Income and Corporation Taxes Act 1988

543Life annuity contracts: computation of gain

(1)On the happening of a chargeable event in relation to any contract for a life annuity, there shall be treated as a gain arising in connection with the contract—

(a)if the event is the surrender in whole of the rights conferred by the contract, the excess (if any) of the amount payable by reason of the event plus the amount or value of any relevant capital payments over the sum of the following—

(i)the total amount previously paid under the contract, whether by way of premiums or as lump sum consideration, reduced, if before the happening of the event one or more payments have been made on account of the annuity, by the capital element in that payment or payments, as determined in accordance with section 656; and

(ii)the total amount treated as a gain by virtue of paragraph (c) below on the previous happening of chargeable events;

(b)if the event is an assignment, the excess (if any) of the amount or value of the consideration, plus the amount or value of any relevant capital payments or of any previously assigned share in the rights conferred by the contract, over the sum of the following—

(i)the amount specified in paragraph (a)(i) above; and

(ii)any amount treated as a gain by virtue of paragraph (c) below on the previous happenings of chargeable events;

(c)if the event is the occurrence of such an excess as is mentioned in section 542(1), the amount of the excess.

(2)Subsection (3) of section 541 shall apply for the purposes of subsection (1) above as it applies for the purposes of subsection (1)(c) of that section, and subsection (4) of that section shall apply for the purposes of this section with the substitution of references to the contract for references to the policy.

(3)In this section “relevant capital payments” means, in relation to any contract, any sum or other benefit of a capital nature paid or conferred under the contract before the happening of the chargeable event.