Office of Public Sector Information
PART 6 continued CHAPTER 8 continued
(1) No liability to income tax arises under this Act in respect of an annual payment under an insurance policy if—
(a) the payment is a benefit provided under so much of the policy as insures against a health or employment risk (see section 736),
(b) no part of any premiums under the policy has been deductible in calculating the income of the insured for income tax purposes, and
(c) the conditions in sections 737 and 738 and, so far as applicable, those in sections 739 and 740 are met in relation to the policy.
(2) Subsection (1)(b) is subject to section 743.
(3) For the meaning of “the insured”, see sections 742 and 743(2).
(1) For the purposes of sections 735 and 737 to 743, a policy insures against a health risk if it insures against the insured becoming, or becoming in any specified way, subject—
(a) to any physical or mental illness, disability, infirmity or defect, or
(b) to any deterioration in a condition resulting from any such illness, disability, infirmity or defect.
(2) For the purposes of sections 735 and 737 to 743, a policy insures against an employment risk if it insures against circumstances arising as a result of which the insured ceases—
(a) to be employed or hold office, or
(b) to carry on any trade, profession or vocation.
(3) For the purposes of section 735, this section and sections 737 to 743, references to insurance against a risk include insurance providing for benefits payable otherwise than by way of indemnity if the circumstances insured against occur.
(1) The condition in this section is that the only annual payments provided for by the policy which relate to the health or employment risk it insures against (“the insured risk”) are payments in respect of one or more of the following periods.
(2) They are—
(a) a period throughout which an illness, disability, infirmity or defect insured against by the part of the policy relating to the insured risk continues,
(b) a period throughout which, in circumstances insured against by the part of the policy relating to the insured risk, the insured is unemployed, does not hold an office or is not carrying on a trade, profession or vocation,
(c) a period throughout which, in circumstances insured against by the part of the policy relating to the insured risk, the insured’s income is less than it would otherwise have been, and
(d) where a period within paragraph (a), (b) or (c) ends with the death of the insured, a period immediately following that period.
(3) For the purposes of subsection (2)(a), an illness, disability, infirmity or defect is treated as continuing during a period of convalescence or rehabilitation related to it.
(4) For the purposes of subsection (2)(c), income from the policy is ignored.
(1) The condition in this section is that throughout the period that the policy has contained provisions relating to the health or employment risk those provisions have been such that any policy of insurance which only contained those provisions would involve the possibility that the insurer would make a significant loss on the premiums.
(2) In determining whether a policy would involve that possibility, any return on the investment of the premiums is to be taken into account.
(3) For this purpose reinsurance is ignored.
(1) The conditions in this section only apply if the policy provides for the payment of benefits which do not all relate to the health or employment risk.
(2) The conditions are that so far as the policy’s terms relate to the health or employment risk—
(a) they do not differ significantly from what they would have been if the only benefits had been those relating to that risk, and
(b) the way in which they are given effect does not differ significantly from the way in which they would have been given effect in that case.
(3) A difference relating only to the reduction of benefits payable to or in respect of a person because of other benefits being payable to or in respect of the person is to be ignored.
(4) For the purposes of this section, all the persons for whose benefit the policy provides insurance against the health or employment risk are to be considered.
(1) The conditions in this section only apply if—
(a) the insured is or has been the insured under one or more other policies (“connected policies”), and
(b) each of the connected policies has been in force either—
(i) at a time when the policy in question was in force, or
(ii) at the time immediately before it was entered into.
(2) The conditions are that so far as the terms of the policy relate to the health or employment risk—
(a) they do not differ significantly from what they would have been if no connected policies had been entered into, and
(b) the way in which they are given effect does not differ significantly from the way in which they would have been given effect in that case.
(3) A difference relating only to the reduction of benefits payable to or in respect of a person under the policy because of benefits being payable to or in respect of the person under any of the connected policies is to be ignored.
(4) For the purposes of this section, all the persons for whose benefit the policy provides insurance against the health or employment risk are to be considered.
(1) This section applies if—
(a) payments are made to or in respect of a person who has left employment because of the occurrence of something insured against by an employment policy as a health risk,
(b) the payments are made under another policy (“the replacement policy”) which was entered into under, or in accordance with, provisions contained in the employment policy,
(c) the employment policy has ceased to apply to the person, and
(d) the rights in accordance with which the payments are made under the replacement policy superseded rights under the employment policy with effect from the time when that policy ceased to apply to the person.
(2) The employment policy and the replacement policy are to be treated as a single policy for the purposes of sections 735 to 738, this section and section 743.
(3) In this section—
“employment” includes an office, and “employees” and “employer” are to be read accordingly, and
“employment policy” means a policy entered into wholly or partly for the benefit of the employees of an employer against a health risk.
In sections 735 to 737 “the insured” includes—
(a) the insured’s spouse,
(b) any child under 21 of the insured or the insured’s spouse, and
(c) any person on whom any liabilities arising from an actual or proposed transaction identified in the policy will fall jointly with the insured or the insured’s spouse.
(1) This section applies if—
(a) a policy of insurance is taken out by one person (“A”) wholly or partly for the benefit of another (“B”),
(b) B makes payments or contributions in respect of the premiums, and
(c) annual payments under the policy are wholly or partly attributable, on a just and reasonable basis, to the payments or contributions made by B.
(2) So far as those benefits are so attributable, B is to be treated as the insured in relation to that policy for the purposes of sections 735 to 742.
(3) So far as those benefits are so attributable, payments or contributions not made by B are ignored for the purposes of section 735(1)(b) (no part of the premiums to have been deductible in calculating the insured’s income).
No liability to income tax arises in respect of the following payments—
(a) any payment or reward falling within section 57(3) of the Adoption Act 1976 (c. 36) (payments authorised by the court) which is made to a person who has adopted or intends to adopt a child,
(b) payments under section 57(3A)(a) of that Act (payments by adoption agencies of legal or medical expenses of persons seeking to adopt),
(c) payments of allowances under regulations under section 57A of that Act (permitted allowances to persons who have adopted or intend to adopt children),
(d) payments of financial support made in the course of providing adoption support services within the meaning of the Adoption and Children Act 2002 (c. 38) (see section 2(6) and (7) of that Act), and
(e) payments made under regulations under paragraph 3(1) of Schedule 4 to that Act (transitional and transitory provisions: adoption support services).
No liability to income tax arises in respect of the following payments—
(a) any payment or reward falling within section 51(3) of the Adoption (Scotland) Act 1978 (c. 28) (payments authorised by the court) which is made to a person who has adopted or intends to adopt a child,
(b) payments under section 51(4)(a) of that Act (payments by adoption agencies of legal or medical expenses of persons seeking to adopt),
(c) payments of allowances by virtue of section 51B of that Act (transitional provisions) in accordance with a scheme approved under section 51(5) of that Act (schemes for payment of allowances to persons who have adopted or intend to adopt a child), and
(d) payments of allowances in accordance with an adoption allowances scheme under section 51A of that Act.
No liability to income tax arises in respect of the following payments—
(a) any payment or reward falling within Article 59(2)(b) of the Adoption (Northern Ireland) Order 1987 (S.I. 1987/2203 (N.I. 22)) (payments authorised by the court) which is made to a person who has adopted or intends to adopt a child,
(b) any payment under Article 59(2)(c) of that Order (payments by registered adoption societies) which is made to a person who has adopted or intends to adopt a child, and
(c) payments of allowances under regulations under Article 59A of that Order (permitted allowances to persons who have adopted or intend to adopt children).
The Treasury may by order amend section 744, 745 or 746 for the purposes of—
(a) adding a description of payment, or
(b) removing a description of payment if the power to make a payment of that description has been repealed or revoked or has otherwise ceased to be exercisable.
(1) No liability to income tax arises in respect of a payment which meets condition A and either condition B or C.
(2) Condition A is that the payment is made, in consequence of a reduction in pool betting duty, by a person liable to that duty.
(3) Condition B is that the payment is in order to meet (directly or indirectly) capital expenditure incurred in improving the safety or comfort of spectators at a ground to be used for the playing of association football.
(4) Condition C is that the payment is to trustees established mainly for the support of athletic sports or athletic games but with power to support the arts.
No liability to income tax arises in respect of interest paid under—
(a) section 824 of ICTA (repayment supplements: individuals and others), or
(b) section 283 of TCGA 1992 (repayment supplements).
No liability to income tax arises in respect of interest from tax reserve certificates issued by the Treasury.
(1) No liability to income tax arises in respect of interest on damages for personal injury or death if—
(a) it is included in a sum awarded by a court,
(b) it does not relate to the period between the making and satisfaction of the award, and
(c) in the case of an award by a court in a country outside the United Kingdom, it is exempt from any charge to tax in that place.
(2) No liability to income tax arises in respect of interest if—
(a) it is included in a payment in satisfaction of a cause of action (including a payment into court), and
(b) it would fall within subsection (1) if it were included in a sum awarded by a court in respect of a cause of action.
(3) In subsection (1)—
“damages” in Scotland includes solatium, and
“personal injury” includes disease and impairment of physical or mental condition.
(1) This section applies if—
(a) a scheme is set up to comply with section 153(4)(b) of the Companies Act 1985 (c. 6) or Article 163(4)(b) of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) (financial assistance for the purposes of an employees' share scheme), and
(b) under the scheme the trustees receive interest from a participant in the scheme.
(2) So far as the scheme requires the trustees to pay to the company an equivalent amount as interest, no liability to income tax arises under Chapter 2 of Part 4 for the trustees in respect of the interest they receive.
(1) No liability to income tax arises in respect of interest if—
(a) it is paid to a person to whom a student loan has been made, and
(b) it relates to an amount repaid to the person after being recovered from the person in respect of the loan.
(2) In this section “student loan” means a loan made under—
section 22 of the Teaching and Higher Education Act 1998 (c. 30),
section 73(f) of the Education (Scotland) Act 1980 (c. 44), or
Article 3 of the Education (Student Support) (Northern Ireland) Order 1998 (S.I. 1998/1760 (N.I. 14)).
(1) The redemption of funding bonds is not treated as the payment of interest on a debt for income tax purposes if their issue was treated under section 380 of this Act or section 582(1) of ICTA as the payment of interest on the debt.
(2) In this section “funding bonds” includes any bonds, stocks, shares, securities or certificates of indebtedness.
(1) This section applies to interest on—
(a) such foreign currency securities issued by a local authority or a statutory corporation as the Treasury direct, and
(b) such foreign currency loans made to a statutory corporation as the Treasury direct.
(2) No liability to income tax arises in respect of interest to which this section applies if—
(a) in the case of interest on a security, its beneficial owner is a non-UK resident, and
(b) in the case of interest on a loan, the person for the time being entitled to repayment or eventual repayment is a non-UK resident.
(3) But interest is not exempt under subsection (2) because a person is a non-UK resident if it is treated as another person’s income under—
Chapter 5 of Part 5 (settlements: amounts treated as income of settlor), or
Chapter 3 of Part 17 of ICTA (anti-avoidance provisions: transfer of assets abroad).
(4) In this section—
“company” means a company, as defined in section 735(1)(a) of the Companies Act 1985 (c. 6) or Article 3(1)(a) of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)),
“foreign currency”, in relation to loans and securities, has the meaning given by section 756, and
“statutory corporation” means—
a corporation incorporated by an Act (other than a company), or
any other corporation on which functions connected with carrying on an undertaking are conferred by an Act or by an order made under or confirmed by an Act.
(1) For the purposes of section 755, a security or loan is a foreign currency one if under its terms the currency to be used for repayment is not sterling.
(2) Subsection (1) is subject to the following qualifications.
(3) A security issued before 6th April 1982 is a foreign currency one if under its terms the currency to be used for repayment is not that of a country specified in Schedule 1 to the Exchange Control Act 1947 (c. 14) at the time of the issue of the security.
(4) A loan made before that date is a foreign currency one if under its terms the currency to be used for repayment is not that of a country specified in that Schedule at the time the loan was made.
(5) If in the case of a security there is an option as to the currency to be used for repayment, the security is only to be treated as a foreign currency one if the option is exercisable only by its holder.
(6) If in the case of a loan there is an option as to the currency to be used for repayment, the loan is only to be treated as a foreign currency one if the option is exercisable only by the person for the time being entitled to repayment or eventual repayment.
(1) Sections 758 to 767 make provision for an exemption from income tax in respect of certain interest and royalty payments.
(2) They give effect to Council Directive 2003/49/EC of 3rd June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different member States (“the Directive”).
(3) Specifically—
(a) section 758 sets out the conditions to be met for the exemption to apply,
(b) sections 759 to 761 explain certain terms used in those conditions,
(c) section 762 confers powers on the Board to make regulations about exemption notices,
(d) sections 763 and 764 make provision for limiting the exemption in the case of certain special relationships,
(e) section 765 contains anti-avoidance provisions,
(f) section 766 contains interpretation provisions, and
(g) section 767 confers power on the Treasury to amend references in sections 757 to 766 to the Directive.
(1) No liability to income tax arises in respect of a payment of interest or a payment of a royalty if, at the time the payment is made, conditions A to D are met.
(2) Condition A is that the person making the payment is—
(a) a UK company, but not such a company’s permanent establishment in a territory other than the United Kingdom, or
(b) a UK permanent establishment of an EU company.
See section 759 as to when a permanent establishment is to be treated as the person making the payment.
(3) Condition B is that the person beneficially entitled to the income in respect of which the payment is made is an EU company, but not such a company’s UK permanent establishment or non-EU permanent establishment.
See section 760 as to when a permanent establishment is to be treated as the person beneficially entitled to the income in respect of which the payment is made.
(4) Condition C is that the company in condition A and the company in condition B are 25% associates (see section 761).
(5) Condition D is that, if the payment is a payment of interest, the Board of Inland Revenue has issued an exemption notice in accordance with regulations under section 762.
(6) This section is subject to—
sections 763 and 764 (special relationships), and
section 765 (anti-avoidance).
(1) This section supplements condition A in section 758.
(2) It applies in a case where a company is resident in one territory and has a permanent establishment in another territory.
(3) The permanent establishment (and not the company) is to be treated as the person making the payment so far as (within the meaning of Article 1(3) of the Directive) the payment represents a tax-deductible expense for the permanent establishment in the territory in which it is situated.
(1) This section supplements condition B in section 758.
(2) It applies in a case where an EU company has a UK permanent establishment or a non-EU permanent establishment.
(3) The permanent establishment (and not the company) is to be treated as the person beneficially entitled to the income in respect of which the payment is made so far as subsections (4) and (5) apply to the payment.
(4) This subsection applies to the payment if (within the meaning of Article 1(5) of the Directive) it arises in respect of a debt-claim, right or use of information which is effectively connected with the permanent establishment.
(5) This subsection applies to the payment if (within the meaning of Article 1(5) of the Directive) it represents income in respect of which the permanent establishment is subject in the territory in which it is situated to United Kingdom corporation tax or a tax corresponding to that tax.
For the purposes of condition C in section 758, two companies are 25% associates if—
(a) one holds directly—
(i) 25% or more of the capital in the other, or
(ii) 25% or more of the voting rights in the other, or
(b) a third company holds directly—
(i) 25% or more of the capital in each of them, or
(ii) 25% or more of the voting rights in each of them.
(1) The Board of Inland Revenue may make regulations about exemption notices under section 758(5).
(2) The regulations may in particular make provision for or in connection with—
(a) enabling an exemption notice to be issued only on the request of a person of a prescribed description,
(b) requiring a person requesting the issue of an exemption notice to certify that conditions A to C in section 758 are met and that section 765 (anti-avoidance) does not apply,
(c) the information to be provided in the certificate,
(d) the person to whom an exemption notice is to be given,
(e) in a case where section 763 (special relationships) applies or may apply to a payment of interest, requiring an exemption notice to specify—
(i) the amount of the payment in relation to which the notice has effect, or
(ii) the method to be used for determining that amount,
(f) imposing a time limit for the issue of an exemption notice,
(g) imposing notification requirements,
(h) the cancellation of exemption notices by the Board,
(i) prescribing circumstances in which exemption notices are to become ineffective,
(j) the making of appeals (for example, against a refusal to grant, or the cancellation of, an exemption notice),
(k) authorising, in cases where—
(i) an exemption notice has been issued,
(ii) tax has not been deducted from a payment of interest, and
(iii) any of the conditions in section 758 were not met in the case of the payment,
the recovery of that tax by assessment or by deduction from subsequent payments.
(1) This section applies if—
(a) apart from this section, section 758 would apply in relation to a payment of interest or of a royalty,
(b) at the time the payment is made there is a special relationship (within the meaning of Article 4(2) of the Directive)—
(i) between the company in condition A of section 758 and the company in condition B of that section, or
(ii) between one of those companies and another person, and
(c) owing to the special relationship, the amount of the payment exceeds the amount which would have been paid in the absence of the relationship (“the arm’s length amount”).
(2) Sections 757 to 767, apart from this section and section 764, have effect in relation to only so much of the payment as does not exceed the arm’s length amount (which may be nil).
(3) Nothing in this section or section 764 affects any relief which may be allowed under any arrangements having effect under section 788 of ICTA (double taxation relief by agreement with other territories).
(1) The provisions in ICTA mentioned in subsections (2) and (3) apply in relation to section 763 as if that section were a special relationship provision within the meaning of those provisions.
(2) In the case of a payment of interest, those provisions are subsections (2) to (4) of section 808A of ICTA (interest: special relationship).
(3) In the case of a payment of a royalty, those provisions are subsections (2) to (7) and (9) of section 808B of ICTA (royalties: special relationship).
(4) In those provisions as applied in relation to section 763, expressions also used in sections 757 to 767 have the same meaning as in those sections.
(1) Section 758 does not apply in relation to a payment of interest if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of that section by means of that creation or assignment.
(2) Section 758 does not apply in relation to a payment of a royalty if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the right in respect of which the royalty is paid to take advantage of that section by means of that creation or assignment.
In sections 757 to 767—
“company” has the same meaning as the expression “company of a member State” has for the purposes of the Directive (see Article 3(a) of the Directive),
“debt-claim” has the same meaning as in the Directive,
“the Directive” has the meaning given by section 757(2),
“EU company” means a company resident in a member State other than the United Kingdom,
“interest” and “royalties” have the meaning given by Article 2 of the Directive,
“non-EU permanent establishment” means a permanent establishment in a territory other than a member State,
“UK company” means a company resident in the United Kingdom, and
“UK permanent establishment” means a permanent establishment in the United Kingdom.
Income Tax (Trading and Other Income) Act 2005