(1) This Chapter does not apply to a credit union group life policy.
(2) In this section “credit union group life policy” means a group life policy with the sole object of providing, on the death or disability of any of the individuals insured under it, a sum substantially the same as any amount then outstanding under a loan made to that individual by a credit union.
(3) In this section “credit union” means a society registered as a credit union under—
(a) the Co-operative and Community Benefit Societies Act 2014, or
(b) the Credit Unions (Northern Ireland) Order 1985 (S.I. 1985/1205 (N.I. 12)).
(1) The following are chargeable events—
(a) in the case of any kind of policy or contract—
(i) the surrender of all rights under the policy or contract,
(ii) the assignment of all those rights for money or money's worth,
(iii) the falling due of a sum payable as a result of a right under a policy or contract to participate in profits, if there are no remaining rights under it,
(iv) a chargeable event treated as occurring under section 509(1) (chargeable events in certain cases where periodic calculations show gains),
(v) a surrender or assignment treated as a chargeable event under section 514(1) (chargeable events where transaction-related calculations show gains), and
(vi) a chargeable event treated as occurring under section 525(2) (chargeable events where annual personal portfolio bond calculations show gains),
(b) in the case of a policy of life insurance, a death giving rise to benefits under it,
(c) in the case of a policy of life insurance or a capital redemption policy, its maturity,
(d) in the case of a contract for a life annuity which provides for the payment of a capital sum on death, the death, and
(e) in the case of a contract for a life annuity which provides for a capital sum to be taken as a complete alternative to the annuity payments (or any further annuity payments), taking the capital sum.
(2) Subsection (1) is subject to—
section 485 (disregard of certain events in relation to qualifying policies),
section 486 (exclusion of maturity of capital redemption policies in certain circumstances),
section 487 (disregard of certain assignments), and
section 488 (disregard of certain events following alterations of life insurance policy terms).
(3) See also section 490 (last payment under guaranteed income bonds etc. treated as total surrender).
485 Disregard of certain events in relation to qualifying policies
(1) In relation to a qualifying policy, the events that count as chargeable events are restricted as follows.
(2) Death or the maturity of the policy is only a chargeable event if—
(a) the policy has been converted into a paid-up policy before the end of whichever of the following periods ends sooner—
(i) 10 years from the making of the insurance, and
(ii) three-quarters of the term for which the policy is to run (assuming it is not ended by death or disability), or
(b) there is a company interest in the rights under the policy immediately before the event occurs.
(3) An event specified in section 484(1)(a)(i) to (iv) (surrender or assignment of all rights, final participation in profits and chargeable event where periodic calculation shows gain) is only a chargeable event if—
(a) the event occurs or the policy has been converted into a paid-up policy before the end of whichever of the periods specified in subsection (2)(a)(i) and (ii) ends sooner, or
(b) there is a company interest in the rights under the policy immediately before the event occurs.
(4) For the purposes of subsections (2)(b) and (3)(b) there is a company interest in the rights under a policy if—
(a) a company beneficially owns them,
(b) they are held on trusts created by a company, or
(c) they are held as security for a company's debt.
(5) An event specified in section 484(1)(a)(v) (part surrenders and assignments: chargeable events where transaction-related calculations show gains) is only a chargeable event if—
(a) the time as at which the calculation showing the gain is required to be made under section 498(2) is before the end of whichever of the periods specified in subsection (2)(a)(i) and (ii) ends sooner, or
(b) the policy has been converted into a paid-up policy before that time.
(6) If the policy has been varied so as to increase the premiums payable under it, subsections (2), (3) and (5) apply as if they referred instead to the following periods—
(a) 10 years from the variation taking effect, and
(b) three-quarters of the term for which the policy is to run from the variation (assuming it is not ended by death or disability).
(7) If a qualifying policy is substituted for another policy in circumstances where paragraph 25(1) or (3) of Schedule 15 to ICTA applies (replacement of a policy issued by a non-UK resident company by a policy which is not so issued), the surrender of the rights conferred by the other policy is not a chargeable event.
(8) This section is subject to sections 463A and 463C.
For the purposes of this Chapter, an assignment of rights under a policy or contract or a share in such rights is ignored if it is—
(a) by way of security for a debt,
(b) on the discharge of a debt secured by the rights or share, or
(c) between spouses or civil partners living together.
488 Disregard of some events after alterations of life insurance policy terms
(1) This section applies if—
(a) the terms of a policy of life insurance are altered,
(b) the alteration is not itself a chargeable event, and
(c) the conditions specified in section 489 are met.
(2) After the alteration a chargeable event is only treated as occurring in relation to the policy if one would have been treated as occurring had the alteration not occurred.
(3) If the alteration results in the policy being regarded as replaced by another, this section and section 489 apply as if they were a single policy.
489 Conditions applicable to alterations of life insurance policy terms
(1) Conditions A to E are the conditions referred to in section 488.
(2) Condition A is that the policy was issued in respect of an insurance made at least 20 years before the alteration.
(3) Condition B is that the alteration results from a decision by the insurance company that it will not collect further premiums due from any of the holders under a number of policies of the same description if a particular period of time has elapsed since the contracts were made.
(4) Condition C is that no premiums are payable or paid after the date of the alteration.
(5) Condition D is that the benefits to be provided under the policy after the alteration are the same or substantially the same as those before the alteration.
(6) A deduction from the benefits is ignored for the purposes of subsection (5) if it does not exceed the total net premiums which, apart from the alteration, would have been payable under the policy between—
(a) the date of the alteration, and
(b) the date on which the benefits become payable.
(7) In subsection (6) “net premiums” means the premiums reduced by any tax relief which would have been due on the premiums had they been paid.
(8) Condition E is that the premiums payable under the policy before the alteration—
(a) have not been reduced to a nominal amount on the exercise of an option, in circumstances where the reduction is connected with a right to surrender in part the rights conferred by the policy after the date of the reduction, and
(b) are not capable of being so reduced in such circumstances.
490 Last payment under guaranteed income bonds etc. treated as total surrender
(1) This section applies to a payment that would fall within section 500(d) (payments under guaranteed income bonds etc. treated as surrenders of part of the rights under the contract) apart from section 504(5) (which prevents payments comprising the whole of the last benefit to be paid under such contracts from being so treated).
(2) The payment is treated for the purposes of this Chapter as the surrender of all the rights under the contract.
(3) A payment to which this section applies is not regarded as interest or as an annual payment for any income tax purposes.
(1) This section deals with calculating—
(a) whether a gain has arisen on a chargeable event within section 484(1)(a)(i) to (iii) or (b) to (e) (surrender or assignment of all rights, final participation in profits, death, maturity, or taking a capital sum as a complete alternative to annuity payments), and
(b) if so, the amount of the gain.
(2) There is a gain if TB exceeds the sum of TD and PG where—
TB is the total benefit value of the policy or contract (see section 492),
TD is the total allowable deductions for the policy or contract (see section 494), and
PG is the total amount of gains treated as arising on calculation events occurring in relation to the policy or contract before the chargeable event in question but only in so far as those gains have been, or fall to be, taken into account in calculating the total income of a person as a result of this Chapter or Chapter 2 of Part 13 of ITA 2007 .
(3) The gain is equal to the excess.
(4) In this Chapter—
“calculation event” means an excess event, a part surrender or assignment event or a personal portfolio bond event,
“excess event” means a chargeable event within section 509(1),
“part surrender or assignment event” means a chargeable event within section 514(1), and
“personal portfolio bond event” means a chargeable event within section 525(2).
(5) The reference to the policy in the definition of “PG” in subsection (2) includes any related policy.
(6) For the purposes of this Chapter, a policy (“policy A”) is a related policy as respects another (“policy B”) if—
(a) policy B is a new policy (as defined in paragraph 17 of Schedule 15 to ICTA (substitutions and variations)) in relation to policy A, or
(b) policy B is a new policy (as so defined) in relation to another policy (“policy C”) and policy C is a new policy (as so defined) in relation to policy A,
and so on.
(7) See section 539 (relief for deficiencies) if there is no gain under subsection (2), but a gain arose on a calculation event occurring in relation to the policy or contract before the chargeable event in question.
(8) For the rules about calculating gains on calculation events, see—
section 507 (method for making periodic calculations under section 498),
section 511 (method for making transaction-related calculations under section 510), and
section 522 (method for making annual calculations under section 515).
492 The total benefit value of a policy or contract
(1) To calculate the total benefit value of a policy or contract for the purposes of section 491, add together—
(a) its value in accordance with section 493,
(b) any capital sum paid under the policy or contract before the event,
(c) the value of any other benefit of a capital nature conferred by the policy or contract before the event,
(d) the amount of any loan made before the event, the making of which is treated as the surrender of a part of the rights under the policy or contract under section 500(c) (loans by insurers to which section 501 applies),
(e) in the case of a guaranteed income bond contract, as defined in section 504(7), any amount paid before the event, the payment of which is treated as a surrender of a part of the rights under the contract under section 500(d) of this Act (payments by insurers under such contracts), and
(f) in the case of an assignment, the amount or value of any share in the rights under the policy or contract that was assigned before the event.
(2) References to the policy in subsection (1)(b) to (e) include any related policy.
(3) This section is subject to—
section 495 (disregard of certain amounts in calculating gains under section 491), and
section 497 (disregard of trivial inducement benefits).
(1) In the case of a chargeable event within section 484(1)(a) (i) or (iii), (c), (d) or (e) (surrender of all rights, final participation in profits, maturity or, in the case of a contract for a life annuity that provides for taking a capital sum on death, death or taking a capital sum as a complete alternative to annuity payments), the value of the policy or contract is the total of—
(a) any sum payable because of the event, and
(b) in the case of a policy of life insurance or a capital redemption policy, any value or amount specified in subsection (2).
(2) The value or amount is—
(a) if a right to periodical payments arises because of the event, an amount equal to the capital value of those payments at the time the right arises, and
(b) the amount or value of any other benefits arising because of the event.
(3) Subsection (1) does not apply to a surrender treated as made under section 490 (last payment under guaranteed income bond contracts etc. treated as total surrender).
(4) In that case the value of the rights treated as surrendered is treated as being equal to the amount of the payment treated as the surrender.
(5) In the case of a chargeable event within section 484(1)(a)(ii) (assignment of all rights), the value of the policy or contract is the amount or value of the consideration for the assignment.
(6) But an assignment of a policy of life insurance or a contract for a life annuity between connected persons is treated as made for a consideration equal to the market value of the policy or contract.
(7) In the case of a chargeable event within section 484(1)(b) (death), the value of the policy is its surrender value immediately before the death.
(8) This section is subject to—
section 495 (disregard of certain amounts in calculating gains under section 491), and
section 497 (disregard of trivial inducement benefits).
494 The total allowable deductions for a policy or contract
(1) To calculate the total allowable deductions for a policy or contract for the purposes of section 491—
Step 1
Add together—
(a) the total amount of premiums paid under the policy or contract before the event, and
(b) if the event occurs at the end of the final insurance year (see section 499), the amount of any repayment or partial repayment of a loan treated under section 500(c) as a surrender of a part of the rights under the policy or contract.
Step 2
In the case of a contract for a life annuity under which any annuity payments have been made, reduce the result of step 1 by so much of those payments as is—
(a) exempt under section 717 (exemption for part of purchased life annuity payments), or
(b) determined to be the capital element in those payments under section 658 of ICTA.
(2) In the case of a capital redemption policy which has been assigned for money or money's worth before the event, the reference in paragraph (a) of step 1 in subsection (1) to the total amount of premiums paid under the policy or contract before the event is a reference to the total of—
(a) the amount or value of the consideration given for the last such assignment, and
(b) the total amount of premiums paid under the policy or contract after that assignment and before the event.
(3) References to the policy in paragraphs (a) and (b) of step 1 in subsection (1) and in subsection (2) include any related policy.
(4) Subsection (1) is subject to—
section 495 (disregard of certain amounts in calculating gains under section 491), and
section 496 (modification of this section: qualifying endowment policies held as security for company debts).
495 Disregard of certain amounts in calculating gains under section 491
(1) A retained replacement policy premium is ignored in calculating—
(a) the total benefit value of a policy under section 492(1), or
(b) the total allowable deductions for a policy under section 494(1).
(2) In subsection (1) “retained replacement policy premium” means a sum which—
(a) has been payable under a policy which is one of two or more policies treated as a single policy under section 542(1) (qualifying policies and policies replacing them), and
(b) is such a sum as is mentioned in section 542(4) and meets the condition in that section.
(3) For the purposes of section 492(1)(b) and (c) (total benefit value: capital sums and benefits paid or conferred before the event in question), any sum paid or benefit conferred under a policy is ignored if it is attributable to a person's disability.
(4) For the purposes of section 492(1)(f) (total benefit value: assignments), a share assigned before the event is ignored if—
(a) it was assigned in an insurance year (see section 499) that began on or after 6th April 2001, and
(b) it was not assigned for money or money's worth.
(5) The reference to the policy in subsection (3) includes any related policy.
496 Modification of section 494: qualifying endowment policies held as security for company debts
(1) This section applies if—
(a) a chargeable event within section 484(1)(a)(i), (b) or (c) (surrender of all rights, death or maturity) occurs in relation to a qualifying endowment policy (see subsection (7)),
(b) immediately before the event occurs the rights under the policy are held as security for a debt owed by a company, and
(c) the company debt conditions are met (see subsection (4)).
(2) If—
(a) the amount of the debt exceeds the amounts referred to in paragraph (a) of step 1 in section 494(1) (the total amount of premiums paid before the event), and
(b) the company makes a claim within two years after the end of the accounting period in which the chargeable event occurs,
section 494 applies as if that paragraph referred instead to the amount of the debt.
(3) If the amount of the debt varied during the policy period, it is to be taken for the purposes of subsection (2) as the lowest amount at which it stood during that period.
(4) The company debt conditions are that—
(a) throughout the policy period, the rights conferred by the policy have been held as security for a debt owed by the company referred to in subsection (1)(b),
(b) the capital sum payable under the policy in the event of death during the term of the policy is not less than the amount of the debt when the insurance was made,
(c) any sum payable under the policy as a result of the event is applied in repayment of the debt (except so far as it exceeds the debt), and
(d) the debt was incurred to pay money applied for the purposes of the company's trade premises.
(5) Money is applied for the purposes of a company's trade premises if it is applied—
(a) in purchasing an estate or interest in land to be occupied by the company for the purposes of a trade carried on by it, or
(b) for the purpose of the construction, extension or improvement (but not the repair or maintenance) of buildings which are or are to be so occupied.
(6) If during the policy period the company incurs a debt by borrowing in order to repay another debt, references to a debt in subsections (3) and (4) include both debts where appropriate.
(7) In this section—
“accounting period” is to be read in accordance with Chapter 2 of Part 2 of CTA 2009,
“the policy period” means the period beginning with the making of the insurance and ending immediately before the chargeable event, and
“ qualifying endowment policy” means a policy which is a qualifying policy as a result of paragraph 2 of Schedule 15 to ICTA.
(1) A benefit other than a payment of money is ignored for the purposes of calculating any gain under this Chapter if—
(a) it is provided by an insurance company for any person as an inducement for the person to enter into—
(i) a policy or contract to which this Chapter applies, or
(ii) a later transaction in relation to such a policy or contract, and
(b) the condition specified in subsection (2) is met.
(2) The condition is that the total cost to the insurance company of providing the benefit and any other such benefits provided by it at any time in connection with the policy or contract, or any linked policy or contract, does not exceed £30.
(3) The Treasury may by order amend the sum for the time being specified in subsection (2) so as to increase it.
(4) For the purposes of this section, a policy or contract is linked to another policy or contract if—
(a) their terms are substantially identical, and
(b) when one of them is issued or made the issue or making of the other is contemplated.
498 Requirement for periodic calculations in part surrender or assignment cases
(1) This section applies if—
(a) a part of, or share in, the rights under a policy or contract is surrendered, or
(b) such a part or share is assigned for money or money's worth.
(2) A calculation is to be made in accordance with section 507 in relation to the policy or contract as at the end of the insurance year in which the surrender or assignment occurs (see section 499) to determine—
(a) whether a gain has arisen on the policy or contract, and
(b) if so, the amount of the gain.
(3) For cases where surrenders and assignments of a part of the rights under a policy or contract are treated as occurring where they would not otherwise do so, see sections 500 to 506.
499 Meaning of “insurance year” and “final insurance year”
(1) In this Chapter “insurance year”, in relation to a policy or contract, means the 12 months beginning with—
(a) the date on which the insurance or contract is made, or
(b) any anniversary of that date.
(2) Subsection (1) is subject to subsections (3) and (5).
(3) An event referred to in 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) is treated as ending the insurance year in which it occurs.
(4) In this Chapter “final insurance year” means an insurance year that is ended as a result of subsection (3).
(5) But if, as a result of subsection (3), an insurance year would begin and end in the same tax year—
(a) that insurance year and the previous insurance year are treated as one insurance year, and
(b) “final insurance year” needs to be read accordingly.
The following events are treated for the purposes of this Chapter as a surrender of a part of the rights under the policy or contract in question—
(a) the falling due of a sum payable as a result of a right under a policy or contract to participate in profits where further rights remain under it,
(b) in the case of a contract for a life annuity which provides for a capital sum to be taken as an alternative in part to the annuity payments, taking the capital sum,
(c) the making of a loan to which section 501 applies, and
(d) the making of a payment to which section 504 applies (payments by insurers under guaranteed income bonds etc.).
(1) This section applies to a loan (and so it falls within section 500(c)) if it is made by the insurer under a policy or contract—
(a) to an individual falling within subsection (2), or
(b) to trustees falling within subsection (3), or
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) An individual falls within this subsection at any time if, were a gain to arise in respect of the policy or contract at that time, the individual would be liable for tax under this Chapter as a result of section 465 (person liable: individuals).
(3) Trustees fall within this subsection at any time if, were a gain to arise in respect of the policy or contract at that time, they would be liable for tax under this Chapter as a result of section 467 (person liable: UK resident trustees).
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) For the purposes of subsection (1), a loan—
(a) is treated as made by an insurer if it is made by arrangement with it, and
(b) is treated as made to an individual, trustees or a company if it is made at the individual's, trustees' or company's direction.
(6) In this section “insurer”, in relation to a policy or contract, means the body issuing the policy or with which the contract is made.
(7) This section is subject to—
(a) section 502 (exception for loans to buy life annuities), and
(b) section 503 (exception for certain loans under qualifying policies).
502 Exception from section 501 for loans to buy life annuities
(1) Section 501 does not apply to a loan made under a contract for a life annuity if all the interest on the loan is eligible for tax relief.
(2) If part of the interest is eligible for tax relief, section 501 only applies to the part of the loan carrying ineligible interest.
(3) For the purposes of this section, interest is eligible for tax relief if it is eligible for relief under section 353 of ICTA (general provision for relief for interest) as a result of section 365 of ICTA (loan to buy life annuity).
503 Exception from section 501 for certain loans under qualifying policies
(1) Section 501 does not apply to a loan made by the body issuing a qualifying policy if either or both of conditions A and B are met.
(2) Condition A is that interest is payable on the loan at a commercial rate.
(3) Condition B is that the loan was made—
(a) before 6th April 2000,
(b) to a full-time employee of the body issuing the policy, and
(c) to assist the employee in purchasing or improving a dwelling to be used as the employee's only or main residence.
504 Part surrenders: payments under guaranteed income bonds etc.
(1) This section applies to so much of any payment of an amount by an insurer under a guaranteed income bond contract as meets conditions A to C (and so it falls within section 500(d)).
(2) Condition A is that it is a sum which, but for subsection (6), would be treated for income tax purposes as interest or an annual payment.
(3) Condition B is that it is not a sum paid or falling to be paid because of provisions of the guaranteed income bond contract which, taken alone, would constitute a contract of insurance—
(a) within Part 1 or 2 of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544), but
(b) not within paragraph 1 or 3 of Part 2 of that Schedule (life and annuity contracts including certain linked long-term contracts).
(4) Condition C is that it does not represent late payment interest.
(5) This section does not apply if the payment comprises the whole of the last benefit to be paid under the contract (ignoring late payment interest).
(6) A sum to which this section applies is not regarded as interest or as an annual payment for any income tax purposes.
(7) In this section—
“guaranteed income bond contract” means a policy of life insurance that is a contract of insurance which—
is within paragraph 1 or 3 of Part 2 of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and
is neither an annuity contract nor a contract effected in the course of a company's pension business,
“late payment interest”, in relation to a contract, means interest on an amount payable under the contract which is paid for a period beginning on or after the date of the occurrence as a result of which the amount is payable, and
“pension business” has the meaning given by section 58 of FA 2012 (or the corresponding enactment in force when the contract was effected).
(1) For the purposes of this Chapter (except this section and section 506)—
(a) a transaction to which this section applies is taken to be one or more assignments of part only of the rights under the policy or contract in respect of which the transaction occurs, and
(b) those assignments are the ones specified in section 506.
(2) If subsection (1) applies to a transaction that is an assignment—
(a) of the whole of the rights under a policy or contract, or
(b) of a part of or a share in those rights,
any reference to the assignment in this Chapter (except this section and section 506) is to be read as a reference to the assignment or assignments that the transaction is taken to be under subsection (1).
(3) This section applies to a transaction in respect of which conditions A and B and either condition C or D or E are met.
(4) Condition A is that—
(a) immediately before the transaction the whole or part of, or a share in, the rights under the policy or contract (“the ownership interest”) was in the beneficial ownership of one person or of two or more persons jointly (“the old ownership”), and
(b) as a result of the transaction the ownership interest becomes beneficially owned by one person or by two or more persons jointly or in common (“the new ownership”).
(5) Condition B is that at least one person who is a member of the old ownership is also a member of the new ownership.
(6) Condition C is that there is only one member of the old ownership and there are two or more members of the new ownership.
(7) Condition D is that there are two or more members of the old ownership and at least one of them is not a member of the new ownership.
(8) Condition E is that there are two or more members of the old ownership and the share in the ownership interest of at least one of those members (see section 506(5)) exceeds that member's share in the ownership interest as a member of the new ownership (see section 506(6)).
506 Assignments occurring when there is a co-ownership transaction
(1) This section sets out the assignment or assignments that are taken to occur under section 505 when there is a transaction to which that section applies (“a co-ownership transaction”).
(2) If there is only one member of the old ownership, that member is to be treated as if the co-ownership transaction had been the assignment by that member of so much of the ownership interest as exceeds that member's share in the ownership interest as a member of the new ownership.
(3) If there are two or more members of the old ownership, each such member who is not a member of the new ownership is to be treated as if the co-ownership transaction had been the assignment by that member of that member's share in the ownership interest.
(4) If there are two or more members of the old ownership, each such member whose share in the ownership interest as a member of the old ownership exceeds that member's share in the ownership interest as a member of the new ownership is to be treated as if the co-ownership transaction had been the assignment by that member of that excess.
(5) If the old ownership consists of two or more persons beneficially entitled jointly, the members of the old ownership are to be treated as if the ownership interest had been in their beneficial ownership in equal shares instead of jointly.
(6) If the new ownership consists of two or more persons beneficially entitled jointly, the members of the old ownership are to be treated as if the result of the co-ownership transaction had been that the ownership interest was in the beneficial ownership of the members of the new ownership in equal shares instead of jointly.
(7) In this section “the ownership interest”, “the old ownership” and “the new ownership” are to be read as indicated in section 505(4).
507 Method for making periodic calculations under section 498
(1) This section deals with the calculation required to be made in relation to a policy or contract as at the end of an insurance year under section 498(2) (requirement for periodic calculations in part surrender and assignment cases) to determine—
(a) whether a gain has arisen, and
(b) if so, the amount of the gain.
(2) There is a gain if the net total value of rights surrendered or assigned exceeds the net total allowable payments (see subsections (4) and (5)).
(3) The gain is equal to the excess.
(4) To calculate the net total value of rights surrendered or assigned—
Step 1
Find—
(a) the value, as at the time of its surrender or assignment, of any part of or share in the rights under the policy or contract which has been surrendered at any time or assigned at any time for money or money's worth, and
(b) the value, as at the time of its assignment, of any part of or share in the rights under the policy or contract which has been assigned otherwise than for money or money's worth in an insurance year beginning on or before 5th April 2001,
in each case determining the value in accordance with section 508.
Step 2
Add together those values.
Step 3
If any previous calculation events (other than personal portfolio bond events) have occurred in relation to the policy or contract—
(a) add together each such value which has been brought into account under this subsection on those events, and
(b) subtract the result of paragraph (a) from the result of step 2.
(5) To calculate the net total allowable payments—
Step 1
Find the allowable element in each allowable payment by multiplying the amount of the payment by—
X
20
where X is the number of insurance years in the period beginning with the year in which the payment is made and ending with the insurance year as at the end of which the calculation under this section is required to be made or, if it is less, 20.
Step 2
Add together the allowable elements for all allowable payments.
Step 3
Add together all the allowable elements brought into account under this subsection on a previous calculation event.
Step 4
Subtract the result of step 3 from the result of step 2.
(6) In this section—
“allowable payment” means a premium, other than a retained replacement policy premium, and
“retained replacement policy premium” has the meaning given in section 495(2).
(1) An interested person may apply to an officer of Revenue and Customs for a review of a calculation under section 507 on the ground that the gain arising from it is wholly disproportionate.
(2) For the purposes of this section an interested person in relation to a calculation under section 507 is a person who would be liable for all or any part of the amount of tax that would be chargeable under this Chapter if the gain were not recalculated.
(3) Applications under subsection (1) must be—
(a) made in writing, and
(b) received by an officer of Revenue and Customs within—
(i) the four tax years following the tax year in which the gain arose, or
(ii) such longer period as the officer may agree.
(4) In considering whether the gain is wholly disproportionate, the officer may take into account (as well as the amount of the gain) any factor which the officer considers appropriate including, so far as the officer considers it appropriate to do so—
(a) the economic gain on the rights surrendered or assigned,
(b) the amount of the premiums paid under the policy or contract,
(c) the amount of tax that would be chargeable under this Chapter if the gain were not recalculated.
(5) If, following an application under subsection (1), an officer considers that the gain arising from the calculation under section 507 is wholly disproportionate, the officer must recalculate the gain on a just and reasonable basis.
(6) Following a recalculation under subsection (5), references in this Chapter (but excluding this section) to a calculation under section 507 are to be regarded as references to a recalculation under this section.
(7) Following a recalculation under subsection (5), an officer of Revenue and Customs must notify the interested person of the result of the recalculation.
(8) If two or more persons are interested persons in relation to a calculation under section 507—
(a) an application under subsection (1) may be made only by all the interested persons jointly, and
(b) subsection (7) applies as if the reference to the interested person were a reference to each of the interested persons.
(9) Following a recalculation under subsection (5), all necessary adjustments and repayments of income tax are to be made.
(10) No recalculation is to be made under this section if the gain mentioned in subsection (1) arises as a result of one or more transactions which form part of arrangements, the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person.
(11) In this section—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and
“tax advantage” has the meaning given by section 1139 of CTA 2010.
508 The value of rights partially surrendered or assigned
(1) For the purposes of sections 507, 511 and 512, where any part of or share in rights conferred by a policy or contract is surrendered, the value of the part of or share in the rights surrendered is the amount or value of the sum payable or other benefits arising because of the surrender, except where subsection (2) or (3) applies.
(2) In the case of a surrender within section 500(c) (loans by insurers to which section 501 applies), the value for those purposes is an amount equal to the loan.
(3) In the case of a surrender within section 500(d) (payments by insurers under guaranteed income bonds etc.), the value for those purposes is the amount to which section 504 applies.
(4) For the purposes of sections 507, 511 and 512, where any part of or share in rights conferred by a policy or contract is assigned, the value of the part or share as at the time of the assignment is its surrender value at that time.
(5) For the requirement to ignore certain benefits, see section 497 (disregard of trivial inducement benefits).
509 Chargeable events in certain cases where periodic calculations show gains
(1) If the calculation in section 507 shows that a gain has arisen as at the end of the insurance year, the gain is treated as arising on the occurrence of a chargeable event at the end of that year, unless condition A, B or C is met.
(2) Subsection (1) is subject to section 485(3) (which restricts the circumstances in which such events occur in relation to qualifying policies).
(3) Condition A is that during the insurance year there has been an assignment for money or money's worth of part of or a share in the rights conferred by the policy or contract.
(4) Condition B is that during the insurance year there has been both—
(a) a surrender of part of or a share in the rights conferred by the policy or contract, and
(b) a later assignment, otherwise than for money or money's worth, of the whole or part of or a share in the rights conferred by the policy or contract.
(5) Condition C is that the insurance year is the final insurance year.
(6) See section 510 (transaction-related calculations in certain part surrender and assignment cases) if one or both of conditions A and B are met.
510 Requirement for transaction-related calculations in certain part surrender and assignment cases
(1) This section applies if—
(a) the calculation in section 507 shows that a gain has arisen as at the end of the insurance year, but
(b) one or both of the conditions specified in section 509(3) and (4) are met (and so no chargeable event is treated as occurring at the end of the year under section 509).
(2) A calculation is to be made in accordance with section 511 in relation to each relevant transaction during the insurance year to determine—
(a) whether the transaction resulted in a gain arising on the policy or contract, and
(b) if so, the amount of the gain.
(3) In this section and sections 511 to 514 “relevant transaction” means—
(a) a surrender of part of or a share in the rights under the policy or contract, or
(b) an assignment of such a part or share for money or money's worth.
(4) If two or more relevant transactions occurred during the insurance year, a calculation in accordance with section 511 is to be made in relation to each of them successively in the order in which they occurred.
(5) A calculation falling to be made in accordance with section 511 in relation to a relevant transaction occurring in the final insurance year is to be made before any calculation under section 491 for the chargeable event that ends that year.
(6) But, in the case of a relevant transaction so occurring, subsections (2) and (4) are subject to section 513(5) (under which those subsections do not apply to some such relevant transactions).
511 Method for making transaction-related calculations under section 510
(1) This section deals with the calculation required to be made under section 510 to determine—
(a) whether a relevant transaction which has occurred during an insurance year resulted in a gain arising on the policy or contract, and
(b) if so, the amount of the gain.
(2) There is a gain if the transaction value for the relevant transaction (see subsection (4)) exceeds the amount of available premium left for the relevant transaction as calculated in accordance with section 512.
(3) The gain is equal to the excess.
(4) The transaction value for the relevant transaction is the value in accordance with section 508, as at the time of its surrender or assignment, of the part of or share in the rights under the policy or contract which has been surrendered or assigned in the transaction.
(5) Subsections (2) and (4) are subject to section 513(4) (under which the transaction value is to be reduced in certain cases where the relevant transaction occurs in the final insurance year).
512 Available premium left for relevant transaction
(1) For the purposes of section 511(2), the amount of available premium left for a relevant transaction is the amount, if any, by which the available net allowable payments (see subsection (3)) exceed the available net total values for the year (see subsection (4)).
(2) But the amount of available premium left for the relevant transaction is nil if—
(a) one or more other relevant transactions have occurred in respect of the relevant contract earlier in the insurance year, and
(b) for the latest of them the calculation in section 511(2) produced a gain.
(3) To calculate the available net allowable payments—
Step 1
Calculate the net total allowable payments as at the end of the insurance year in accordance with section 507(5).
Step 2
If—
(a) one or more other relevant transactions (“the earlier transactions”) have occurred in respect of the policy or contract earlier in the insurance year, and
(b) for the latest of them the calculation in section 511(2) produced no gain,
subtract the sum of the transaction values for the earlier transactions from the result of step 1.
(4) To calculate the available net total values for the year—
Step 1
Calculate the net total value of rights surrendered or assigned, as at the end of the insurance year, in accordance with section 507(4), ignoring for the purposes of step 3 in that section any relevant transactions in that year that are treated as chargeable events under section 514.
Step 2
Subtract from the result of step 1 the value, as at the time of its surrender or assignment, of any part of or share in the rights under the policy or contract which has been surrendered in the insurance year or assigned in that year for money or money's worth, determining the value in accordance with section 508.
(1) An interested person may apply to an officer of Revenue and Customs for a review of a calculation under section 511 on the ground that the gain arising from it is wholly disproportionate.
(2) For the purposes of this section an interested person in relation to a calculation under section 511 is a person who would be liable for all or any part of the amount of tax that would be chargeable under this Chapter—
(a) if the gain were not recalculated, or
(b) if all rights under the policy or contract had been surrendered immediately after the surrender or assignment of rights which gave rise to the calculation.
(3) Applications under subsection (1) must be—
(a) made in writing, and
(b) received by an officer of Revenue and Customs within—
(i) the four tax years following the tax year in which the gain arose, or
(ii) such longer period as the officer may agree.
(4) In considering whether the gain is wholly disproportionate, the officer may take into account (as well as the amount of the gain) any factor which the officer considers appropriate including, so far as the officer considers it appropriate to do so—
(a) the economic gain on the rights surrendered or assigned,
(b) the amount of the premiums paid under the policy or contract,
(c) the amount of tax that would be chargeable under this Chapter if the gain were not recalculated.
(5) If, following an application under subsection (1), an officer considers that the gain arising from the calculation under section 511 is wholly disproportionate, the officer must recalculate the gain on a just and reasonable basis.
(6) Following a recalculation under subsection (5), references in this Chapter (but excluding this section) to a calculation under section 511 are to be regarded as references to a recalculation under this section.
(7) Following a recalculation under subsection (5), an officer of Revenue and Customs must notify the interested person of the result of the recalculation.
(8) If two or more persons are interested persons in relation to a calculation under section 511—
(a) an application under subsection (1) may be made only by all the interested persons jointly, and
(b) subsection (7) applies as if the reference to the interested person were a reference to each of the interested persons.
(9) Following a recalculation under subsection (5), all necessary adjustments and repayments of income tax are to be made.
(10) No recalculation is to be made under this section if the gain mentioned in subsection (1) arises as a result of one or more transactions which form part of arrangements, the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person.
(11) In this section—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and
“tax advantage” has the meaning given by section 1139 of CTA 2010.
513 Special rules for part surrenders and assignments in final insurance year
(1) This section applies if—
(a) the calculation in section 511 falls to be made in relation to a relevant transaction occurring in the final insurance year,
(b) the total transaction value for that transaction exceeds the gains limit (see subsections (2) and (3)), and
(c) paragraph (b) has not applied to a relevant transaction occurring earlier in the final insurance year in respect of the policy or contract in question.
(2) The total transaction value is the total of—
(a) the transaction value for the transaction in question in accordance with section 511(4), and
(b) the transaction values for any relevant transactions occurring earlier in the final insurance year in respect of the policy or contract in accordance with that section.
(3) The gains limit is the amount calculated, as at the end of the final insurance year, as the amount of the gain that would have been treated as arising on the occurrence of the chargeable event that ends that year if in relation to that year—
(a) section 509(1) did not refer to condition C, and
(b) sections 510(2) and (4) and 514(1) did not apply.
(4) The transaction value for the relevant transaction used for the calculation in section 511(2) is reduced by the excess mentioned in subsection (1)(b).
(5) No calculations are required to be made under section 510(2) and (4) in relation to any subsequent relevant transaction in respect of the policy or contract.
514 Chargeable events where transaction-related calculations show gains
(1) If the calculation in section 511 shows that a relevant transaction resulted in a gain arising on the policy or contract, the relevant transaction is treated as a chargeable event.
(2) Subsection (1) is subject to section 485(5) (which restricts the circumstances in which such events occur in relation to qualifying policies).
(3) Subsection (4) applies if—
(a) a relevant transaction that is a chargeable event occurs in a different tax year from that in which the insurance year ends, and
(b) apart from subsection (4), a person would be liable to tax on the gain under this Chapter for the tax year in which the transaction occurs.
(4) The gain is charged to tax under this Chapter for the tax year in which the insurance year ends instead.
(4A) Subsection (3)(b) includes a case where a person would be liable to tax on the gain under section 465B for the tax year in which the transaction occurs (because the transaction occurs in the year of return, as defined in that section).
(5) If the relevant transaction occurs in the final insurance year, the chargeable event within subsection (1) is treated as occurring before the chargeable event that ends that year.
515 Requirement for annual calculations in relation to personal portfolio bonds 9
(1) This section applies if a policy or contract to which this Chapter applies is a personal portfolio bond at the end of an insurance year.
(2) But this section does not apply if the insurance year is the final insurance year.
(3) A calculation is to be made in accordance with section 522 in relation to the policy or contract as at the end of the insurance year to determine—
(a) whether a gain has arisen on the policy or contract in relation to that year, and
(b) if so, the amount of the gain.
(4) The calculation is in addition to any other calculation which is required to be made under this Chapter in relation to the policy or contract.
(1) In this Chapter “personal portfolio bond” means a policy of life insurance, contract for a life annuity or capital redemption policy which meets conditions A and B.
This is subject to section 517.
(2) Condition A is that, under the terms of the policy or contract, some or all of the benefits are determined by reference to—
(a) fluctuations in, or in an index of, the value of property of any description, or
(b) the value of, or the income from, property of any description.
(3) For this purpose it does not matter whether or not the index or property is specified in the policy or contract.
(4) Condition B is that the terms of the policy or contract permit the selection of the index or some or all of the property by—
(a) the holder of the policy or contract,
(b) a person connected with the holder,
(c) the holder and such a connected person acting together,
(d) a person acting on behalf of the holder,
(e) a person acting on behalf of a person connected with the holder, or
(f) a person acting on behalf of the holder and such a connected person acting together.
(5) In subsection (4) “holder”, in the case of a policy or contract held by two or more persons, means any of them.
517 Policies and contracts which are not personal portfolio bonds
(1) A policy or contract is not a personal portfolio bond merely because its terms permit the selection of an index as described in section 516(4) if that index—
(a) falls within one of the categories listed in section 518, and
(b) meets one of the index selection conditions (see section 519).
(2) A policy or contract is not a personal portfolio bond merely because its terms permit the selection of property as described in section 516(4) if all of the property which may be so selected—
(a) falls within one or more of the categories listed in section 520, and
(b) meets one or both of the property selection conditions (see section 521).
(1) This section sets out the categories of index referred to in section 517(1).
(2) Category 1 is the retail prices index.
(3) Category 2 is any general index which—
(a) is similar to the retail prices index, and
(b) is published by the government of any foreign state or an agent of such a government.
(4) Category 3 is any published index of prices of shares listed on a recognised stock exchange.
(1) The index selection conditions are—
(a) the general selection condition (see subsection (2)), and
(b) the class selection condition (see subsection (3)).
(2) An index meets the general selection condition if, at the time when it may be selected, the opportunity to select the same index is available to—
(a) all policy holders of the insurance company, or
(b) persons acting on behalf of those policy holders.
(3) An index meets the class selection condition if, at the time when it may be selected, the opportunity to select the same index is available to—
(a) a particular class or classes of policy holders of the insurance company, or
(b) persons acting on behalf of the members of that class or those classes.
(4) A group of policy holders to whom the opportunity to select an index is available is a “class” for the purposes of subsection (3) if—
(a) neither membership of the class nor the opportunity are limited to connected persons,
(b) the question whether a policy holder is a member of the class, or has the opportunity, is determined solely by the insurance company, and
(c) the opportunity is clearly identified in marketing or other promotional material published by the insurance company to members of the public, or members of the public who are intending investors, as available generally to any person falling within its terms.
(5) In this section—
“holder” has the meaning given by section 516(5), and
“policy holder” includes a holder of a life annuity contract.
(1) The table in subsection (2) sets out the categories of property referred to in section 517(2).
(2) This is the table—
Category | Property
Category 1 | property which the insurance company has appropriated to an internal linked fund
Category 2 | units in an authorised unit trust
Category 3 | shares in an investment trust or an overseas equivalent
Category 4 | shares in an open-ended investment company
Category 5 | cash
Category 6 | a policy or contract to which this Chapter applies, other than an excluded policy or contract (see subsection (3))
Category 7 | an interest in a collective investment scheme constituted by— ... a unit trust scheme the trustees of which are non-UK resident, or any other arrangement which takes effect by virtue of the law of a territory outside the United Kingdom, and which under that law creates rights in the nature of co-ownership (without restricting that term to its legal meaning in any part of the United Kingdom)
Category 8 | shares in a UK REIT or an overseas equivalent
Category 9 | an interest in an authorised contractual scheme or a Reserved Investor Fund (Contractual Scheme)
(3) A policy or contract is “excluded” if—
(a) the policy or contract is itself a personal portfolio bond,
(b) the value of any benefits under the policy or contract is or has at any time been capable of being determined directly or indirectly by reference to a personal portfolio bond, or
(c) a personal portfolio bond is related property in relation to the policy or contract.
(4) In this section—
“authorised contractual scheme” means a contractual scheme (within the meaning given by section 235A(1) of FISMA 2000) which is authorised for the purposes of FISMA 2000 by an authorisation order in force under section 261D(1) of that Act,
“cash”—
includes any sum which is deposited—
in a building society account (including a share account) or similar account, or
in a bank account or similar account, but
does not include cash which is acquired wholly or partly for the purpose of realising a gain from its disposal,
“collective investment scheme” has the meaning given by section 235 of FISMA 2000, and “interest”, in relation to such a scheme, means the beneficial entitlement of a participant in such a scheme,
“internal linked fund” has the meaning given by—
the Interim Prudential Sourcebook for Insurers made by the Prudential Regulation Authority under FISMA 2000, or
rules made by the “Prudential Regulation Authority under FISMA 2000 and having effect for the time being in place of the Sourcebook,
“investment trust” has the meaning given by section 1158 of CTA 2010,
“open-ended investment company” has the meaning given by section 236 of FISMA 2000, and
overseas equivalent”, in relation to an investment trust or a UK REIT, means a company—
which is resident in a territory outside the United Kingdom in accordance with the law of that territory relating to taxation, and
which is, under the law of that territory, the equivalent of an investment trust or a UK REIT (respectively),
“related property” has the same meaning as in section 625 (see subsection (5)),
“Reserved Investor Fund (Contractual Scheme)” has the meaning given by section 20 of F(No.2)A 2024,
“UK REIT” has the same meaning as in Part 12 of CTA 2010 (see section 518(4)).
(5) The Treasury may by regulations—
(a) amend the table in subsection (2) by adding, removing or amending a category of property;
(b) add, remove or amend a definition relating to any category of property in that table; and
(c) make consequential amendments.
(6) A statutory instrument containing regulations under this section which have the effect of removing a category of property from the table in subsection (2)—
(a) must be laid before the House of Commons; and
(b) ceases to have effect at the end of the period of 28 days beginning with the day on which it was made, unless it is approved during that period by a resolution of the House of Commons.
(7) In reckoning the period of 28 days, no account is to be taken of any time during which Parliament is dissolved or prorogued, or during which the House of Commons is adjourned for more than four days.