Income Tax (Trading and Other Income) Act 2005

539 Relief for deficiencies

(1) A deficiency from a policy or contract arising on a chargeable event is allowable as a deduction from an individual’s total income for a tax year if, had a gain arisen instead on that event—

(a) the individual would have been liable to income tax on the gain for that year, or

(b) the individual would have been so liable apart from the requirement in section 465(1) that the individual must be UK resident in the tax year in which the gain arises.

(2) See section 540 for the cases in which such a deficiency is treated as arising, section 541 for how the deficiency is calculated and section 469(5) for the apportionment of deficiencies in cases where two or more persons are interested in a policy or contract.

(3) Subsection (1) only applies for the purpose of determining the individual’s extra liability.

(4) For this purpose, an individual’s extra liability is the amount by which the individual’s liability to income tax exceeds the amount it would be on the assumptions specified in subsections (5) and (6).

(5) It is assumed that income charged to tax at the higher rate is charged—

(a) in the case of income within section 1A(1A)(c) of ICTA (income charged at the lower rate instead of the basic rate), at the lower rate, and

(b) in any other case, at the basic rate.

(6) It is assumed that income charged to tax at the dividend upper rate is charged at the dividend ordinary rate.