Overview
1841.This Chapter charges to tax the investment profit from life insurance policies, life annuity contracts and capital redemption policies. It is based on Chapter 2 of Part 13 of ICTA.
1842.The Chapter uses “gains” to describe what is charged to tax, as in the source legislation. The term “profits” is not used because it has different, well established meanings in the context of policies of life insurance etc. For example, the insurance industry uses “profits”, as in “with profits” policies, to describe bonuses which are not “gains” within the meaning of this charge.
1843.Whereas the source legislation often deals separately with each type of policy and contract falling within this charge, the Chapter deals with all three types at the same time, so far as possible, while still preserving any differences in the rules for each type.
1844.Most of the policies and contracts to which the Chapter applies are held by individuals or on trusts created by individuals. But the Chapter deals with all circumstances under which gains are charged to income tax, irrespective of the capacity of the policy holder.
1845.Where the gain is charged to corporation tax (that is, when the rights under the policy or contract are held by a company, or on trusts created by a company, or as security for a debt owed by a company, and the company is within the charge to corporation tax), the relevant provisions are in Chapter 2 of Part 13 of ICTA, as amended by Schedule 1 to this Act.
1846.The income tax provisions in this Chapter for charging gains and the corporation tax provisions in ICTA apply independently to any policy or contract. In practice, the same event will occur, and the amount of the gain will be the same, under both sets of provisions. But a charge to tax under one or other tax (sometimes to both taxes) only arises if someone is liable for the respective tax on the gain by virtue of sections 464 to 467 of this Act or section 547(1)(b) of ICTA. The corporation tax provisions do not include the equivalent of sections 530 to 537 (income tax treated as paid and top slicing relief) and 539 to 541 (relief for deficiencies).
1847.Life insurance policies certified by the Inland Revenue as “qualifying policies”, under paragraph 21 of Schedule 15 to ICTA, do not generally give rise to gains under this Chapter. The rules in Schedule 15 to ICTA include that:
the policy must have a minimum term of ten years from the date it was made to the date it is due to end; and
premiums of fairly even amounts must be payable at regular intervals in every year for at least ten years.
1848.Qualifying policies generally give rise to gains chargeable to tax if a “chargeable event” occurs:
before the earlier of ten years from the beginning of the policy or three-quarters of the term for which it is due to run; or
after the policy has – before the earlier of those two periods – been made a “paid up” policy (that is, no further premiums need be paid).
1849.The Chapter makes a number of minor changes to the law. And it includes provisions based on extra-statutory concessions.
1850.The Chapter also incorporates, so far as relating to the income tax charge, the secondary legislation for the special charge on personal portfolio bonds (the Personal Portfolio Bonds (Tax) Regulations 1999 SI 1999/1029, as amended by SI 2001/2724 and SI 2002/455). In this commentary, those regulations are abbreviated as “PPB(T)R”.
1851.Date-related provisions (that is, provisions which apply only to policies or contracts issued before a particular date) are located in Parts 6 and 7 of Schedule 2 to this Act rather than in this Chapter. Part 6 is organised chronologically so that policy holders can see, in relation to their own policies or contracts, which rules qualify the provisions in the Chapter. Part 7 is wholly concerned with policies issued in respect of an insurance made before 17 March 1998 and contracts made before that date. Section 546 indicates when Schedule 2 to this Act modifies the operation of the section and the relevant paragraph(s) of the Schedule.
1852.A few date-related provisions have been retained within this Chapter where it would be unhelpful to remove them (for example, section 507(4) (method for making periodic calculations under section 498)).
1853.Some provisions in Part 5 of Schedule 2 to this Act (paragraphs 85 to 91) also apply. These depend on dates other than the date of issue of a policy or contract.
1854.The Chapter is laid out as follows-
charge to tax under Chapter 9 (sections 461 to 463)
person liable etc. (sections 464 to 472)
policies and contracts to which Chapter 9 applies (sections 473 to 483)
when chargeable events occur: general (sections 484 to 490)
calculating gains: general (sections 491 to 497)
part surrenders and assignments: periodic calculations and excess events (sections 498 to 509)
transaction-related calculations and part surrender or assignment events (sections 510 to 514)
personal portfolio bonds (sections 515 to 526)
reductions from gains (sections 527 to 529)
income tax treated as paid and reliefs (sections 530 to 538)
deficiencies (sections 539 to 541)
supplementary (sections 542 to 546)
