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Finance Act 2012

Details of the Section

2.Subsection (1) adds new section 473A to the special rules for life insurance policies, life annuity contracts and capital redemption policies, which are contained in Chapter 9 of Part 4 Income Tax (Trading and Other Income) Act 2005.

3.New section 473A treats connected policies and contracts as a single policy for the purposes of the chargeable event gain regime.

4.Subsections 2 and 3 of new section 473A provide that policies are treated as connected where a policy is issued by reference to another policy (a related policy) on terms that would not be expected in isolation. This will apply where the terms of either policy are significantly more or significantly less favourable than would be expected if the other policy were ignored, or if other related policies were ignored.

5.Subsection 4 of new section 473A provides that if an additional policy is connected to at least one but not all of a number of other policies that are themselves connected, all of these policies will be treated as connected.

6.Subsection (2) amends section 491(2) Income Tax (Trading and Other Income) Act 2005 to impose a restriction on the deduction for gains arising from certain earlier chargeable events (such as part withdrawals) in calculating the amount of gains that may subsequently arise when the same policy comes to an end or is assigned in full. The deduction will only apply to the extent that the earlier gains were attributable to one or more of the persons treated as chargeable to tax under the chargeable event gain regime, or were taken into account when calculating the income of a person under rules for the Transfer of Assets Abroad (Part 13, Chapter 2 of the Income Tax Act 2007).

7.Subsection (3) amends section 552 Income and Corporation Taxes Act 1988 so that reporting obligations for insurers will not be affected by the restriction on deductions for earlier gains.

8.Subsection (4) ensures that the new rules will apply to all policies and contracts made on or after 21 March 2012.

9.Subsections (5) and (6) ensure that the new rules will also apply to policies and contracts made before 21 March 2012:

  • which are varied on or after 21 March 2012 so as to increase the benefits secured. For this purpose, the exercise of an option in the policy or contract, on or after 21 March 2012, is treated as a variation;

  • where all of part of the rights are assigned to another person on or after 21 March 2012. This applies whether or not the assignment is for money or money’s worth;

  • where all or part of the rights conferred by the policy become held as security for a debt on or after 21 March 2012.

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