Office of Public Sector Information
SCHEDULE 2 continued PART 6 continued
115 (1) This paragraph makes provision for the application of section 501 (part surrenders: loans) in relation to—
(a) a policy of life insurance issued in respect of an insurance made before 9th April 2003,
(b) a contract for a life annuity made before that date, or
(c) a capital redemption policy where the contract was made before that date.
(2) In the case of a loan made before that date that section applies with the omission—
(a) of subsections (1)(b) and (3) (by virtue of which the section applies to loans to trustees), and
(b) in subsection (5)(b) of the words “, trustees” and “, trustees'”.
116 (1) Sub-paragraph (2) applies to a policy if—
(a) it was issued in respect of an insurance made before 9th April 2003, and
(b) immediately before 6th April 2005, paragraph 4(1) (excepted group life policies: time for compliance with conditions in section 539A of ICTA) of Schedule 34 to FA 2003 applied to it.
(2) The policy is to be taken to have met the conditions referred to in section 480(3) (conditions to be met by an excepted group life policy) throughout the period mentioned in that paragraph.
(3) Sub-paragraphs (3) and (4) apply where immediately before 6th April 2005 paragraph 4(3) of Schedule 34 to FA 2003 applied to treat two policies as a single policy issued in respect of an insurance made at the time of the making of the insurance in respect of which the earlier of those policies was issued.
(4) Those policies are to be treated as a single policy so issued for the purposes of—
(a) Chapter 9 of Part 4,
(b) paragraph 90 of this Schedule, and
(c) this Part of this Schedule (and, in particular, sub-paragraph (2)).
(5) Sub-paragraph (2) applies to that single policy taking the reference to the period mentioned in paragraph 4(1) of Schedule 34 to FA 2003 as a reference to the period so mentioned as a result of the application of paragraph 4(3)(b) of that Schedule.
117 (1) In the case of a 2004 Act excluded policy or contract, section 541(4) (calculation of deficiencies) applies with the omission of paragraph (b) and the word “and” immediately preceding it.
(2) In this paragraph “a 2004 Act excluded policy or contract” means—
(a) a policy of life insurance issued in respect of an insurance made before 3rd March 2004,
(b) a contract for a life annuity made before that date, or
(c) a capital redemption policy where the contract was made before that date,
but excluding a policy or contract within sub-paragraph (3).
(3) A policy or contract is within this sub-paragraph if on or after 3rd March 2004—
(a) it is varied so as to increase the benefits secured,
(b) there is an assignment of the rights, or a share of the rights, conferred by it, or
(c) all or part of those rights become held as security for a debt.
(4) Any exercise of rights conferred by a policy or contract counts as its variation for the purposes of sub-paragraph (3)(a).
118 (1) A contract for a life annuity made before 1st January 2005 is not to be treated for the purposes of paragraph (c) of section 531(3) (policies and contracts excluded from section 530) as having not formed part of any insurance company’s or friendly society’s basic life assurance and general annuity business the income and gains of which are subject to corporation tax by reason only of the immediate needs annuities exclusion.
(2) In sub-paragraph (1) “the immediate needs annuities exclusion” means the words from “other than” onwards in the definition of “annuity business” in section 431(2) of ICTA.
119 For the purposes of Chapter 9 of Part 4, a policy or contract is not a personal portfolio bond if—
(a) it meets the date condition (see paragraph 120),
(b) it meets the non-variation condition (see paragraph 121), and
(c) it meets either the first selection condition (see paragraph 122) or the second selection condition (see paragraph 123).
120 (1) A policy meets the date condition if it is a policy issued in respect of an insurance made before 17th March 1998.
(2) A contract meets the date condition if it was made before that date.
121 (1) A policy or contract meets the non-variation condition if it has not been varied on or after 16th July 1998 so as—
(a) to increase the benefits secured, or
(b) to extend the term of the policy or contract.
(2) Any exercise of rights conferred by a policy or contract counts as its variation for the purposes of this paragraph.
122 A policy or contract meets the first selection condition at any time if for the whole of the period beginning with 6th April 1994 and ending with that time it has not been possible to determine the whole or any part of the benefits under the policy or contract by reference to—
(a) an index other than a permitted index (see paragraph 126), or
(b) property other than permitted property (see paragraph 127).
123 (1) A policy or contract meets the second selection condition at any time if it meets conditions A to C.
(2) Condition A is that for some or all of the period beginning with 6th April 1994 and ending with that time it has been possible to determine the whole or any part of the benefits under the policy or contract by reference to—
(a) an index other than a permitted index, or
(b) property other than permitted property.
(3) Condition B is that at no time during that period have the benefits under the policy or contract actually been determined by reference to such property or such an index.
(4) Condition C is that the terms of the policy or contract were varied before the end of the first insurance year in relation to the policy or contract which began on or after 6th April 1999 so that, since that variation,—
(a) the only index which it has been possible to select as mentioned in section 516(4) is a permitted index, and
(b) the only property which it has been possible to select as mentioned in section 516(4) is permitted property.
(5) Condition C is subject to paragraphs 124 and 125 (which modify it in cases where any holder of the policy or contract was not UK resident on 17th March 1998 and has become UK resident since that date).
124 (1) This paragraph applies to a policy or contract if—
(a) any holder of the policy or contract on 17th March 1998 was not UK resident on that date,
(b) such a holder has become UK resident since that date, and
(c) the holder did not intend, on the date of the holder’s arrival in the United Kingdom by virtue of which the holder became UK resident—
(i) to become permanently UK resident, or
(ii) to stay in the United Kingdom for at least two years.
(2) The policy or contract meets condition C in the second selection condition if it has been varied as described in that condition before the later of—
(a) the end of the first insurance year in relation to the policy or contract beginning on or after 6th April 1999, and
(b) the end of the first insurance year in relation to the policy or contract beginning after the date since 17th March 1998 on which the holder of the policy or contract first became UK resident.
(3) No gain is treated as arising from the policy or contract under section 525 (chargeable events where annual personal portfolio calculations show gains) in relation to any insurance year which ends—
(a) on or after the date since 17th March 1998 on which the holder of the policy or contract first became UK resident, and
(b) before the insurance year in which the variation was made.
125 (1) This paragraph applies to a policy or contract if—
(a) any holder of the policy or contract on 17th March 1998 was a non-UK resident individual on that date,
(b) such a holder has become UK resident since that date, and
(c) the holder intended, on the date of the holder’s arrival in the United Kingdom by virtue of which the holder became UK resident,—
(i) to become permanently UK resident, or
(ii) to stay in the United Kingdom for at least two years.
(2) The policy or contract meets condition C in the second selection condition if it has been varied as described in that condition before the later of—
(a) the end of the first insurance year in relation to the policy or contract beginning on or after 6th April 1999, and
(b) the end of the first insurance year in relation to the policy or contract beginning on or after the date mentioned in sub-paragraph (1)(c).
(3) No gain is treated as arising from the policy or contract under section 525 in relation to any insurance year which ends—
(a) on or after the date since 17th March 1998 on which the holder of the policy or contract first became UK resident, and
(b) before the insurance year in which the variation was made.
126 In this Part of this Schedule “permitted index” means an index falling within a category listed in section 518.
127 (1) In this Part of this Schedule “permitted property”, in relation to a policy or contract, means any of the following—
(a) property falling within any of the categories listed in the table in section 520(2),
(b) shares or securities listed on a recognised stock exchange, and
(c) subject to sub-paragraph (2), shares or securities of a company which are dealt in on the Unlisted Securities Market or the Alternative Investment Market.
(2) Shares or securities of a company which fall within sub-paragraph (1)(c) are not permitted property at any time at which—
(a) the whole or any part of the benefits under the policy or contract may be determined by reference to shares or securities of the company which represent more than 10% of its issued share capital, or
(b) the amount invested in shares or securities of the company under the policy or contract exceeds 10% of the total amount of premiums paid up to that time under the policy or contract.
128 (1) In this Part of this Schedule “security” has the same meaning as in section 132(3)(b) of TCGA 1992.
(2) Any references in this Part of this Schedule to shares or securities include a reference to any option, warrant or other right to acquire shares or securities.
(3) In sub-paragraph (3) “warrant” has the same meaning as in paragraph 14 of Schedule 2 to FISMA 2000.
129 Section 604 applies with the omission of subsection (3)(b) in relation to contributions made before 27th July 1989.
130 Chapter 4 of Part 5 does not apply to an indefeasible right to use a telecommunications cable system (“IRU”) acquired before 21st March 2000.
131 (1) That Chapter also does not apply to an IRU acquired by a person on or after that date (directly or indirectly) from an associate or an associated company if the associate or associated company acquired the IRU before that date.
(2) In sub-paragraph (1)—
“associate” has the meaning given by section 417(3) and (4) of ICTA, and
“associated company”—
in relation to another company, has the meaning given by section 416(1) of that Act, and
(b) in relation to any other person, means a company of which that person has control within the meaning of subsections (2) to (6) of that section.
132 (1) Subject to sub-paragraph (4), section 627 applies before 6th April 2006 with the following amendments.
(2) In subsection (2)(c) for “a relevant pension scheme” substitute “an approved pension arrangement”.
(3) For subsection (3) substitute—
“(3) In subsection (2) an “approved pension arrangement” means—
(a) an approved scheme or exempt approved scheme,
(b) a relevant statutory scheme,
(c) a retirement benefits scheme set up by a government outside the United Kingdom for the benefit, or primarily for the benefit, of its employees,
(d) a contract or scheme which is approved under Chapter 3 of Part 14 of ICTA (retirement annuities),
(e) a personal pension scheme which is approved under Chapter 4 of that Part,
(f) an annuity purchased for the purpose of giving effect to rights under a scheme falling within any of paragraphs (a) to (c) and (e), or
(g) any pension arrangements of any description prescribed by regulations made under section 11(2)(h) of the Welfare Reform and Pensions Act 1999 (c. 30) or Article 12(2)(h) of the Welfare Reform and Pensions (Northern Ireland) Order 1999 (S.I. 1999/3147 (N.I. 11)).
(4) In subsection (3) “approved scheme”, “exempt approved scheme”, “relevant statutory scheme” and “retirement benefits scheme” have the same meaning as in Chapter 1 of Part 14 of ICTA (retirement benefit schemes).”
(4) The power of the Treasury to make an order under section 281 or 283 of FA 2004 has effect as if Schedule 35 to that Act contained an amendment substituting section 627 of this Act for that section as amended by sub-paragraphs (2) and (3) above.
133 (1) In relation to income which—
(a) arises under a settlement made or entered into before 9th March 1999, and
(b) does not arise directly or indirectly from funds provided on or after that date,
section 629 applies with the omission from subsection (1) of paragraph (b) and the word “or” before that paragraph.
(2) Where subsection (1) of section 629 applies for a tax year only in relation to such income as is mentioned in sub-paragraph (1), that section applies with the substitution for subsections (3) and (4) of—
“(3) Income paid to or for the benefit of a child of a settlor is not treated as provided in subsection (1) for a tax year in which the total amount paid to or for the benefit of that child which but for this subsection would be so treated does not exceed £100.”
(3) Where subsection (1) of section 629 applies for a tax year in relation to such income as is mentioned in sub-paragraph (1) above and other income, that section applies with the substitution for subsection (4) of—
“(4) In subsection (3) a child’s “relevant settlement income” means income which (apart from that subsection) would be treated as income of the settlor under subsection (1) and which—
(a) so far as consisting of such income as is mentioned in paragraph 133 of Schedule 2, is income paid to or for the benefit of the child, and
(b) so far as consisting of other income, is income paid to or for the benefit of, or otherwise treated as income of, the child.”
(4) Any apportionment required for the purposes of sub-paragraph (1)(b) is to be made on a just and reasonable basis.
134 (1) In relation to any case which involves any previous tax years before 1995-96, subsection (3) of section 635 applies in accordance with sub-paragraphs (2) and (3) below.
(2) So far as that subsection applies in relation to those previous tax years, for paragraph (c) substitute—
“(c) so much of any income arising under the settlement in any previous year which has not been distributed as is shown to consist of income which has been treated as income of the settlor by virtue of section 671, 672, 674, 674A or 683 of ICTA,
(d) any income arising under the settlement in any previous year which has been treated as the income of the settlor by virtue of section 673 of ICTA,
(e) any sums paid by virtue or in consequence of the settlement, to the extent that they are not allowable, by virtue of section 676 of ICTA, as deductions in computing the settlor’s income for any previous year,
(f) any sums paid by virtue or in consequence of the settlement in any previous year which have been treated as the income of the settlor by virtue of section 664(2)(b) of ICTA,
(g) any sums included in the income arising under the settlement as amounts which have been or could have been apportioned to a beneficiary as mentioned in section 681(1)(b) of ICTA, and”.
(3) For paragraph (d) of that subsection substitute—
“(h) an amount equal to the sum of tax at the rate applicable to trusts on—
(i) the total amount of income arising under the settlement in that year and any previous year which has not been distributed, less
(ii) the total amount of the income and sums referred to in paragraph (c) (in relation to tax years 1995-96 onwards) and paragraphs (c), (d), (e), (f) and (g) as substituted by paragraph 134 of Schedule 2 (in relation to tax years before 1995-96).”
(4) In relation to any sum paid before 6th April 1995, subsection (3) of section 634 applies with the substitution of “in one of the events specified in section 673(3) of ICTA” for paragraphs (a) and (b).
(5) Subsection (5)(a) of section 634 does not apply if the direction or assignment was given or made before 6th April 1981.
135 In relation to any capital sum paid to the settlor before tax year 1995-96, section 641 applies with the insertion after subsection (6) of—
“(6A) Where a capital sum is paid to the settlor in a tax year by a body corporate connected with the settlement in that year it is to be assumed until the contrary is shown that an associated payment of an amount not less than that of the capital sum has been made to that body by the trustees of the settlement.”
136 (1) Sub-paragraph (2) applies if any previous tax year to which regard is to be had for the purposes of section 665 (assumed income entitlement) is a tax year before 2005-06 (an “old tax year”).
(2) In relation to the old tax year, the reference in step 4 in subsection (1) of that section to basic amounts relating to the person’s absolute interest in respect of which the person is liable to income tax for that year is to be taken as a reference to the amount deemed to have been paid to that person as income for that year in respect of that interest by virtue of section 696 of ICTA.
(3) Sub-paragraph (4) applies if one or more of the absolute interests referred to in section 671(1) (successive absolute interests) was held in one or more old tax years.
(4) The reference in section 671(2)(b) to the basic amounts relating to any previous such interest includes a reference to the amounts deemed to have been paid to the previous holder as income for the old tax years in respect of that interest by virtue of section 696 of ICTA.
(5) Sub-paragraph (6) applies if any of the limited interests referred to in section 672(1)(d) (successive interests: assumed income entitlement of holder of absolute interest following limited interest) was held in one or more old tax years.
(6) The reference in section 672(4) to the basic amounts relating to any previous such interest includes a reference to the amounts deemed to have been paid to the holders of any such interests as income for the old tax years in respect of those interests by virtue of section 695 of ICTA.
(7) In the case of a UK estate, references in this paragraph to the amounts deemed to have been paid are references to the amounts that would be deemed to have been paid apart from sections 695(4)(a) and 696(4) of ICTA (grossing up).
137 A sum treated as part of the aggregate income of an estate by virtue of section 547(1)(c) of ICTA (gains from life insurance contracts etc.) as the result of an event that occurred before 6th April 2004 is treated for the purposes mentioned in section 680 of this Act as bearing income tax at the basic rate.
138 In the case of certificates acquired before 27th July 1981, section 693(5) applies with the substitution for “the Department of Finance and Personnel” of “the Treasury”.
139 Any scheme which was certified as mentioned in section 326(2)(c), (3)(b) or (4)(b) of ICTA before 1st December 1994 is treated as a certified SAYE savings arrangement for the purposes of Chapter 4 of Part 6 of this Act.
140 A European authorised institution arrangement is not an institutional arrangement for the purposes of Chapter 4 of Part 6 if the arrangement was established before 2nd May 1995.
141 (1) Neither—
(a) the Treasury specification rules, nor
(b) the Treasury authorisation rules,
apply to any scheme which was certified as mentioned in section 326(3)(b), (4)(b) or (5)(b) of ICTA before 31st July 1995.
(2) In sub-paragraph (1)—
“the Treasury specification rules” means sections 705(1)(b) and (2) to (4) and 706 of this Act, and
“the Treasury authorisation rules” means sections 707 and 708 of this Act.
142 In the case of dividends paid in respect of shares acquired before the tax year 2004-05, Chapter 5 of Part 6 (venture capital trust dividends) applies as if the references in section 709(4) (annual acquisition limit) to £200,000 were references to £100,000.
143 (1) Any determination in relation to an annuity as to the amount of the capital element that was made under Chapter 5 of Part 14 of ICTA before 6th April 2005 and any decision on appeal that was so made against such a determination have effect on and after that date, so far as is required for the purposes of this Act, as a determination or decision as to the extent to which annuity payments made under the annuity are within section 717(1) (exemption for part of purchased life annuity payments) in accordance with section 719 (extent of exemption under that section).
(2) And a notification of such a determination or appeal or of an alteration of such a determination has effect accordingly.
144 (1) This paragraph applies if, in the case of an annuity to which section 656(2) of ICTA applied immediately before 6th April 2005, the total of the amounts determined in accordance with that section to be capital elements in respect of the annuity payments that arose before that date (and accordingly not to be annual payments for income tax purposes) exceeded the total of those annuity payments.
(2) The amount of the excess is to be added to the fixed sum mentioned in section 719(4) for the first payment that arises after 5th April 2005.
145 (1) Section 723(7) (liability to penalty for false statements and representations to obtain exemption under Chapter 7 of Part 6) does not apply (and section 658(5) of ICTA continues to apply) to any statement or representation made before 6th April 2005, despite the fact that it relates to the tax year 2005-06 or any subsequent tax year.
(2) Section 723(7) (liability to penalty for false statements and representations to obtain exemption under Chapter 7 of Part 6) applies (and section 658(5) of ICTA does not apply) to any statement or representation made on or after 6th April 2005, despite the fact that it relates to a tax year before the tax year 2005-06.
146 (1) Sections 727 (exemption for certain annual payments by individuals) and 730 (exemption for foreign maintenance payments) do not apply to—
(a) any payment falling due before 16th March 1988, or
(b) any payment falling due on or after that date but before 6th April 2000 to which this paragraph applies.
(2) Paragraph (b) of sub-paragraph (1) applies to a payment made in pursuance of an existing obligation (within the meaning of section 36(3) of FA 1988) unless it meets any of conditions A to E.
(3) Condition A is that the payment is treated as income of the payer under Chapter 5 of Part 5 as a result of section 624 or 629.
(4) Condition B is that the payment fell due from a husband to a wife or a wife to a husband at a time after 5th April 1990 when they were living together.
(5) Condition C is that an election is duly made under section 39 of FA 1988 in respect of the payment.
(6) Condition D is that the payment fell due on or after 6th April 1994 and is made—
(a) in pursuance of an obligation within section 36(4)(a) to (c) of FA 1988 that is an obligation under—
(i) an order made by a court,
(ii) a written or oral agreement, or
(iii) a deed executed for giving effect to an agreement, and
(b) for the benefit, maintenance or education of a person (whether or not the person to whom the payment is made) who attained the age of 21 on or before the day on which the payment fell due but after 5th April 1994.
(7) Condition E is that—
(a) the payment is made in pursuance of an obligation within section 36(4)(a) of FA 1988 (existing obligations under certain court orders),
(b) the payment is made for the benefit, maintenance or education of a person (whether or not the person to whom the payment is made) who attained the age of 21 before 6th April 1994, and
(c) section 38 of FA 1988 (treatment of certain maintenance payments under existing obligations) does not apply to the payment.
147 Section 729 (exemption for payments for non-taxable consideration) applies in the case of an annuity granted before 30th March 1977—
(a) with the substitution in subsection (1) of “condition B, C or D” for “condition B or C”, and
(b) with the substitution of the following subsections for subsection (5)—
“(5) Condition D is that the payment is a payment under an annuity charged on an interest in settled property and granted by an individual to a company—
(a) whose business then consisted wholly or mainly in the acquisition of interests in settled property, or
(b) which was then carrying on life assurance business in the United Kingdom.
(6) In the application of subsections (4) and (5) to Scotland, the references in those subsections to settled property are to be read as references to property held in trust.”
148 (1) Subject to sub-paragraphs (4) and (5), sections 731, 733 and 734 apply with the modifications in sub-paragraphs (2) and (3).
(2) In section 731 (periodical payments of personal injury damages)—
(a) for subsection (2) substitute—
“(2) This subsection applies to periodical payments made in pursuance of—
(a) a court order making a final or interim award of damages in respect of personal injury,
(b) an agreement settling a claim or action for such damages, or
(c) an agreement for a payment on account of the damages that may be awarded in such an action.”,
(b) in subsection (3)(b) for the words from “agreement” to the end of the paragraph substitute “or agreement as is mentioned in subsection (2) or a subsequent agreement”, and
(c) omit subsection (6).
(3) In sections 733(a) and 734(1)(a)(i) for “agreement, undertaking” substitute “or agreement”.
(4) The modifications in sub-paragraphs (2) and (3) do not apply if an order has been made under section 110(1) of the Courts Act 2003 (c. 39) (commencement) making provision for section 100(2) and (3) of that Act to come into force on a day earlier than 6th April 2005.
(5) The power in section 110(1) of that Act includes power to make provision in accordance with which the modifications in sub-paragraphs (2) and (3) do not apply on or after a day appointed by the order that is later than 5th April 2005.
Income Tax (Trading and Other Income) Act 2005