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PART 4 continued CHAPTER 9 continued
(1) This section applies if—
(a) the calculation in section 511 falls to be made in relation to a relevant transaction occurring in the final insurance year,
(b) the total transaction value for that transaction exceeds the gains limit (see subsections (2) and (3)), and
(c) paragraph (b) has not applied to a relevant transaction occurring earlier in the final insurance year in respect of the policy or contract in question.
(2) The total transaction value is the total of—
(a) the transaction value for the transaction in question in accordance with section 511(4), and
(b) the transaction values for any relevant transactions occurring earlier in the final insurance year in respect of the policy or contract in accordance with that section.
(3) The gains limit is the amount calculated, as at the end of the final insurance year, as the amount of the gain that would have been treated as arising on the occurrence of the chargeable event that ends that year if in relation to that year—
(a) section 509(1) did not refer to condition C, and
(b) sections 510(2) and (4) and 514(1) did not apply.
(4) The transaction value for the relevant transaction used for the calculation in section 511(2) is reduced by the excess mentioned in subsection (1)(b).
(5) No calculations are required to be made under section 510(2) and (4) in relation to any subsequent relevant transaction in respect of the policy or contract.
(1) If the calculation in section 511 shows that a relevant transaction resulted in a gain arising on the policy or contract, the relevant transaction is treated as a chargeable event.
(2) Subsection (1) is subject to section 485(5) (which restricts the circumstances in which such events occur in relation to qualifying policies).
(3) Subsection (4) applies if—
(a) a relevant transaction that is a chargeable event occurs in a different tax year from that in which the insurance year ends, and
(b) apart from subsection (4), a person would be liable to tax on the gain under this Chapter for the tax year in which the transaction occurs.
(4) The gain is charged to tax under this Chapter for the tax year in which the insurance year ends instead.
(5) If the relevant transaction occurs in the final insurance year, the chargeable event within subsection (1) is treated as occurring before the chargeable event that ends that year.
(1) This section applies if a policy or contract to which this Chapter applies is a personal portfolio bond at the end of an insurance year.
(2) But this section does not apply if the insurance year is the final insurance year.
(3) A calculation is to be made in accordance with section 522 in relation to the policy or contract as at the end of the insurance year to determine—
(a) whether a gain has arisen on the policy or contract in relation to that year, and
(b) if so, the amount of the gain.
(4) The calculation is in addition to any other calculation which is required to be made under this Chapter in relation to the policy or contract.
(1) In this Chapter “personal portfolio bond” means a policy of life insurance, contract for a life annuity or capital redemption policy which meets conditions A and B.
This is subject to section 517.
(2) Condition A is that, under the terms of the policy or contract, some or all of the benefits are determined by reference to—
(a) fluctuations in, or in an index of, the value of property of any description, or
(b) the value of, or the income from, property of any description.
(3) For this purpose it does not matter whether or not the index or property is specified in the policy or contract.
(4) Condition B is that the terms of the policy or contract permit the selection of the index or some or all of the property by—
(a) the holder of the policy or contract,
(b) a person connected with the holder,
(c) the holder and such a connected person acting together,
(d) a person acting on behalf of the holder,
(e) a person acting on behalf of a person connected with the holder, or
(f) a person acting on behalf of the holder and such a connected person acting together.
(5) In subsection (4) “holder”, in the case of a policy or contract held by two or more persons, means any of them.
(1) A policy or contract is not a personal portfolio bond merely because its terms permit the selection of an index as described in section 516(4) if that index—
(a) falls within one of the categories listed in section 518, and
(b) meets one of the index selection conditions (see section 519).
(2) A policy or contract is not a personal portfolio bond merely because its terms permit the selection of property as described in section 516(4) if all of the property which may be so selected—
(a) falls within one or more of the categories listed in section 520, and
(b) meets one or both of the property selection conditions (see section 521).
(1) This section sets out the categories of index referred to in section 517(1).
(2) Category 1 is the retail prices index.
(3) Category 2 is any general index which—
(a) is similar to the retail prices index, and
(b) is published by the government of any foreign state or an agent of such a government.
(4) Category 3 is any published index of prices of shares listed on a recognised stock exchange.
(1) The index selection conditions are—
(a) the general selection condition (see subsection (2)), and
(b) the class selection condition (see subsection (3)).
(2) An index meets the general selection condition if, at the time when it may be selected, the opportunity to select the same index is available to—
(a) all policy holders of the insurance company, or
(b) persons acting on behalf of those policy holders.
(3) An index meets the class selection condition if, at the time when it may be selected, the opportunity to select the same index is available to—
(a) a particular class or classes of policy holders of the insurance company, or
(b) persons acting on behalf of the members of that class or those classes.
(4) A group of policy holders to whom the opportunity to select an index is available is a “class” for the purposes of subsection (3) if—
(a) neither membership of the class nor the opportunity are limited to connected persons,
(b) the question whether a policy holder is a member of the class, or has the opportunity, is determined solely by the insurance company, and
(c) the opportunity is clearly identified in marketing or other promotional material published by the insurance company to members of the public, or members of the public who are intending investors, as available generally to any person falling within its terms.
(5) In this section—
“holder” has the meaning given by section 516(5), and
“policy holder” includes a holder of a life annuity contract.
(1) The table in subsection (2) sets out the categories of property referred to in section 517(2).
(2) This is the table—
| Category | Property |
|---|---|
| Category 1 | property which the insurance company has appropriated to an internal linked fund |
| Category 2 | units in an authorised unit trust |
| Category 3 | shares in an investment trust |
| Category 4 | shares in an open-ended investment company |
| Category 5 | cash |
| Category 6 | a policy or contract to which this Chapter applies, other than an excluded policy or contract (see subsection (3)) |
| Category 7 | an interest in a collective investment scheme constituted by— (a)
a company which is resident outside the United Kingdom (other than an open-ended investment company), (b)
a unit trust scheme the trustees of which are non-UK resident, or (c)
any other arrangement which takes effect by virtue of the law of a territory outside the United Kingdom, and which under that law creates rights in the nature of co-ownership (without restricting that term to its legal meaning in any part of the United Kingdom) |
(3) A policy or contract is “excluded” if—
(a) the policy or contract is itself a personal portfolio bond,
(b) the value of any benefits under the policy or contract is or has at any time been capable of being determined directly or indirectly by reference to a personal portfolio bond, or
(c) a personal portfolio bond is related property in relation to the policy or contract.
(4) In this section—
“cash”—
includes any sum which is deposited—
in a building society account (including a share account) or similar account, or
in a bank account or similar account, but
does not include cash which is acquired wholly or partly for the purpose of realising a gain from its disposal,
“collective investment scheme” has the meaning given by section 235 of FISMA 2000, and “interest”, in relation to such a scheme, means the beneficial entitlement of a participant in such a scheme,
“internal linked fund” has the meaning given by—
the Interim Prudential Sourcebook for Insurers made by the Financial Services Authority under FISMA 2000, or
rules made by the Authority under FISMA 2000 and having effect for the time being in place of the Sourcebook,
“open-ended investment company” has the meaning given by section 236 of FISMA 2000, and
“related property” has the same meaning as in section 625 (see subsection (5)).
(1) The property selection conditions are—
(a) the general selection condition (see subsection (2)), and
(b) the class selection condition (see subsection (3)).
(2) Property meets the general selection condition if, at the time when it may be selected, the opportunity to select property falling within the same category is available to—
(a) all policy holders of the insurance company, or
(b) persons acting on behalf of those policy holders.
(3) Property meets the class selection condition if, at the time when it may be selected, the opportunity to select property falling within the same category is available to—
(a) a particular class or classes of policy holders of the insurance company, or
(b) persons acting on behalf of the members of that class or those classes.
(4) A group of policy holders to whom the opportunity to select property falling within a particular category is available is a “class” for the purposes of subsection (3) if—
(a) neither membership of the class nor the opportunity are limited to connected persons,
(b) the question whether a policy holder is a member of a class, or has the opportunity, is determined solely by the insurance company, and
(c) the opportunity is clearly identified in marketing or other promotional material published by the insurance company to members of the public, or members of the public who are intending investors, as available generally to any person falling within its terms.
(5) In this section—
“holder” has the meaning given by section 516(5), and
“policy holder” includes a holder of a life annuity contract.
(1) This section deals with the calculation required to be made in relation to a policy or contract as at the end of an insurance year under section 515 to determine—
(a) whether a gain has arisen in relation to that year, and
(b) if so, the amount of the gain.
(2) There is a gain if, as at the end of the insurance year, the sum of PP and TPE exceeds TSG.
(3) In subsection (2)—
PP is the total amount of premiums paid up to the end of the insurance year,
TPE is the total amount of personal portfolio bond excesses (see section 523), and
TSG is the total amount of part surrender gains (see section 524).
(4) The gain is equal to 15% of the excess.
(1) To calculate the total amount of personal portfolio bond excesses—
Step 1
Apply the calculation in section 522 in relation to the policy or contract as at the end of each previous insurance year during its existence in succession starting with the first such year.
Step 2
Determine whether in each case the calculation produces a gain and, if so, its amount.
Step 3
Add together all the amounts produced by step 2.
(2) But if there is no previous insurance year during the existence of the policy or contract, the total amount of personal portfolio bond excesses is nil.
(1) To calculate the total amount of part surrender gains—
Step 1
Apply the provisions of this Chapter mentioned in subsection (3) as modified by subsections (4) and (5) in relation to the policy or contract as at the end of each previous insurance year during its existence.
Step 2
Determine whether in each case those provisions produce a gain and, if so, its amount.
Step 3
Add together all of the amounts produced by step 2.
(2) But if there is no previous insurance year during the existence of the policy or contract, the total amount of part surrender gains is nil.
(3) The provisions of this Chapter which apply for the purposes of the calculation in subsection (1) are—
(a) subsections (2) to (6) of section 507 (method for making periodic calculations), and
(b) subsections (1) to (3) and (5) of section 508 (the value of rights partially surrendered).
(4) The provisions of section 507 mentioned in subsection (3) apply for the purposes of this section with the omission of all references in that section—
(a) to the assignment of any part of or share in the rights under the policy or contract, or
(b) to the value of any part of or share in the rights under the policy or contract so assigned.
(5) In the application of step 3 in subsection (4) of section 507 for the purposes of this section, the reference in that step to previous calculation events does not include a reference to an excess event consisting of the assignment of a part of or share in the rights under the policy or contract.
(1) This section applies if the calculation in section 522 shows that a gain has arisen in relation to an insurance year.
(2) The gain is treated as arising at the end of the insurance year on the occurrence of a chargeable event at that time.
(1) The Treasury may by regulations make provision about the administration of the charge to tax on personal portfolio bonds.
(2) The regulations may modify—
(a) any provision of this Chapter, or
(b) any provision of Chapter 2 of Part 13 of ICTA.
(3) The regulations may—
(a) make different provision for different cases, different circumstances or different periods, and
(b) make incidental, supplemental, consequential or transitional provision or savings.
(4) In this section “modify” includes amend or repeal.
(1) This section applies if the whole or part of any receipt or other credit item is taken into account in calculating both—
(a) the amount of a gain treated as arising under this Chapter, and
(b) an amount on which income tax is charged otherwise than under this Chapter or on which corporation tax is charged.
(2) The amount of the gain on which tax is charged under this Chapter is reduced by so much of the amount of that receipt or other credit item as is taken into account in both those calculations.
(1) The gain from a foreign policy of life insurance or foreign capital redemption policy is reduced for the purposes of this Chapter if the policy holder was not UK resident throughout the policy period.
(2) The amount of the reduction is the appropriate fraction of the gain.
(3) The appropriate fraction is—
where—
A is the number of days on which the policy holder was not UK resident in the policy period, and
B is the number of days in that period.
(4) In this section and section 529 (exceptions from this section), “the policy period” means the period for which the policy has run before the chargeable event occurs.
(5) If the gain is from a policy of life insurance which is a new policy in relation to another policy, for the purposes of subsection (4) the new policy is taken to have run—
(a) from the issue of the other policy, or
(b) if it also was a new policy in relation to an earlier policy, from the issue of the earlier policy,
and so on.
(6) In subsection (5) “new policy” has the meaning given in paragraph 17 of Schedule 15 to ICTA.
(7) This section is subject to section 529.
(1) Section 528 does not apply if, when the chargeable event occurs or at any time during the policy period, the policy is or was held—
(a) by a non-UK resident trustee,
(b) by non-UK resident trustees, or
(c) by a foreign institution.
(2) Section 110 of FA 1989 (residence of trustees) applies for the purposes of subsection (1)(b) despite section 110(6) of that Act (which provides that it only applies for 1989-90 and subsequent tax years).
(1) An individual or trustees who are liable for tax on an amount under this Chapter are treated as having paid income tax at the lower rate on that amount.
(2) The income tax treated as paid under subsection (1) is not repayable.
(3) The amount on which an individual is treated under subsection (1) as having paid income tax is reduced if subsection (4) applies.
(4) This subsection applies if the individual’s total income is reduced by any deductions which fall to be made from the part of the income charged to tax under this Chapter.
(5) The reduction under subsection (3) is equal to the amount of those deductions.
(6) An amount on which an individual is liable to tax under this Chapter is not charged at the starting rate.
(7) This section is subject to section 531.
(1) Section 530 does not apply to gains from the kinds of policies and contracts specified in subsection (3), except for the purposes of calculating relief under section 535 (top slicing relief).
(2) Subsection (1) is subject to—
section 532 (relief for policies and contracts with European Economic Area insurers), and
section 534 (regulations providing for relief in other cases where foreign tax chargeable).
(3) The policies and contracts are—
(a) a policy of life insurance issued or a contract for a life annuity made by a friendly society in the course of tax exempt life or endowment business,
(b) a foreign policy of life insurance that does not meet conditions A and B,
(c) a contract for a life annuity (other than one within paragraph (a)) which has at any time 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, and
(d) a foreign capital redemption policy.
(4) In this section and section 532—
“basic life assurance and general annuity business” has the same meaning as in Chapter 1 of Part 12 of ICTA (see section 431F), and
“tax exempt life or endowment business” has the meaning given in section 466(2) of ICTA.
(5) Condition A is that the policy falls within paragraph (a) of the definition of “foreign policy of life insurance” in section 476(3) (policy issued by a non-UK resident company).
(6) Condition B is that the conditions in paragraph 24(3) of Schedule 15 to ICTA (conditions that are required to be met for certain policies issued by non-UK resident companies to be qualifying policies) are met throughout the period between—
(a) the date on which the policy was issued, and
(b) the date on which the gain arises.
(1) Section 530 applies to a gain from a foreign policy of life insurance or a foreign capital redemption policy or to a gain from a contract for a life annuity (and accordingly section 531 and paragraph 109(2) of Schedule 2 do not apply) if a claim is made that conditions A to C have been met throughout the policy period.
(2) Condition A is that the company liable to make payments under the policy or contract (“the insurer”) has not been UK resident.
(3) Condition B is that a comparable EEA tax charge has applied to the insurer (see section 533).
(4) Condition C is that no excluded reinsurance contract has been made in relation to the policy or contract.
(5) In this section—
“excluded reinsurance contract”, in relation to a policy or contract, means any reinsurance contract—
wholly or partly covering any of the insurer’s obligations to pay any sum or to meet any other liability arising under the policy or contract, and
relating to risk other than that the individual whose life is insured by the policy or the annuitant will die or suffer any sickness or accident,
“policy period”—
in relation to a policy, means the period between—
the making of the insurance or contract, and
the date on which the gain arises,
but excluding any period when the conditions in paragraph 24(3) of Schedule 15 to ICTA are met (conditions that are required to be met for certain policies issued by non-UK resident companies to be qualifying policies), and
in relation to a contract for a life annuity, means the period between—
the date the insurer entered into the contract, and
the date on which the gain arises,
but excluding any period when the contract fell to be regarded as forming part of a basic life assurance and general annuity business the income and gains of which were subject to corporation tax.
(1) In section 532 “comparable EEA tax charge” in relation to the company liable to make payments under the policy or contract under which the gain has arisen (“the insurer”) means a charge that meets conditions A to F.
(2) Condition A is that the charge is imposed on the insurer under the laws of a territory outside the United Kingdom that is within the European Economic Area when the gain arises.
(3) Condition B is that the charge has applied to the insurer—
(a) as a body deriving its status as a company from those laws,
(b) as a company with its place of management there, or
(c) as a company falling under those laws to be regarded for any other reason as resident or domiciled there.
(4) Condition C is that the charge applies at a rate of at least 20% in relation to the amounts subject to tax in the insurer’s hands, other than amounts arising or accruing in respect of investments of a description for which a special relief or exemption is generally available.
(5) Condition D is that the charge is made otherwise than by reference to the insurer’s profits.
(6) Condition E is that the charge requires sums payable and other liabilities arising under policies or contracts of the same class as the policy or contract in question to be treated as falling to be met out of amounts subject to tax in the insurer’s hands.
(7) Condition F is that the charge so requires them by disallowing their deduction in calculating the amount chargeable.
(1) This section applies if—
(a) apart from this section, as a result of section 531 or paragraph 109(2) of Schedule 2, section 530 would not apply to gains from a policy or contract (except for the purposes of section 535 (top slicing relief)), and
(b) the Board of Inland Revenue consider it appropriate to disapply section 531 and paragraph 109(2) of Schedule 2 in relation to such gains by reference to tax chargeable under the laws of a territory outside the United Kingdom in cases other than those where they are disapplied as a result of section 532.
(2) The Board of Inland Revenue may by regulations provide for section 530 to apply to those gains (and accordingly section 531 and paragraph 109(2) of Schedule 2 not to apply to them) if a claim is made that the conditions specified in the regulations are met in relation to any time.
(3) That time may be a time before the regulations are made or a later time.
Income Tax (Trading and Other Income) Act 2005