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
Schedule 2 — Transitionals and savings etc.
Part 6 — Savings and investment income: insurance contracts and policies made before certain dates
555

(b)
a contract for a life annuity made before that date, or
(c)
a capital redemption policy where the contract was made before that
date,

but excluding a policy or contract within sub-paragraph (4).
      (4)
A policy or contract is within this sub-paragraph if it has been varied on or
5
after 17th March 1998 so as—
(a)
to increase the benefits secured, or
(b)
to extend the term of the insurance, annuity or capital redemption
policy.
      (5)
Any exercise of rights conferred by a policy or contract counts as its variation
10
for the purposes of sub-paragraph (4).
Certain pre-23rd March 1999 policies not foreign capital redemption policies
113
A capital redemption policy where the contract was made before 23rd
March 1999 is only a “foreign capital redemption policy” for the purposes of
Chapter 9 of Part 4 if—
15
(a)
it falls within paragraph (a) of the definition of that expression in
section 476(3), and
(b)
it is not excluded by paragraph 104 (certain pre-23rd February 1984
policies not foreign capital redemption policies).
Pre-9th April 2003 policy or contract: UK resident trustees
20
114   (1)
In the case of a 2003 Act excluded policy or contract, section 467(1) (person
liable: UK resident trustees) has effect with the omission of the reference to
condition C (the effect of which is to extend the circumstances in which
trustees holding rights under a policy or contract on non-charitable trusts
may be liable for tax).
25
      (2)
In this paragraph “a 2003 Act excluded policy or contract” means—
(a)
a policy of life insurance issued in respect of an insurance made
before 9th April 2003,
(b)
a contract for a life annuity made before that date, or
(c)
a capital redemption policy where the contract was made before that
30
date,

but excluding a policy or contract within sub-paragraph (3).
      (3)
A policy or contract is within this sub-paragraph if—
(a)
it has been varied on or after that date (but before the chargeable
event on which the gain arises) so as to increase the benefits secured
35
or extend the term of the insurance, annuity or capital redemption
policy, or
(b)
there has been an assignment of the rights, or a share in the rights,
conferred by the policy or contract to trustees of a non-charitable
trust.
40
      (4)
Any exercise of rights conferred by a policy or contract counts as its variation
for the purposes of sub-paragraph (3)(a).

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
556

Pre-9th April 2003 policy or contract: loans to trustees
115   (1)
This paragraph makes provision for the application of section 501 (part
surrenders: loans) in relation to—
(a)
a policy of life insurance issued in respect of an insurance made
before 9th April 2003,
5
(b)
a contract for a life annuity made before that date, or
(c)
a capital redemption policy where the contract was made before that
date.
      (2)
In the case of a loan made before that date that section applies with the
omission—
10
(a)
of subsections (1)(b) and (3) (by virtue of which the section applies to
loans to trustees), and
(b)
in subsection (5)(b) of the words “, trustees” and “, trustees’”.
Pre-9th April 2003 policy: excepted group life policies
116   (1)
Sub-paragraph (2) applies to a policy if—
15
(a)
it was issued in respect of an insurance made before 9th April 2003,
and
(b)
immediately before 6th April 2005, paragraph 4(1) (excepted group
life policies: time for compliance with conditions in section 539A of
ICTA) of Schedule 34 to FA 2003 applied to it.
20
      (2)
The policy is to be taken to have met the conditions referred to in section
480(3) (conditions to be met by an excepted group life policy) throughout the
period mentioned in that paragraph.
      (3)
Sub-paragraphs (3) and (4) apply where immediately before 6th April 2005
paragraph 4(3) of Schedule 34 to FA 2003 applied to treat two policies as a
25
single policy issued in respect of an insurance made at the time of the
making of the insurance in respect of which the earlier of those policies was
issued.
      (4)
Those policies are to be treated as a single policy so issued for the purposes
of—
30
(a)
Chapter 9 of Part 4,
(b)
paragraph 90 of this Schedule, and
(c)
this Part of this Schedule (and, in particular, sub-paragraph (2)).
      (5)
Sub-paragraph (2) applies to that single policy taking the reference to the
period mentioned in paragraph 4(1) of Schedule 34 to FA 2003 as a reference
35
to the period so mentioned as a result of the application of paragraph 4(3)(b)
of that Schedule.
Pre-3rd March 2004 policy or contract: calculation of deficiencies
117   (1)
In the case of a 2004 Act excluded policy or contract, section 541(4)
(calculation of deficiencies) applies with the omission of paragraph (b) and
40
the word “and” immediately preceding it.
      (2)
In this paragraph “a 2004 Act excluded policy or contract” means—
(a)
a policy of life insurance issued in respect of an insurance made
before 3rd March 2004,

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 7 — Savings and investment income: gains from contracts for life insurance etc. (personal portfolio bonds)
557

(b)
a contract for a life annuity made before that date, or
(c)
a capital redemption policy where the contract was made before that
date,

but excluding a policy or contract within sub-paragraph (3).
      (3)
A policy or contract is within this sub-paragraph if on or after 3rd March
5
2004—
(a)
it is varied so as to increase the benefits secured,
(b)
there is an assignment of the rights, or a share of the rights, conferred
by it, or
(c)
all or part of those rights become held as security for a debt.
10
      (4)
Any exercise of rights conferred by a policy or contract counts as its variation
for the purposes of sub-paragraph (3)(a).
Pre-1st January 2005 contracts for immediate needs annuities: income tax treated as paid
118   (1)
A contract for a life annuity made before 1st January 2005 is not to be treated
for the purposes of paragraph (c) of section 531(3) (policies and contracts
15
excluded from section 530) as having not formed part of any insurance
company’s or friendly society’s basic life assurance and general annuity
business the income and gains of which are subject to corporation tax by
reason only of the immediate needs annuities exclusion.
      (2)
In sub-paragraph (1) “the immediate needs annuities exclusion” means the
20
words from “other than” onwards in the definition of “annuity business” in
section 431(2) of ICTA.
Part 7
Savings and investment income: gains from contracts for life insurance etc.
(personal portfolio bonds)
25
Pre-17th March 1998 contract or policy: conditions to be met for contract or policy not to be a
personal portfolio bond
119
For the purposes of Chapter 9 of Part 4, a policy or contract is not a personal
portfolio bond if—
(a)
it meets the date condition (see paragraph 120),
30
(b)
it meets the non-variation condition (see paragraph 121), and
(c)
it meets either the first selection condition (see paragraph 122) or the
second selection condition (see paragraph 123).
The date condition
120   (1)
A policy meets the date condition if it is a policy issued in respect of an
35
insurance made before 17th March 1998.
      (2)
A contract meets the date condition if it was made before that date.
The non-variation condition
121   (1)
A policy or contract meets the non-variation condition if it has not been
varied on or after 16th July 1998 so as—
40
(a)
to increase the benefits secured, or

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 7 — Savings and investment income: gains from contracts for life insurance etc. (personal portfolio bonds)
558

(b)
to extend the term of the policy or contract.
      (2)
Any exercise of rights conferred by a policy or contract counts as its variation
for the purposes of this paragraph.
The first selection condition
122
A policy or contract meets the first selection condition at any time if for the
5
whole of the period beginning with 6th April 1994 and ending with that time
it has not been possible to determine the whole or any part of the benefits
under the policy or contract by reference to—
(a)
an index other than a permitted index (see paragraph 126), or
(b)
property other than permitted property (see paragraph 127).
10
The second selection condition
123   (1)
A policy or contract meets the second selection condition at any time if it
meets conditions A to C.
      (2)
Condition A is that for some or all of the period beginning with 6th April
1994 and ending with that time it has been possible to determine the whole
15
or any part of the benefits under the policy or contract by reference to—
(a)
an index other than a permitted index, or
(b)
property other than permitted property.
      (3)
Condition B is that at no time during that period have the benefits under the
policy or contract actually been determined by reference to such property or
20
such an index.
      (4)
Condition C is that the terms of the policy or contract were varied before the
end of the first insurance year in relation to the policy or contract which
began on or after 6th April 1999 so that, since that variation,—
(a)
the only index which it has been possible to select as mentioned in
25
section 516(4) is a permitted index, and
(b)
the only property which it has been possible to select as mentioned
in section 516(4) is permitted property.
      (5)
Condition C is subject to paragraphs 124 and 125 (which modify it in cases
where any holder of the policy or contract was not UK resident on 17th
30
March 1998 and has become UK resident since that date).
Policy holders becoming UK resident after 17th March 1998
124   (1)
This paragraph applies to a policy or contract if—
(a)
any holder of the policy or contract on 17th March 1998 was not UK
resident on that date,
35
(b)
such a holder has become UK resident since that date, and
(c)
the holder did not intend, on the date of the holder’s arrival in the
United Kingdom by virtue of which the holder became UK
resident—
(i)
to become permanently UK resident, or
40
(ii)
to stay in the United Kingdom for at least two years.
      (2)
The policy or contract meets condition C in the second selection condition if
it has been varied as described in that condition before the later of—

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 7 — Savings and investment income: gains from contracts for life insurance etc. (personal portfolio bonds)
559

(a)
the end of the first insurance year in relation to the policy or contract
beginning on or after 6th April 1999, and
(b)
the end of the first insurance year in relation to the policy or contract
beginning after the date since 17th March 1998 on which the holder
of the policy or contract first became UK resident.
5
      (3)
No gain is treated as arising from the policy or contract under section 525
(chargeable events where annual personal portfolio calculations show gains)
in relation to any insurance year which ends—
(a)
on or after the date since 17th March 1998 on which the holder of the
policy or contract first became UK resident, and
10
(b)
before the insurance year in which the variation was made.
Policy holders becoming permanently UK resident after 17th March 1998
125   (1)
This paragraph applies to a policy or contract if—
(a)
any holder of the policy or contract on 17th March 1998 was a non-
UK resident individual on that date,
15
(b)
such a holder has become UK resident since that date, and
(c)
the holder intended, on the date of the holder’s arrival in the United
Kingdom by virtue of which the holder became UK resident,—
(i)
to become permanently UK resident, or
(ii)
to stay in the United Kingdom for at least two years.
20
      (2)
The policy or contract meets condition C in the second selection condition if
it has been varied as described in that condition before the later of—
(a)
the end of the first insurance year in relation to the policy or contract
beginning on or after 6th April 1999, and
(b)
the end of the first insurance year in relation to the policy or contract
25
beginning on or after the date mentioned in sub-paragraph (1)(c).
      (3)
No gain is treated as arising from the policy or contract under section 525 in
relation to any insurance year which ends—
(a)
on or after the date since 17th March 1998 on which the holder of the
policy or contract first became UK resident, and
30
(b)
before the insurance year in which the variation was made.
Meaning of “permitted index”
126
In this Part of this Schedule “permitted index” means an index falling within
a category listed in section 518.
Meaning of “permitted property”
35
127   (1)
In this Part of this Schedule “permitted property”, in relation to a policy or
contract, means any of the following—
(a)
property falling within any of the categories listed in the table in
section 520(2),
(b)
shares or securities listed on a recognised stock exchange, and
40
(c)
subject to sub-paragraph (2), shares or securities of a company which
are dealt in on the Unlisted Securities Market or the Alternative
Investment Market.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 8 — Miscellaneous income
560

      (2)
Shares or securities of a company which fall within sub-paragraph (1)(c) are
not permitted property at any time at which—
(a)
the whole or any part of the benefits under the policy or contract may
be determined by reference to shares or securities of the company
which represent more than 10% of its issued share capital, or
5
(b)
the amount invested in shares or securities of the company under the
policy or contract exceeds 10% of the total amount of premiums paid
up to that time under the policy or contract.
Other definitions
128   (1)
In this Part of this Schedule “security” has the same meaning as in section
10
132(3)(b) of TCGA 1992.
      (2)
Any references in this Part of this Schedule to shares or securities include a
reference to any option, warrant or other right to acquire shares or securities.
      (3)
In sub-paragraph (3) “warrant” has the same meaning as in paragraph 14 of
Schedule 2 to FISMA 2000.
15
Part 8
Miscellaneous income
Intellectual property: contributions to expenditure not made by public bodies nor eligible for
tax relief
129
Section 604 applies with the omission of subsection (3)(b) in relation to
20
contributions made before 27th July 1989.
Certain telecommunication rights
130
Chapter 4 of Part 5 does not apply to an indefeasible right to use a
telecommunications cable system (“IRU”) acquired before 21st March 2000.
131   (1)
That Chapter also does not apply to an IRU acquired by a person on or after
25
that date (directly or indirectly) from an associate or an associated company
if the associate or associated company acquired the IRU before that date.
      (2)
In sub-paragraph (1)—
“associate” has the meaning given by section 417(3) and (4) of ICTA,
and
30
“associated company”—
(a)
in relation to another company, has the meaning given by
section 416(1) of that Act, and
(b)
in relation to any other person, means a company of which that
person has control within the meaning of subsections (2) to (6)
35
of that section.
Income treated as income of settlor: exception for pension income
132   (1)
Subject to sub-paragraph (4), section 627 applies before 6th April 2006 with
the following amendments.
      (2)
In subsection (2)(c) for “a relevant pension scheme” substitute “an approved
40
pension arrangement”.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 8 — Miscellaneous income
561

      (3)
For subsection (3) substitute—
“(3)
In subsection (2) an “approved pension arrangement” means—
(a)
an approved scheme or exempt approved scheme,
(b)
a relevant statutory scheme,
(c)
a retirement benefits scheme set up by a government outside
5
the United Kingdom for the benefit, or primarily for the
benefit, of its employees,
(d)
a contract or scheme which is approved under Chapter 3 of
Part 14 of ICTA (retirement annuities),
(e)
a personal pension scheme which is approved under Chapter
10
4 of that Part,
(f)
an annuity purchased for the purpose of giving effect to
rights under a scheme falling within any of paragraphs (a) to
(c) and (e), or
(g)
any pension arrangements of any description prescribed by
15
regulations made under section 11(2)(h) of the Welfare
Reform and Pensions Act 1999 (c. 30) or Article 12(2)(h) of the
Welfare Reform and Pensions (Northern Ireland) Order 1999
(S.I. 1999/3147 (N.I. 11)).
(4)
In subsection (3) “approved scheme”, “exempt approved scheme”,
20
“relevant statutory scheme” and “retirement benefits scheme” have
the same meaning as in Chapter 1 of Part 14 of ICTA (retirement
benefit schemes).”
      (4)
The power of the Treasury to make an order under section 281 or 283 of FA
2004 has effect as if Schedule 35 to that Act contained an amendment
25
substituting section 627 of this Act for that section as amended by sub-
paragraphs (2) and (3) above.
Amounts treated as income of settlor: income paid to unmarried minor children of settlor
133   (1)
In relation to income which—
(a)
arises under a settlement made or entered into before 9th March
30
1999, and
(b)
does not arise directly or indirectly from funds provided on or after
that date,

section 629 applies with the omission from subsection (1) of paragraph (b)
and the word “or” before that paragraph.
35
      (2)
Where subsection (1) of section 629 applies for a tax year only in relation to
such income as is mentioned in sub-paragraph (1), that section applies with
the substitution for subsections (3) and (4) of—
“(3)
Income paid to or for the benefit of a child of a settlor is not treated
as provided in subsection (1) for a tax year in which the total amount
40
paid to or for the benefit of that child which but for this subsection
would be so treated does not exceed £100.”
      (3)
Where subsection (1) of section 629 applies for a tax year in relation to such
income as is mentioned in sub-paragraph (1) above and other income, that