)
in relation to any gain arising before that date the income tax on
15
which has not been the subject of an assessment that became final
and conclusive before that date.
Gains from contracts for life insurance etc: pure protection group life policies
90    (1)
For the purposes of Chapter 9 of Part 4, any event occurring before 9th April
2003 in relation to a policy of life insurance which, at the time of the event,
20
was a pure protection group life policy is deemed not to be a chargeable
event.
      (2)
For the purposes of this paragraph a policy of life insurance is at any time a
pure protection group life policy if at that time it is a group life policy whose
terms do not provide for any sums or other benefits to be paid or conferred
25
except on death or disability.
Gains from contracts for life insurance etc: assessment of trustees etc
91
Despite paragraph 4(1) of this Schedule, the references in section 151(2) of
FA 1989 (assessment of trustees etc.) to gains treated as arising under
Chapter 9 of Part 4 of this Act do not include references to gains treated as
30
arising under Chapter 2 of Part 13 of ICTA on chargeable events before 6th
April 1998.
Transactions in deposits
92
Section 551 (charge to income tax on profits from disposal of deposit rights)
does not apply if the person disposing of the rights acquired them before 7th
35
March 1973.
93    (1)
This paragraph applies if—
(a)
a right falling within the definition of “uncertificated right” in section
552(2) is a right under an arrangement made on or before 16th July
1992, and
40
(b)
the right to call for the issue of a certificate of deposit (as defined in
that section) is a right under that arrangement.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
549

      (2)
Chapter 11 of Part 4 (transactions in deposits) applies with the omission of
section 552(1)(c) and (d)(i).
Disposals of futures and options involving guaranteed returns: certain pre-6th February 1998
transactions
94    (1)
A transaction consisting in the running of a future to delivery or the exercise
5
of an option is not treated as a disposal for the purposes of Chapter 12 of Part
4 if it took place before 6th February 1998.
      (2)
Sub-paragraph (1) is to be read as if it were part of section 564 (deemed
disposal where futures run to delivery or options are exercised) (see, in
particular, section 565).
10
Disposals of futures and options involving guaranteed returns: rates of tax for pension trustees
95
For the tax year 2005-06 section 568(4) (by virtue of which income within
Chapter 12 of Part 4 arising to certain pension trustees is not treated as
income to which section 686 of ICTA applies) has effect with the substitution
for the words from “held” onwards of the words “held—
15
(a)
for the purposes of a fund or scheme established for the sole
purpose of providing relevant benefits (within the meaning
of section 612 of ICTA), or
(b)
for the purposes of a personal pension scheme (within the
meaning of section 630 of ICTA) making provision only for
20
such benefits as are mentioned in section 633 of ICTA
(annuities and lump sums meeting certain conditions).”
Part 6
Savings and investment income: insurance contracts and policies made before
certain dates
25
Pre-20th March 1968 policies and contracts excluded from Chapter 9 of Part 4
96    (1)
Chapter 9 of Part 4 does not apply to—
(a)
a policy of life insurance issued in respect of an insurance made
before 20th March 1968,
(b)
a contract for a life annuity made before that date, or
30
(c)
a capital redemption policy where the contract was made before that
date.
      (2)
For this purpose a policy of life insurance is treated as issued in respect of an
insurance made on or after 20th March 1968 if it is varied on or after that date
so as to extend its term or increase the benefits secured.
35
      (3)
A variation is ignored for the purposes of sub-paragraph (2) if—
(a)
before the variation the policy complied with paragraph 2 of
Schedule 9 to FA 1968 (general requirements for qualifying
endowment policies) except for the amount guaranteed on death,
(b)
the variation’s only effect was to make the policy comply with that
40
paragraph,
(c)
the variation was effected before 1st January 1969, and
(d)
the variation did not increase the premiums payable under the
policy.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
550

Pre-27th March 1974 policies and contracts: disapplication of section 500(c)
97
Section 500(c) (events treated as part surrenders: loan by insurer) does not
apply to a policy issued in respect of an insurance made before 27th March
1974 or a contract made before that date.
Pre-27th March 1974 contracts: disapplication of section 531(3)(c)
5
98
Section 531(3)(c) (certain contracts for life annuities excluded from section
530) does not apply to a contract made before 27th March 1974.
Pre-10th December 1974 contracts for a life annuity: disapplication of section 484(1)(d)
99
Section 484(1)(d) (chargeable events: death in case of contract for a life
annuity which provides for payment of a capital sum on death) does not
10
apply if the contract was made before 10th December 1974.
Pre-14th March 1975 policies and contracts: calculation of gains under section 507
100   (1)
This paragraph applies to—
(a)
a policy in respect of an insurance made before 14th March 1975, and
(b)
a contract made before that date.
15
      (2)
Section 507 (method for making periodic calculations under section 498)
applies to a policy or contract to which this paragraph applies with the
following modifications.
      (3)
In subsection (4) (calculation of net total value of rights assigned and
surrendered)—
20
(a)
in paragraph (a) of step 1 after “at any time”, in both places where it
occurs, and
(b)
in paragraph (b) of step 1 after “assigned”,

insert “during the reference period”.
      (4)
In subsection (5) (calculation of net total allowable payments), for step 1
25
substitute—

“Step 1

Find the allowable element in each allowable payment made during
the reference period by multiplying the amount of the payment by—

where X is the number of insurance years in the period beginning
30
with the year in which the payment is made and ending with the
reference period or, if it is less, 20.”
      (5)
After that step insert—

“Step 1A

Find any allowable element in any allowable payment made before
35
the reference period by multiplying the amount of the payment by—

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
551


where Y is the number of insurance years in the period beginning
with the year in which the payment is made and ending with the last
insurance year before the reference period or, if it is less, 20.”
      (6)
In subsection (6) insert the following definition in the appropriate place—
““the reference period” means the period beginning with the
5
first insurance year which falls wholly after 13th March 1975
and ending with the insurance year as at the end of which the
calculation under this section is required to be made,”.
Pre-25th March 1982 replacement policies: disapplication of section 542
101
Section 542 (replacement of qualifying policies) does not apply if the
10
replacement policy comes into existence before 25th March 1982.
Certain pre-26th June 1982 policies and contracts excluded from Chapter 9 of Part 4
102   (1)
Chapter 9 of Part 4 does not apply to a pre-1982 assigned policy or contract
unless on a date after 23rd August 1982 it has met condition A, B or C.
      (2)
In sub-paragraph (1) “pre-1982 assigned policy or contract” means—
15
(a)
a policy of life insurance issued in respect of an insurance made
before 26th June 1982, or
(b)
a contract for a life annuity made before that date,

the rights under which were assigned for money or money’s worth before
that date and are not held by the original beneficial owner.
20
      (3)
Condition A is that the rights under the policy or contract are again assigned
for money or money’s worth.
      (4)
Condition B is that a payment is made under the policy or contract by way
of premium.
      (5)
Condition C is that a sum is lent—
25
(a)
by, or by arrangement with, the body issuing the policy or the body
with which the contract was made, and
(b)
to or at the direction of an individual falling within sub-paragraph
(6).
      (6)
An individual falls within this sub-paragraph at any time if—
30
(a)
were a gain to arise in respect of the policy or contract at that time the
individual—
(i)
would be liable for tax in respect of it as a result of section 465
(person liable: individuals), or
(ii)
would be so liable apart from the requirement in section
35
465(1) that the individual must be UK resident in the tax year
in which the gain arises, or
(b)
at that time the rights under the policy or contract are held on
charitable trusts created by the individual.
      (7)
In the case of a qualifying policy, condition C is not met if—
40
(a)
interest is payable on the loan at a commercial rate, or
(b)
the loan is to a full-time employee of the body to assist the employee
in purchasing or improving a dwelling to be used as the employee’s
only or main residence.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
552

      (8)
In the case of a policy issued in respect of an insurance made before 27th
March 1974 or a contract made before that date, this paragraph applies as if
sub-paragraph (1) did not refer to condition C.
      (9)
A loan which causes condition C to be met is treated for the purposes of
sections 500(c) and 501 (loans treated as part surrenders) as having been
5
made at a time when Chapter 9 of Part 4 does apply to gains on the policy or
contract.
Certain pre-18th November 1983 policies not foreign policies of life insurance
103   (1)
A policy of life insurance is not a “foreign policy of life insurance” for the
purposes of Chapter 9 of Part 4 (see the definition in section 476(3)) if it is
10
issued in respect of an insurance made before 18th November 1983.
      (2)
For the purposes of sub-paragraph (1), a policy issued in respect of an
insurance made before 18th November 1983 is treated as issued in respect of
one made on or after that date if it is varied on or after that date so as—
(a)
to increase the benefits secured, or
15
(b)
to extend the term of the insurance.
      (3)
A change in the terms of a policy counts as its variation for the purposes of
sub-paragraph (2) if it results from the exercise of an option conferred by the
policy to have another policy substituted for it or to have any of its terms
changed.
20
Certain pre-23rd February 1984 policies not foreign capital redemption policies
104
A capital redemption policy is not a “foreign capital redemption policy” for
the purposes of Chapter 9 of Part 4 (see the definition in section 476(3)) if it
is issued in respect of a contract made before 23rd February 1984.
Pre-14th March 1984 policies: disregard of amounts deducted and repaid after tax relief by
25
deduction from premiums abolished
105
In the case of a policy issued in respect of an insurance made before 14th
March 1984, any amount treated under section 72(9) of FA 1984 as an
additional premium is to be ignored for the purposes of—
(a)
calculating the total allowable deductions for the policy under
30
section 494(1), and
(b)
the definition of “allowable payment” in section 507(6).
Certain pre-20th March 1985 policies: application of section 529(1)
106   (1)
This paragraph makes provision for the application of section 529(1)
(exceptions to section 528) in relation to—
35
(a)
a foreign policy of life insurance issued in respect of an insurance
made on or before 19th March 1985, and
(b)
a foreign capital redemption policy issued in respect of a contract
made on or before that date.
      (2)
Section 529(1)(a) (which disapplies section 528 if when the chargeable event
40
occurs or at any time during the policy period the policy is or was held by a
non-UK resident trustee) does not apply if the policy was held by a non-UK
resident trustee on 19th March 1985.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
553

      (3)
Section 529(1)(b) (which disapplies section 528 if when the chargeable event
occurs or at any time during the policy period the policy is or was held by
non-UK resident trustees) does not apply if on 19th March 1985 the policy
was held by a non-UK resident trustee or by two or more trustees any of
whom was non-UK resident.
5
Pre-14th March 1989 qualifying policies: application of section 485(2)(b) and (3)(b)
107   (1)
In the case of a policy issued in respect of an insurance made before 14th
March 1989, section 485(2) and (3) (by virtue of which certain events are only
chargeable events if the condition in paragraph (a) or (b) is met) have effect
with the omission of paragraph (b) (company interest in the rights under the
10
policy) and the word “or” preceding that paragraph.
      (2)
For this purpose a policy is treated as issued in respect of an insurance made
on or after 14th March 1989 if it is varied on or after that date so as—
(a)
to increase the benefits secured, or
(b)
to extend the term of the insurance.
15
      (3)
Any exercise of rights conferred by a policy counts as its variation for the
purposes of sub-paragraph (2).
Pre-14th March 1989 policies and contracts: application of section 501
108   (1)
In the case of a policy issued in respect of an insurance made before 14th
March 1989 or a contract made before that date, section 501 (part surrenders:
20
loans) does not apply if—
(a)
a company beneficially owns the rights under the policy,
(b)
they are held on trusts which a company created, or
(c)
they are held as security for a company’s debt.
      (2)
For the purposes of this paragraph, a policy is treated as issued in respect of
25
an insurance made on or after 14th March 1989 if it is varied on or after that
date so as—
(a)
to increase the benefits secured, or
(b)
to extend the term of the insurance.
      (3)
Any exercise of rights conferred by a policy counts as its variation for the
30
purposes of sub-paragraph (2).
Contracts in accounting periods beginning before 1st January 1992: disapplication of sections
530 and 539(3)
109   (1)
This paragraph applies to a contract for a life annuity made—
(a)
after 26th March 1974, but
35
(b)
in an accounting period of the insurance company or friendly society
beginning before 1st January 1992.
      (2)
Section 530 (income tax treated as paid etc.) does not apply to gains from
such a contract, except for the purposes of calculating relief under section
535 (top slicing relief).
40
      (3)
Sub-paragraph (2) is subject to—
(a)
section 532 (relief for policies and contracts with European Economic
Area insurers), and

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
554

(b)
section 534 (regulations providing for relief in other cases where
foreign tax chargeable).
      (4)
Section 539(3) (relief for deficiencies: application of section 539(1) only for
determining individual’s extra liability) does not apply where the deficiency
arises from such a contract.
5
      (5)
In sub-paragraph (1) “accounting period” is to be read in accordance with
section 12 of ICTA.
Certain pre-17th March 1998 policies: application of section 529(1)
110   (1)
This paragraph makes provision for the application of section 529(1)
(exceptions to section 528) in relation to—
10
(a)
a foreign policy of life insurance issued in respect of an insurance
made before 17th March 1998, and
(b)
a foreign capital redemption policy issued in respect of a contract
made before that date.
      (2)
Section 529(1)(c) (which disapplies section 528 if when the chargeable event
15
occurs or at any time during the policy period the policy is or was held by a
foreign institution) does not apply if the policy was held by a foreign
institution on 16th March 1998.
Certain pre-17th March 1998 policies not foreign policies of life insurance
111   (1)
A policy of life insurance issued in respect of an insurance made before 17th
20
March 1998 is only a “foreign policy of life insurance” for the purposes of
Chapter 9 of Part 4 if—
(a)
it falls within paragraph (a) of the definition of that expression in
section 476(3), and
(b)
it is not excluded by paragraph 103 (certain pre-18th November 1983
25
policies not foreign policies of life insurance).
      (2)
For the purposes of sub-paragraph (1), a policy issued in respect of an
insurance made before 17th March 1998 is treated as issued in respect of one
made on or after that date if it is varied on or after that date so as—
(a)
to increase the benefits secured, or
30
(b)
to extend the term of the insurance.
      (3)
Any exercise of rights conferred by a policy counts as its variation for the
purposes of sub-paragraph (2).
Pre-17th March 1998 policy or contract: UK resident trustees
112   (1)
In the case of a 1998 Act excluded policy or contract, section 467 (person
35
liable: UK resident trustees) does not apply if—
(a)
the trusts were created before 17th March 1998, and
(b)
the person or at least one of the persons who created them was an
individual who died before that date.
      (2)
For the purposes of sub-paragraph (1)(b), section 472(1) is ignored.
40
      (3)
In this paragraph “a 1998 Act excluded policy or contract” means—
(a)
a policy of life insurance issued in respect of an insurance made
before 17th March 1998,