Income Tax (Trading and Other Income) Act 2005 (c. 5)

Part 6 U.K. Exempt income

Chapter 7 U.K. Purchased life annuity payments

Partial exemption for purchased life annuity payments U.K.

717 Exemption for part of purchased life annuity payments U.K.

(1) No liability to income tax arises under Chapter 7 of Part 4 in respect of so much of an annuity payment made under a purchased life annuity as is within this subsection in accordance with section 719 (extent of exemption).

(2) Subsection (1) is subject to section 718.

F1 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) In this Chapter “purchased life annuity” has the same meaning as in Chapter 7 of Part 4 (see section 423).

Textual Amendments

F1 S. 717(3) repealed (6.4.2008) by Finance Act 2007 (c. 11), s. 46(5)(9), Sch. 27 Pt. 2(13); S.I. 2008/561, art. 2

718 Excluded annuities U.K.

(1) The exemption in section 717(1) does not apply to payments made under the annuities specified in subsection (2).

(2) The annuities are—

(a) an annuity the whole or part of the consideration for which consisted of sums satisfying the conditions for relief under section 266 of ICTA (life assurance premiums),

(b) an annuity purchased following a direction in a will, and

(c) an annuity purchased to provide for an annuity payable as a result of a will or settlement out of income of property disposed of by the will or settlement.

(3) For the purposes of subsection (2)(c), it does not matter whether or not capital could also be used to pay the annuity.

719 Extent of exemption under section 717 U.K.

(1) This section sets out the rules for determining the extent to which an annuity payment is within the exemption in section 717(1).

(2) The rules depend on—

(a) whether or not the amount of the annuity payments under the annuity depends solely on the duration of a human life or lives (see subsections (3) to (5)), and

(b) whether or not the annuity's term depends solely on the duration of a human life or lives (see subsections (6) to (8)).

(3) If the amount of the annuity payments depends solely on the duration of a human life or lives, the same proportion of each payment (“the exempt proportion”) is exempt.

(4) But if the amount of the annuity payments also depends on another contingency, each payment is exempt so far as it does not exceed a fixed sum (“the exempt sum”).

(5) If an annuity payment within subsection (4) is less than the exempt sum, the shortfall is added to the exempt sum for the next payment (and so on).

(6) The ways to determine the exempt proportion and the exempt sum differ according to whether or not the annuity's term depends solely on the duration of a human life or lives.

(7) If the annuity's term depends solely on the duration of a human life or lives—

(a) the exempt proportion is determined as set out in section 720, and

(b) the exempt sum is determined as set out in section 721.

(8) If the annuity's term also depends on another contingency—

(a) the exempt proportion is the proportion which is just and reasonable, having regard to the contingencies affecting the annuity and to section 720, and

(b) the exempt sum is the amount which is just and reasonable, having regard to the contingencies affecting the annuity and to section 721.

720 Exempt proportion: term dependent solely on duration of life U.K.

(1) In the case of an annuity within section 719(7) (term dependent solely on duration of life), the exempt proportion is —

where—

AP is the annuity payment,

PP is the purchase price of the annuity, and

AV is the actuarial value of the annuity payments.

(2) The purchase price of the annuity is the total amount or value of the consideration given for the annuity.

(3) The actuarial value of the annuity payments is their value at the date when the first of the payments starts to accrue.

(4) That value is determined—

(a) by reference to tables of mortality prescribed under section 724,

(b) taking the age at that date of a person during whose life the annuity is payable as that person's age in whole years on that date, and

(c) without discounting any payment for the time to elapse before it is payable.

(5) But if it is not possible to determine that actuarial value by reference to the tables mentioned in subsection (4)(a), it is such amount as may be certified by the Government Actuary or the Deputy Government Actuary.

721 Exempt sum: term dependent solely on duration of life U.K.

(1) In the case of an annuity within section 719(7) (term dependent solely on duration of life), the exempt sum is —

where—

PP is the purchase price of the annuity,

TY is the expected term of the annuity in years (and any odd fraction of a year), and

PM is the period in months (and any odd fraction of a month) in respect of which the annuity payment is made.

(2) The purchase price of the annuity is the total amount or value of the consideration given for the annuity.

(3) The expected term of the annuity is the period from the date when the first annuity payment starts to accrue to the date when it is expected that the last payment will become payable.

(4) The expected term of the annuity is determined—

(a) as at the date when the first annuity payment starts to accrue,

(b) by reference to tables of mortality prescribed under section 724, and

(c) taking the age at that date of a person during whose life the annuity is payable as that person's age in whole years on that date.

(5) But if it is not possible to determine that term by reference to the tables mentioned in subsection (4)(b), it is such period as may be certified by the Government Actuary or the Deputy Government Actuary.

722 Consideration for the grant of annuities U.K.

(1) This section applies if the amount or value given for an annuity is to be determined for the purposes of sections 720(2) or 721(2) and either—

(a) consideration is not given solely for the annuity, or

(b) it appears that the amount or value of the consideration nominally given for it affected, or was affected by, the consideration given for something else.

(2) For the purposes of subsection (1), consideration given for a right to a return of premiums or of other consideration for an annuity is treated as given solely for the annuity.

(3) If subsection (1)(a) applies, the consideration is to be apportioned in such way as is just and reasonable.

(4) If subsection (1)(b) applies, the total amount or value of the considerations given is to be apportioned in such way as is just and reasonable.

F2 723 Determinations U.K.

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Textual Amendments

F2 S. 723 repealed (6.4.2008) by Finance Act 2007 (c. 11), s. 46(6)(9); S.I. 2008/561, art. 2

724 Regulations U.K.

(1) [F3 the Commissioners for Her Majesty’s Revenue and Customs] may by regulations—

(a) prescribe the procedure to be used in giving effect to sections 717 to [F4 722] and this section where no provision is made in those provisions,

(b) apply any provision of the Income Tax Acts, with or without modifications, for the purposes of those provisions or the regulations,

(c) prescribe tables of mortality for the purposes of sections 720(4) and 721(4).

F5 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) F6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F3 Words in s. 724(1) substituted (18.4.2005) by Commissioners for Revenue and Customs Act 2005 (c. 11), ss. 50, 53(1), Sch. 4 para. 132(2); S.I. 2005/1126, art. 2(2)(h)

F4 Word in s. 724(1)(a) substituted (6.4.2008) by Finance Act 2007 (c. 11), s. 46(7)(a)(9); S.I. 2008/561, art. 2

F5 S. 724(2) repealed (6.4.2008) by Finance Act 2007 (c. 11), s. 46(7)(b)(9), Sch. 27 Pt. 2(13); S.I. 2008/561, art. 2

F6 S. 724(3) repealed (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1031, 1034, Sch. 1 para. 573, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)