Office of Public Sector Information
PART 4 continued CHAPTER 9 continued
(1) An individual is entitled to relief under this section for a tax year if—
(a) the individual’s liability for the tax year, as calculated under subsection (3), exceeds
(b) the individual’s relieved liability for the tax year, as calculated under—
section 536 (top slicing relieved liability: one chargeable event), or
section 537 (top slicing relieved liability: two or more chargeable events).
(2) The relief is given by a reduction in or repayment of income tax equal to the excess.
(3) An individual’s liability for a tax year for the purposes of subsection (1)(a) equals TL — LRL, where—
TL is the amount of the individual’s total liability to income tax on income charged to tax under this Chapter for the tax year, calculated on the basis that no relief is available under this section and the highest part assumptions apply, and
LRL is the amount of income tax at the lower rate that the individual is treated as having paid under section 530(1) for the tax year.
(4) For the purposes of subsection (3) and sections 536 and 537, the highest part assumptions, in calculating liability to income tax on an amount, are that—
(a) the amount is the highest part of the individual’s total income for the tax year, and
(b) any provision directing any other amount to be treated as the highest part is ignored.
(5) For the purposes of this section and sections 536 and 537, an individual’s total income is treated as not including any amount which—
(a) is charged to tax under Chapter 4 of Part 3 (profits of property businesses: lease premiums etc.) as the profits of a UK property business, or
(b) counts as employment income under section 403 of ITEPA 2003 (payments and benefits on termination of employment etc.).
(6) For the purposes of this section and sections 536 and 537—
(a) any chargeable event under section 525(2) (chargeable events where annual personal portfolio bond calculations show gains),
(b) any gain treated as arising on the occurrence of such an event, and
(c) the amount of any liability to income tax arising on such a gain,
are ignored.
(1) To calculate an individual’s relieved liability for the purposes of section 535(1) for a tax year for which the individual is only liable for tax on a gain from one chargeable event—
Step 1
Find the annual equivalent of the amount of that gain (“the annual equivalent”) by dividing that amount by the number of complete years for which the policy or contract has run before the chargeable event (“N”).
See subsections (2) to (8) for further provisions about calculating N.
Step 2
Find the relieved liability on the annual equivalent by—
calculating the individual’s liability (if any) to income tax on the annual equivalent, on the basis that—
(i) the gain from the chargeable event is limited to the amount of the annual equivalent, and
(ii) the highest part assumptions apply, and
subtracting the amount of income tax at the lower rate on the annual equivalent which the individual is treated as having paid under section 530(1).
Step 3
Multiply the relieved liability on the annual equivalent by N.
(2) In the case of a calculation event that is not the first calculation event in relation to the policy or contract, for steps 1 and 3 in subsection (1) N is the number of complete years since the previous such event (but see subsection (6)).
(3) For the purposes of subsection (2), part surrender or assignment events are taken to occur at the end of the insurance year in which the surrender or assignment occurs.
(4) If, in a case where subsection (2) does not apply, the gain is from a policy of life insurance which is a new policy in relation to another policy, for steps 1 and 3 N is calculated from—
(a) the issue of the other policy, or
(b) if it also was a new policy in relation to an earlier policy, the issue of the earlier policy,
and so on.
(5) In subsection (4) “new policy” has the meaning given in paragraph 17 of Schedule 15 to ICTA.
(6) Subsection (2) does not apply if the gain is from a foreign policy of life insurance or a foreign capital redemption policy.
(7) If the gain is from such a policy, for steps 1 and 3 in subsection (1) N is reduced by the number of complete years during which the policy holder was non-UK resident.
(8) If subsections (4) and (7) both apply, subsection (7) applies to N as calculated under subsection (4).
To calculate an individual’s relieved liability for the purposes of section 535(1) for a tax year for which the individual is liable for tax on gains from two or more chargeable events—
Step 1
Calculate the total annual equivalent by adding together the annual equivalents for each of the chargeable events, found as specified in step 1 in section 536(1).
Step 2
Find the total relieved liability on the total annual equivalent by—
calculating the individual’s liability to income tax (if any) on the total annual equivalent, on the basis that—
(i) the total gains from the chargeable events are limited to the amount of the total annual equivalent, and
(ii) the highest part assumptions apply, and
subtracting the amount of income tax at the lower rate on the total annual equivalent which the individual is treated as having paid under section 530(1).
Step 3
Multiply the total relieved liability on the total annual equivalent by the total gains charged to tax under this Chapter for the tax year in respect of all the events.
Step 4
Divide the result of step 3 by the total annual equivalent.
(1) This section applies if—
(a) immediately before a chargeable event the rights under the policy or contract, or the part of or share in them in question, were held on non-charitable trusts,
(b) an individual is liable for tax under this Chapter for the tax year on the gain from the event, and
(c) the income tax for which the individual is liable for the tax year, after any relief available in respect of the gain under section 535 (top slicing relief), exceeds that for which the individual would have been liable apart from the event.
(2) The individual is entitled to recover that excess from the trustees, subject to the restriction specified in subsection (3).
(3) The amount recovered must not exceed the total of—
(a) any sums received by the trustees because of the chargeable event, and
(b) the value of any benefits so received.
(4) If the individual’s relief under section 535 for the tax year does not relate only to the gain from the event in question, for the purposes of subsection (1)(c) a proportionate part of that relief is taken to be relief in respect of that gain.
(5) An individual may require the Inland Revenue to certify an amount recoverable by the individual under this section.
(6) Such a certificate is conclusive evidence of the amount.
(1) A deficiency from a policy or contract arising on a chargeable event is allowable as a deduction from an individual’s total income for a tax year if, had a gain arisen instead on that event—
(a) the individual would have been liable to income tax on the gain for that year, or
(b) the individual would have been so liable apart from the requirement in section 465(1) that the individual must be UK resident in the tax year in which the gain arises.
(2) See section 540 for the cases in which such a deficiency is treated as arising, section 541 for how the deficiency is calculated and section 469(5) for the apportionment of deficiencies in cases where two or more persons are interested in a policy or contract.
(3) Subsection (1) only applies for the purpose of determining the individual’s extra liability.
(4) For this purpose, an individual’s extra liability is the amount by which the individual’s liability to income tax exceeds the amount it would be on the assumptions specified in subsections (5) and (6).
(5) It is assumed that income charged to tax at the higher rate is charged—
(a) in the case of income within section 1A(1A)(c) of ICTA (income charged at the lower rate instead of the basic rate), at the lower rate, and
(b) in any other case, at the basic rate.
(6) It is assumed that income charged to tax at the dividend upper rate is charged at the dividend ordinary rate.
(1) A deficiency is treated as arising from a policy or contract on a chargeable event (“the later event”) if conditions A to C are met.
(2) Condition A is that the later event is an event within section 484(1)(a)(i) or (iii) or (b) to (e) (surrender of all rights, final participation in profits, death, maturity, or taking a capital sum as a complete alternative to annuity payments).
(3) Condition B is that a gain from the policy or contract has arisen on a calculation event other than a personal portfolio bond event, occurring in relation to the policy or contract in question before the later event.
(4) Condition C is that on the later event no gain is shown by the calculation in section 491(2) (calculation of gains for such events).
(1) This section sets out how the amount of a deficiency treated as arising under section 540(1) on a chargeable event (“the later event”) is calculated.
(2) If, when the calculation in section 491(2) is made for the later event, the total allowable deductions equal or exceed the total benefit value, the amount of the deficiency is equal to the total previous gains.
(3) If, when that calculation is made, the total benefit value exceeds the total allowable deductions, the amount of the deficiency is equal to the total previous gains, less that excess.
(4) In this section “the total previous gains” means the total amount of gains that—
(a) were treated as arising on calculation events (other than personal portfolio bond events) occurring in relation to the policy or contract in question before the later event, and
(b) formed part of the total income of the individual mentioned in section 539(1) for a tax year earlier than the tax year mentioned in that section.
(1) A qualifying policy (“the replaced policy”) and a policy of life insurance (“the replacement policy”) which replaces the replaced policy are treated as a single policy for the purposes of sections 484 to 497 if conditions A to D are met.
(2) Condition A is that the replacement policy is also a qualifying policy under the rules in paragraph 17 of Schedule 15 to ICTA.
(3) Condition B is that the replacement results from a change in the life or lives insured.
(4) Condition C is that any sum becoming payable by the insurance company on or in connection with the termination of the replaced policy is retained by it and applied in the discharge of some or all of the liability for any premium becoming due under the replacement policy.
(5) Condition D is that no consideration in money or money’s worth (other than the benefits for which provision is made by the replacement policy) is receivable by any person on or in connection with—
(a) the termination of the replaced policy, or
(b) the coming into existence of the replacement policy.
(6) The single policy is treated for the purposes of sections 484 to 497 as issued in respect of an insurance made at the time of the making of the insurance in respect of which the replaced policy was issued.
(7) So long as the replacement policy continues to be a qualifying policy, the single policy is also treated as a qualifying policy for those purposes.
(8) This section applies equally to a second or subsequent replacement policy.
(9) References in Schedule 2 (transitionals and savings) to—
(a) a policy of life insurance,
(b) the time of the making of the insurance in respect of which a policy of life insurance is issued, and
(c) a qualifying policy,
are to be read in accordance with this section.
(1) This section applies if—
(a) there has been a substitution of policies falling within paragraph 25(1) or (3) of Schedule 15 of ICTA (replacement of a policy issued by a non-UK resident company by a policy which is not so issued), and
(b) the new policy is a qualifying policy.
(2) The new policy is treated for the purposes of sections 484 to 497 as having been issued in respect of an insurance made on the day on which the insurance was made in respect of which the old policy was issued.
(3) References in Schedule 2 (transitionals and savings) to the time of the making of the insurance in respect of which a policy of life insurance is issued are to be read in accordance with this section.
(1) This section applies where, for the purposes of determining the application of this Chapter in relation to a policy or contract at any time, it is necessary to have regard to its application at another time.
(2) It makes no difference to the application of this Chapter at that other time whether liability in respect of a gain arising at that time would have arisen or (as the case may be) would arise because of the application of this Chapter or the corporation tax provisions.
(3) In subsection (2) “the corporation tax provisions” means—
(a) Chapter 2 of Part 13 of ICTA (which makes provision for corporation tax purposes corresponding to that made by this Chapter),
(b) paragraph 20 of Schedule 15 to that Act (replacement of qualifying policies), and
(c) section 79 of FA 1997 (payments under certain life insurance policies).
(1) In this Chapter—
“charitable trust” means a trust established for charitable purposes only,
“contract of insurance” has the meaning given by Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544),
“friendly society” has the meaning given in the Friendly Societies Act 1992 (c. 40) and includes a society which under section 96(2) of that Act is to be treated as a registered friendly society,
“insurance company” means an undertaking carrying on the business of effecting or carrying out contracts of insurance,
“market value” has the meaning given by sections 272 and 273 of TCGA 1992,
“non-charitable trust” means a trust other than a charitable trust, and
“policy” means a policy of life insurance or a capital redemption policy.
(2) References in this Chapter to a premium include a reference to—
(a) lump sum consideration, and
(b) property other than cash transferred to the insurance company in satisfaction of a premium.
(3) References in this Chapter to the amount of premiums paid include a reference to—
(a) the amount of lump sum consideration paid by way of premium, and
(b) the market value at the date of transfer of property other than cash transferred to the insurance company in satisfaction of any premium.
(1) Column 1 of the table in subsection (4) specifies provisions of this Chapter which are subject to Part 6 or 7 of Schedule 2 (transitionals and savings), and column 2 of the table specifies the provisions of that Schedule to which they are subject.
(2) See also paragraphs 85 to 91 of that Schedule.
(3) The provisions of that Schedule referred to in subsections (1) and (2) are to be read as if they were in this Chapter.
(4) This is the table—
| Provisions of Chapter 9 | Provisions of Schedule 2 |
|---|---|
| Section 467 | paragraph 112 (pre-17th March 1998 policies and contracts) and paragraph 114 (pre-9th April 2003 policies and contracts) |
| Section 473 | paragraph 96 (exclusion of pre-20th March 1968 policies and contracts) and paragraph 102 (exclusion of certain pre-26th June 1982 policies and contracts) |
| Section 476(3) | paragraphs 103 and 111 (certain pre-18th November 1983 and pre-17th March 1998 policies not foreign policies of life insurance) and paragraphs 104 and 113 (certain pre-23rd February 1984 and pre-23rd March 1999 policies not foreign capital redemption policies) |
| Section 480 | paragraph 116 (pre-9th April 2003 policies) |
| Section 484 | paragraph 99 (pre-10th December 1974 contracts for a life annuity: disregard of death) |
| Section 485(2) and (3) | paragraph 107 (pre-14th March 1989 qualifying policies) |
| Section 494(1) | paragraph 105(a) (pre-14th March 1984 policies: disregard of amounts deducted and repaid after tax relief by deduction from premiums abolished) |
| Section 500(c) | paragraph 97 (disapplication in relation to pre-27th March 1974 policies and contracts) and paragraph 102(9) (exclusion of certain pre-26th June 1982 policies and contracts) |
| Section 501 | paragraph 102(9) (exclusion of certain pre-26th June 1982 policies and contracts), paragraph 108 (pre-14th March 1989 policies and contracts) and paragraph 115 (pre-9th April 2003 policies and contracts: loans to trustees) |
| Section 507 | paragraph 100 (pre-14th March 1975 policies and contracts) and paragraph 105(b) (pre-14th March 1984 policies: disregard of amounts deducted and repaid after tax relief by deduction from premiums abolished) |
| Section 516 | paragraph 119 (pre-17th March 1998 policies and contracts) |
| Section 525 | paragraph 124(3) (pre-17th March 1998 policies and contracts) and paragraph 125(3) (pre-17th March 1998 policies and contracts) |
| Section 529 | paragraph 106 (disapplication of section 529(1)(a) and (b) for certain pre-20th March 1985 policies) and paragraph 110 (disapplication of section 529(1)(c) for certain pre-17th March 1998 policies) |
| Section 530 | paragraph 109(2) (disapplication for contracts for life annuities made in accounting periods beginning before 1st January 1992) |
| Section 531 | paragraph 98 (pre-27th March 1974 policies and contracts: disapplication of section 531(3)(c)) and paragraph 118 (pre-1st January 2005 contracts for immediate needs annuities: income tax treated as paid) |
| Section 539(3) | paragraph 109(4) (contracts made in accounting periods beginning before 1st January 1992) |
| Section 541(4) | paragraph 117 (pre-3rd March 2004 contract or policy: calculation of deficiencies) |
| Section 542 | paragraph 101 (disapplication in the case of pre-25th March 1982 replacement policies) |
(1) Income tax is charged on income treated as received by a unit holder from a scheme to which section 469 of ICTA applies (unauthorised unit trust schemes).
(2) For the purposes of this Chapter, a unit holder is treated as receiving such income if an amount is shown in the scheme’s accounts as income available for payment to unit holders or for investment.
(1) Tax is charged under this Chapter on the gross amount of the income treated as received by the unit holder in the tax year.
(2) To calculate the gross amount of the income treated as received by a unit holder for a distribution period—
Step 1
Calculate the unit holder’s share of the scheme’s available income by applying the formula—
where—
SAI is the total amount shown in the scheme’s accounts as income available for payment to unit holders or for investment,
R is the unit holder’s rights, and
TR is all the unit holders' rights.
Step 2
Gross up the unit holder’s share of the scheme’s available income by reference to the basic rate for the tax year in which the income from the scheme is treated as received.
(3) The income from a scheme for a distribution period is treated as received on the date or latest date provided by the terms of the scheme for any distribution for the period, unless that date is more than 12 months after it ends.
(4) If—
(a) that date is more than 12 months after the distribution period ends, or
(b) no date is so provided,
the income for the period is treated as received on the last day of the period.
(5) In this section “distribution period” means a period over which income from the investments subject to the trusts is aggregated to ascertain the amount available for distribution to unit holders.
This is subject to subsections (6) and (7).
(6) If the scheme does not provide for distribution periods, its distribution periods are taken to be successive periods of 12 months, the first of which began with the day on which the scheme took effect.
(7) If the scheme provides for a distribution period of more than 12 months, each successive period of 12 months within that period and any remaining period of less than 12 months are taken to be distribution periods.
The person liable for any tax charged under this Chapter is the unit holder treated as receiving the income under section 547(2).
Income tax treated as deducted from income within this Chapter as a result of section 469(3) of ICTA (treatment of income within this Chapter as annual payments for certain purposes) is treated as income tax paid by the recipient.
(1) Income tax is charged on profits and gains from the disposal of deposit rights.
(2) For the purposes of this section, the exercise of a deposit right is a disposal of it, except so far as the right is a right to receive interest.
(1) In this Chapter “deposit rights” means—
(a) a right to receive, with or without interest, a principal amount stated in, or determined in accordance with, the current terms of issue of an eligible debt security, where in accordance with those terms the issue of uncertificated units of the eligible debt security corresponds to the issue of a certificate of deposit,
(b) a right to receive the principal amount stated in a certificate of deposit, with or without interest,
(c) an uncertificated right to receive a principal amount, with or without interest, as a result of a deposit of money,
(d) a right which—
(i) is not within paragraph (c),
(ii) is acquired in a transaction in which no certificate of deposit or security or uncertificated eligible debt security units are issued, and
(iii) is a right to receive a principal amount payable with interest by a bank or similar institution or a person regularly engaging in similar transactions, and
(e) the right to receive the interest mentioned in paragraph (d).
(2) In this section—
“certificate of deposit” means a document—
relating to the deposit of money in any currency,
recognising an obligation to pay a stated principal amount to bearer or to order, with or without interest, and
by the delivery of which, with or without endorsement, the right to receive that stated amount, with or without interest, is transferable,
“eligible debt security” has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001 (S.I. 2001/3755),
“security” (except in relation to an eligible debt security) includes any loan stock or similar security, whether secured or unsecured and whether issued by—
the Government of the United Kingdom or another government,
any local or other public authority in the United Kingdom or elsewhere, or
any company,
“uncertificated”, in relation to a unit, has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001,
“uncertificated eligible debt security units” means uncertificated units of an eligible debt security where the issue of the units corresponds, in accordance with the current terms of issue of the eligible debt security, to the issue of a certificate of deposit,
“uncertificated right” means a right in respect of which no certificate of deposit has been issued, although the person for the time being entitled to it is entitled to call for the issue of such a certificate, and
“unit” has the meaning given in regulation 3(1) of the Uncertificated Securities Regulations 2001.
Tax is charged under this Chapter on the full amount of profits or gains arising in the tax year.
The person liable for any tax charged under this Chapter is the person receiving or entitled to the profits or gains.
(1) Income tax is charged on profits and gains from a disposal of a future or option that is a disposal involving guaranteed returns.
(2) Those profits and gains are treated as income for income tax purposes even if they would otherwise be taken to be a capital item.
(1) Tax is charged under this Chapter on the full amount of profits or gains arising in the tax year.
(2) The profits and gains from a disposal are taken to arise when the disposal occurs.
The person liable for any tax charged under this Chapter is the person realising the profits or gains.
(1) In this Chapter “future” means outstanding rights and obligations under a commodity or financial futures contract.
(2) In this Chapter “option” means—
(a) an option relating to—
(i) currency, shares, stock, securities or an interest rate, or
(ii) rights under a commodity or financial futures contract, or
(b) any other option which at the time of the disposal in question is listed on a recognised stock exchange or recognised futures exchange,
and includes any liability or entitlement under an option within paragraph (a) or (b).
(3) In this Act “recognised futures exchange” means the London International Financial Futures Exchange and any other futures exchange which is for the time being designated for the purposes of TCGA 1992 by order made by the Board of Inland Revenue under section 288(6) of that Act.
(1) For the purposes of this Chapter, a disposal of a future or option involves guaranteed returns if conditions A to C are met.
(2) Condition A is that the disposal is one of two or more related transactions (see section 566).
(3) Condition B is that those transactions are designed to produce a guaranteed return (see subsection (5)).
(4) Condition C is that the guaranteed return comprises—
(a) the return from the disposal (see section 561), or
(b) the return from a number of disposals of futures or options, of which the disposal is one, taken together.
(5) For the purposes of this Chapter, two or more related transactions are transactions designed to produce a guaranteed return if, taking them together, it would be reasonable to assume from one or more of the matters specified in subsection (6) that—
(a) the main purpose of the transactions is or was the production of a guaranteed return from one or more disposals of futures or options (see section 560), or
(b) that is or was one of their main purposes.
(6) Those matters are—
(a) the likely effect of the transactions,
(b) the circumstances in which the transactions are entered into, and
(c) the circumstances in which any one of the transactions is entered into.
(7) In the case of a transaction which is a disposal, the references in subsection (6) to entering into the transaction are references to making the disposal.
Income Tax (Trading and Other Income) Act 2005