Office of Public Sector Information
PART 4 continued CHAPTER 9 continued
(1) For the purposes of this Chapter—
(a) rights under a policy or contract which are beneficially owned by two or more persons jointly, and
(b) an interest in such rights which is so owned,
are treated as if they were beneficially owned by those persons in equal shares.
(2) Subsections (3) and (4) apply if immediately before a chargeable event the rights under the policy or contract are, or a share in those rights is, held as security for one or more debts owed by two or more persons.
(3) Each of those persons is treated for the purposes of this Chapter as the sole debtor for a separate debt.
(4) The appropriate share of the security for the actual debt or debts, so far as it consists of the rights under the policy or contract or a share in them, is treated for the purposes of this Chapter as the security for each separate debt.
(5) In subsection (4) “the appropriate share” means—
(a) if there is only one actual debt for which the person is liable as between the debtors, a share proportionate to the share of that debt for which the person is so liable, and
(b) if there are two or more such actual debts, a share proportionate to the share of the total such debts for which the person is so liable.
(6) For the purposes of this section, property held for the purposes of a foreign institution is treated as being beneficially owned by the institution.
(7) An interest in some or all of the rights under a policy or contract which is not a share in all those rights is treated for the purposes of this Chapter as such a share in those rights as may, on a just and reasonable apportionment, be regarded as representing the interest.
(1) For the purposes of this Chapter, if immediately before a chargeable event—
(a) the rights under a policy or contract are held on non-charitable trusts created by two or more persons, or
(b) a share in those rights is so held,
each of the persons is treated as the sole settlor of a separate share of the rights or share held on trusts.
(2) Each settlor’s separate share is proportionate to the share originating from that settlor of the whole of the property subject to the trusts immediately before the event.
(3) If immediately before a chargeable event non-charitable trusts apply to property originating from different persons (for example, where property is added by different persons to an existing settlement)—
(a) as respects that event the trusts are taken to have been created by them all, and
(b) accordingly, each of them is treated as a sole settlor under subsection (1).
(4) Property originates from a person for the purposes of subsections (2) and (3) if—
(a) it is property provided by the person for the purposes of the trusts,
(b) it is property representing such property, or
(c) in a case where property represents both property within paragraph (a) and other property, it is so much of that property as, on a just and reasonable apportionment, is to be taken to represent the property within paragraph (a).
(5) References in subsection (4) to property representing other property include property representing accumulated income from other property.
(6) For the purposes of this section, property is treated as provided by a person (“A”) if—
(a) it is provided by A directly or indirectly, or
(b) it is provided directly or indirectly by another person under reciprocal arrangements with A.
(7) Property is not treated as provided by A if it is provided by A directly or indirectly under reciprocal arrangements with another person.
(1) This Chapter applies to—
(a) policies of life insurance,
(b) contracts for life annuities, and
(c) capital redemption policies.
(2) In this Chapter—
“capital redemption policy” means a contract made in the course of a capital redemption business, as defined in section 458(3) of ICTA, and
“life annuity” means—
an annuity that—
is a purchased life annuity for the purposes of Chapter 7 of this Part (see section 423), and
is not specified in section 718 (annuities excluded from the exemption for part of purchased life annuity payments under section 717), or
an annuity to which section 656 of ICTA (as read with section 657 of that Act) applies.
(3) Subsection (1) is subject to—
section 478 (exclusion of mortgage repayment policies),
section 479 (exclusion of pension policies),
section 480 (exclusion of excepted group life policies), and
section 483 (exclusion of credit union group life policies).
(1) In the application of this Chapter to policies of insurance that are qualifying policies for the purposes of Chapter 1 of Part 7 of ICTA (policies within the conditions in Schedule 15 to that Act that qualify for special tax treatment) special rules apply.
(2) See, in particular—
section 485 (disregard of certain events in relation to qualifying policies),
section 503 (exception from section 501 for certain loans under qualifying policies),
section 542 (replacement of qualifying policies), and
section 543 (issue time of qualifying policy replacing foreign policy).
(3) Policies within the definition of “foreign policy of life insurance” in section 476(3) that would otherwise be qualifying policies are treated for the purposes of this Chapter as not being qualifying policies in the cases specified in subsections (4) and (5).
(4) Policies within paragraph (a) of that definition are so treated once the conditions in paragraph 24(3) of Schedule 15 to ICTA have ceased to be met with respect to them (conditions that are required to be met for certain policies issued by non-UK resident companies to be qualifying policies).
(5) Policies within paragraph (b) of that definition immediately before an event do not count as qualifying policies in relation to that event.
(1) In the application of this Chapter to personal portfolio bonds, certain special rules apply.
(2) See, in particular—
section 515 (requirement for annual calculations in relation to personal portfolio bonds), and
sections 522 to 525 (method for making calculations and chargeable events where calculations show gains).
(3) For the meaning of “personal portfolio bond” see section 516.
(1) In the application of this Chapter to foreign policies of life insurance and foreign capital redemption policies, certain special rules apply.
(2) See, in particular—
section 474(3) to (5) (certain foreign policies treated as not being qualifying policies),
section 528 (reduction in amount charged: non-UK resident policy holders),
sections 531 to 534 (under which foreign policies are excepted from section 530 (income tax treated as paid etc.) subject to certain reliefs), and
section 536(6) (method of calculating top slicing relief).
(3) In this Chapter—
“foreign policy of life insurance” means—
a policy of life insurance issued by a non-UK resident company, and
a policy of life insurance which forms part of the overseas life assurance business of an insurance company or friendly society as a result of section 431D(1)(a) of ICTA (business with a non-UK resident policy holder),
“foreign capital redemption policy” means—
a capital redemption policy issued by a non-UK resident company, and
a capital redemption policy which forms part of the overseas life assurance business of an insurance company as a result of section 431D(1)(a) of ICTA, and
“overseas life assurance business” has the same meaning as in Part 12 of ICTA (see section 431D of that Act).
(1) In the case of—
(a) certain contracts made before particular dates, and
(b) certain policies issued, or issued in respect of insurances made, before particular dates,
this Chapter applies subject to Parts 6 and 7 of Schedule 2 (special provisions for older policies and contracts).
(2) See the table in section 546 for the provisions affected.
(1) This Chapter does not apply to a mortgage repayment policy.
(2) In this section “mortgage repayment policy” means a policy of life insurance with the sole object of providing, on an individual’s death or disability, a sum substantially the same as any amount then outstanding under a repayment mortgage—
(a) of the individual’s residence, or
(b) of any premises occupied by the individual for the purposes of a business.
(3) In this section “repayment mortgage” means a mortgage securing a principal amount which is repayable by instalments payable annually or at shorter regular intervals.
This Chapter does not apply to a policy of insurance which—
(a) constitutes a registered pension scheme, or
(b) is issued or held in connection with such a scheme.
(1) This Chapter does not apply to an excepted group life policy.
(2) In this Chapter “group life policy” means a policy of life insurance whose terms provide—
(a) for the payment of benefits on the death of more than one individual, and
(b) for those benefits to be paid on the death of each of those individuals.
(3) In this section “excepted group life policy” means a group life policy with respect to which the conditions specified in the following sections are met—
(a) section 481 (conditions about benefits), and
(b) section 482 (conditions about persons intended to benefit).
(1) Conditions A to D are the conditions referred to in section 480(3)(a) (definition of “excepted group life policy”).
(2) Condition A is that under the terms of the policy a sum or other benefit of a capital nature is payable or arises—
(a) on the death in any circumstances of each of the individuals insured under the policy who dies under an age specified in the policy that does not exceed 75, or
(b) on the death, except in the same specified circumstances, of each of those individuals who dies under such an age.
(3) Condition B is that under the terms of the policy—
(a) the same method is to be used for calculating the sums or other benefits of a capital nature payable or arising on each death, and
(b) any limitation on those sums or other benefits is the same in the case of any death.
(4) Condition C is that the policy does not have, and is not capable of having, on any day—
(a) a surrender value that exceeds the proportion of the amount of premiums paid which, on a time apportionment, is referable to the unexpired paid-up period beginning with the day, or
(b) if there is no such period, any surrender value.
(5) In subsection (4) “the unexpired paid-up period”, in relation to a period beginning with a day, means the period beginning then and ending with the earliest subsequent day on which a payment of premium falls due under the policy or the term of the policy ends.
(6) Condition D is that no sums or other benefits may be paid or conferred under the policy, except as mentioned in condition A or C.
(1) Conditions A to C are the conditions referred to in section 480(3)(b) (definition of “excepted group life policy”).
(2) Condition A is that any sums payable or other benefits arising under the policy must (whether directly or indirectly) be paid to or for, or conferred on, or applied at the direction of—
(a) an individual or charity beneficially entitled to them, or
(b) a trustee or other person acting in a fiduciary capacity who will secure that the sums or other benefits are paid to or for, or conferred on, or applied in favour of, an individual or charity beneficially.
(3) Condition B is that no person who is, or is connected with, an individual whose life is insured under the policy may, as a result of a group membership right relating to that individual, receive (directly or indirectly) any death benefit in respect of another individual whose life is so insured.
(4) In subsection (3)—
“death benefit in respect of an individual” means any sums or other benefits payable or arising under the policy on the individual’s death or anything representing any such sums or benefits, and
“group membership right”, in relation to an individual insured by a group life policy, means any right (including the right of any person to be considered by trustees in their exercise of a discretion) that is referable to that individual being one of the individuals whose lives are insured by the policy.
(5) Condition C is that a tax avoidance purpose is not the main purpose, or one of the main purposes, for which a person is at any time—
(a) the holder, or one of the holders, of the policy, or
(b) the person, or one of the persons, beneficially entitled under the policy.
(6) In subsection (5)—
“tax advantage” has the same meaning as in Chapter 1 of Part 17 of ICTA (tax avoidance) (see section 709(1) of that Act), and
“tax avoidance purpose” means any purpose that consists in securing a tax advantage (whether for the holder of the policy or any other person).
(1) This Chapter does not apply to a credit union group life policy.
(2) In this section “credit union group life policy” means a group life policy with the sole object of providing, on the death or disability of any of the individuals insured under it, a sum substantially the same as any amount then outstanding under a loan made to that individual by a credit union.
(3) In this section “credit union” means a society registered as a credit union under—
(a) the Industrial and Provident Societies Act 1965 (c. 12), or
(b) the Credit Unions (Northern Ireland) Order 1985 (S.I. 1985/1205 (N.I. 12)).
(1) The following are chargeable events—
(a) in the case of any kind of policy or contract—
(i) the surrender of all rights under the policy or contract,
(ii) the assignment of all those rights for money or money’s worth,
(iii) the falling due of a sum payable as a result of a right under a policy or contract to participate in profits, if there are no remaining rights under it,
(iv) a chargeable event treated as occurring under section 509(1) (chargeable events in certain cases where periodic calculations show gains),
(v) a surrender or assignment treated as a chargeable event under section 514(1) (chargeable events where transaction-related calculations show gains), and
(vi) a chargeable event treated as occurring under section 525(2) (chargeable events where annual personal portfolio bond calculations show gains),
(b) in the case of a policy of life insurance, a death giving rise to benefits under it,
(c) in the case of a policy of life insurance or a capital redemption policy, its maturity,
(d) in the case of a contract for a life annuity which provides for the payment of a capital sum on death, the death, and
(e) in the case of a contract for a life annuity which provides for a capital sum to be taken as a complete alternative to the annuity payments (or any further annuity payments), taking the capital sum.
(2) Subsection (1) is subject to—
section 485 (disregard of certain events in relation to qualifying policies),
section 486 (exclusion of maturity of capital redemption policies in certain circumstances),
section 487 (disregard of certain assignments), and
section 488 (disregard of certain events following alterations of life insurance policy terms).
(3) See also section 490 (last payment under guaranteed income bonds etc. treated as total surrender).
(1) In relation to a qualifying policy, the events that count as chargeable events are restricted as follows.
(2) Death or the maturity of the policy is only a chargeable event if—
(a) the policy has been converted into a paid-up policy before the end of whichever of the following periods ends sooner—
(i) 10 years from the making of the insurance, and
(ii) three-quarters of the term for which the policy is to run (assuming it is not ended by death or disability), or
(b) there is a company interest in the rights under the policy immediately before the event occurs.
(3) An event specified in section 484(1)(a)(i) to (iv) (surrender or assignment of all rights, final participation in profits and chargeable event where periodic calculation shows gain) is only a chargeable event if—
(a) the event occurs or the policy has been converted into a paid-up policy before the end of whichever of the periods specified in subsection (2)(a)(i) and (ii) ends sooner, or
(b) there is a company interest in the rights under the policy immediately before the event occurs.
(4) For the purposes of subsections (2)(b) and (3)(b) there is a company interest in the rights under a policy if—
(a) a company beneficially owns them,
(b) they are held on trusts created by a company, or
(c) they are held as security for a company’s debt.
(5) An event specified in section 484(1)(a)(v) (part surrenders and assignments: chargeable events where transaction-related calculations show gains) is only a chargeable event if—
(a) the time as at which the calculation showing the gain is required to be made under section 498(2) is before the end of whichever of the periods specified in subsection (2)(a)(i) and (ii) ends sooner, or
(b) the policy has been converted into a paid-up policy before that time.
(6) If the policy has been varied so as to increase the premiums payable under it, subsections (2), (3) and (5) apply as if they referred instead to the following periods—
(a) 10 years from the variation taking effect, and
(b) three-quarters of the term for which the policy is to run from the variation (assuming it is not ended by death or disability).
(7) If a qualifying policy is substituted for another policy in circumstances where paragraph 25(1) or (3) of Schedule 15 to ICTA applies (replacement of a policy issued by a non-UK resident company by a policy which is not so issued), the surrender of the rights conferred by the other policy is not a chargeable event.
The maturity of a capital redemption policy is not a chargeable event if the sums payable on maturity—
(a) are chargeable to income tax because they fall within—
(i) Chapter 7 (purchased life annuities),
(ii) Chapter 7 of Part 5 (annual payments not otherwise charged),
(iii) section 609 of ITEPA 2003 (annuities for the benefit of dependants),
(iv) section 610 of that Act (annuities under non-registered occupational pension schemes), or
(v) section 611 of that Act (annuities in recognition of another’s services), or
(b) are chargeable to corporation tax under Schedule D.
For the purposes of this Chapter, an assignment of rights under a policy or contract or a share in such rights is ignored if it is—
(a) by way of security for a debt,
(b) on the discharge of a debt secured by the rights or share, or
(c) between spouses living together.
(1) This section applies if—
(a) the terms of a policy of life insurance are altered,
(b) the alteration is not itself a chargeable event, and
(c) the conditions specified in section 489 are met.
(2) After the alteration a chargeable event is only treated as occurring in relation to the policy if one would have been treated as occurring had the alteration not occurred.
(3) If the alteration results in the policy being regarded as replaced by another, this section and section 489 apply as if they were a single policy.
(1) Conditions A to E are the conditions referred to in section 488.
(2) Condition A is that the policy was issued in respect of an insurance made at least 20 years before the alteration.
(3) Condition B is that the alteration results from a decision by the insurance company that it will not collect further premiums due from any of the holders under a number of policies of the same description if a particular period of time has elapsed since the contracts were made.
(4) Condition C is that no premiums are payable or paid after the date of the alteration.
(5) Condition D is that the benefits to be provided under the policy after the alteration are the same or substantially the same as those before the alteration.
(6) A deduction from the benefits is ignored for the purposes of subsection (5) if it does not exceed the total net premiums which, apart from the alteration, would have been payable under the policy between—
(a) the date of the alteration, and
(b) the date on which the benefits become payable.
(7) In subsection (6) “net premiums” means the premiums reduced by any tax relief which would have been due on the premiums had they been paid.
(8) Condition E is that the premiums payable under the policy before the alteration—
(a) have not been reduced to a nominal amount on the exercise of an option, in circumstances where the reduction is connected with a right to surrender in part the rights conferred by the policy after the date of the reduction, and
(b) are not capable of being so reduced in such circumstances.
(1) This section applies to a payment that would fall within section 500(d) (payments under guaranteed income bonds etc. treated as surrenders of part of the rights under the contract) apart from section 504(5) (which prevents payments comprising the whole of the last benefit to be paid under such contracts from being so treated).
(2) The payment is treated for the purposes of this Chapter as the surrender of all the rights under the contract.
(3) A payment to which this section applies is not regarded as interest or as an annual payment for any income tax purposes.
(1) This section deals with calculating—
(a) whether a gain has arisen on a chargeable event within section 484(1)(a)(i) to (iii) or (b) to (e) (surrender or assignment of all rights, final participation in profits, death, maturity, or taking a capital sum as a complete alternative to annuity payments), and
(b) if so, the amount of the gain.
(2) There is a gain if TB exceeds the sum of TD and PG where—
TB is the total benefit value of the policy or contract (see section 492),
TD is the total allowable deductions for the policy or contract (see section 494), and
PG is the total amount of gains treated as arising on calculation events occurring in relation to the policy or contract before the chargeable event in question.
(3) The gain is equal to the excess.
(4) In this Chapter—
“calculation event” means an excess event, a part surrender or assignment event or a personal portfolio bond event,
“excess event” means a chargeable event within section 509(1),
“part surrender or assignment event” means a chargeable event within section 514(1), and
“personal portfolio bond event” means a chargeable event within section 525(2).
(5) The reference to the policy in the definition of “PG” in subsection (2) includes any related policy.
(6) For the purposes of this Chapter, a policy (“policy A”) is a related policy as respects another (“policy B”) if—
(a) policy B is a new policy (as defined in paragraph 17 of Schedule 15 to ICTA (substitutions and variations)) in relation to policy A, or
(b) policy B is a new policy (as so defined) in relation to another policy (“policy C”) and policy C is a new policy (as so defined) in relation to policy A,
and so on.
(7) See section 539 (relief for deficiencies) if there is no gain under subsection (2), but a gain arose on a calculation event occurring in relation to the policy or contract before the chargeable event in question.
(8) For the rules about calculating gains on calculation events, see—
section 507 (method for making periodic calculations under section 498),
section 511 (method for making transaction-related calculations under section 510), and
section 522 (method for making annual calculations under section 515).
(1) To calculate the total benefit value of a policy or contract for the purposes of section 491, add together—
(a) its value in accordance with section 493,
(b) any capital sum paid under the policy or contract before the event,
(c) the value of any other benefit of a capital nature conferred by the policy or contract before the event,
(d) the amount of any loan made before the event, the making of which is treated as the surrender of a part of the rights under the policy or contract under section 500(c) (loans by insurers to which section 501 applies),
(e) in the case of a guaranteed income bond contract, as defined in section 504(7), any amount paid before the event, the payment of which is treated as a surrender of a part of the rights under the contract under section 500(d) of this Act (payments by insurers under such contracts), and
(f) in the case of an assignment, the amount or value of any share in the rights under the policy or contract that was assigned before the event.
(2) References to the policy in subsection (1)(b) to (e) include any related policy.
(3) This section is subject to—
section 495 (disregard of certain amounts in calculating gains under section 491), and
section 497 (disregard of trivial inducement benefits).
Income Tax (Trading and Other Income) Act 2005