Income and Corporation Taxes Act 1988

547 Method of charging gain to tax. U.K.

(1) M1 Where under section 541, 543 or 545 a gain is to be treated as arising in connection with any policy or contract—

(a) if, immediately before the happening of the chargeable event in question, the rights conferred by the policy or contract were vested in an individual as beneficial owner, or were held on trusts created by an individual (including trusts arising under section 11 of the M2 Married Women’s Property Act 1882, section 2 of the M3 Married Women’s Policies of Assurance (Scotland) Act 1880 or section 4 of the M4 Law Reform (Husband and Wife) Act (Northern Ireland) 1964 or as security for a debt owed by an individual, the amount of the gain shall be deemed to form part of that individual’s total income for the year in which the event happened;

[F1 (b) if, immediately before the happening of that event, those rights were in the beneficial ownership of a company, or were held on trusts created, or as security for a debt owed, by a company, the amount of the gain shall be deemed to form part of the company’s income (chargeable under Case VI of Schedule D) for the accounting period in which the event happened;]

(c) if, immediately before the happening of that event, those rights were vested in personal representatives, within the meaning of Part XVI, the amount of the gain shall be deemed for the purposes of that Part to be part of the aggregate income of the estate of the deceased.

(2) Nothing in subsection (1) above shall apply to any amount which is chargeable to tax apart from that subsection.

(3) M5 Where, immediately before the happening of a chargeable event, the rights conferred by any policy or contract were vested beneficially in two or more persons, or were held on trusts created, or as security for a debt owed, by two or more persons, subsection (1)(a) and (b) above shall have effect in relation to each of those persons as if he had been the sole owner, settlor or debtor, but with references to the amount of the gain construed as references to the part of it proportionate to his share in the rights at the time of the event or, as the case may require, when the trusts were created.

(4) References in subsections (1) and (3) above to the rights conferred by a policy or contract are, in the case of an assignment of a share only in any rights, references to that share.

(5) M6 Subject to subsections (6) and (7) below and section 550, where by virtue of subsection (1) above, a sum is included in an individual’s total income—

(a) no assessment shall be made on him in respect of income tax at the basic rate on that sum but he shall be treated as having paid income tax at the basic rate on that sum or, if his total income is reduced by any deductions, on so much of that sum as is part of his total income as so reduced;

(b) no repayment shall be made of the income tax treated by virtue of paragraph (a) above as having been paid; and

(c) the sum so included shall be treated [F2 as income which is not chargeable at the lower rate and] for the purposes of sections 348 and 349(1) as not brought into charge to income tax.

[F3 (5A) Where a gain is to be treated under section 543 as arising in connection with a contract for a life annuity made—

(a) after 26th March 1974, and

(b) unless the contract falls, or has at any time fallen, to be regarded as not forming part of any insurance company or friendly society’s basic life assurance and general annuity business the income and gains of which are subject to corporation tax, in an accounting period of the insurance company or friendly society beginning before 1st January 1992,

subsection (6) below shall apply in relation to the gain unless subsection (7) below applies in relation to it.]

(6) [F4 M7 Where this subsection applies in relation to such a gain as is mentioned in subsection (5A) above]—

(a) this section shall have effect, in relation to the gain, as if subsection (5) were omitted; and

(b) the gain shall be chargeable to tax under Case VI of Schedule D; but

(c) any relief under section 550 shall be computed as if this subsection had not been enacted.

(7) M8 Where under section 541 or 543 a gain is to be treated as arising in connection with a policy issued by a friendly society in the course of tax exempt life or endowment business, this section shall have effect in relation to the gain as if subsection (5) were omitted, but any relief under section 550 shall be computed as if this subsection had not been enacted.

[F5 (8) Subsection (1)(b) above shall not have effect as respects—

(a) a policy of life insurance issued in respect of an insurance made before 14th March 1989,

(b) a contract for a life annuity made before that date, or

(c) a capital redemption policy issued in respect of an insurance made before that date, or issued by a company resident in the United Kingdom in respect of an insurance made on or after that date.]

[F6 (9) In this section “basic life assurance and general annuity business” has the same meaning as in Chapter I of Part XII.]

Textual Amendments

F1 S. 547(1)(b) substituted (with effect in accordance with Sch. 9 para. 8 of the amending Act) by Finance Act 1989 (c. 26 ), Sch. 9 para. 5(3)

F2 Words in s. 547(5)(c) inserted (16.7.1992) by Finance (No. 2) Act 1992 (c. 48), s. 19(4)(7)

F3 S. 547(5A) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 para. 9(1)

F4 Words in s. 547(6) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 para. 9(2)

F5 S. 547(8) inserted (with effect in accordance with Sch. 9 para. 8 of the amending Act) by Finance Act 1989 (c. 26), Sch. 9 para. 5(3)

F6 S. 547(9) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 para. 9(3)

Marginal Citations

M1 Source-1970 s.399(1); 1972 Sch.24 24

M2 1882 c. 75.

M3 1880 c. 56.

M4 1964 c. 23 (N.I.).

M5 Source-1970 s.399(2), (3)

M6 Source-1970 s.399(4); 1971 Sch.6 42

M7 Source-1975 Sch.2 17

M8 Source-1985 s.41(9); 1987 s.30(8)