Part 4Savings and investment income
C1C2C3Chapter 9Gains from contracts for life insurance etc.
Pt. 4 Ch. 9 applied (with modifications) by The Child Trust Funds Regulations 2004 (S.I. 2004/1450), reg. 38 (as amended (6.4.2010) by S.I. 2010/582, regs. 1, 18)
Pt. 4 Ch. 9: power to exclude conferred (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 61(4) (with s. 147, Sch. 17)
Deficiencies
539F1Relief for deficiencies
1
An individual is entitled to a tax reduction for a tax year in which a deficiency arises from a policy or contract on a chargeable event if—
a
the condition in subsection (2) is met,
b
c
the individual makes a claim.
2
The condition is that, if a gain had arisen instead on the chargeable event—
a
the individual would have been liable to income tax on the gain for the 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.
3
The tax reduction is given effect at Step 6 of the calculation in section 23 of ITA 2007.
4
See section 540 for the cases in which a deficiency is treated as arising from a policy or contract on a chargeable event, 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.
5
The amount of the tax reduction is calculated as follows. F6If the individual is a Scottish taxpayer F12or a Welsh taxpayer, instead of Step 3 carry out Steps 3A and 3B.
Step 1
Attribute to the amount of the deficiency an amount of the individual's income for the tax year which is liable at the dividend upper rate, so far as is possible.
F2...
Step 3
If there is an amount of the deficiency remaining after Step F31, attribute to the remaining amount of the deficiency an amount of the individual's F4... income for the tax year which is liable F13at any of the higher rate, the default higher rate and the savings higher rate, so far as is possible.
F7Step 3A
If there is an amount of deficiency remaining after Step 1, attribute to the remaining amount of the deficiency an amount of the individual’s income for the tax year which F14(in the case of a Scottish taxpayer) is liable at the higher of the Scottish higher rate F15and the savings higher rate or (in the case of a Welsh taxpayer) is liable at the higher of the Welsh higher rate and the savings higher rate, so far as is possible.
Step 3B
If there is an amount of deficiency remaining after Step 3A, attribute to the remaining amount of the deficiency an amount of the individual’s income for the tax year which F14(in the case of a Scottish taxpayer) is liable at the lower of the Scottish higher rate F16and the savings higher rate or (in the case of a Welsh taxpayer) is liable at the lower of the Welsh higher rate and the savings higher rate, so far as is possible.
Step 4
Calculate the amount of the individual's preliminary income tax liability for the tax year (see subsection (6)).
Step 5
Calculate the amount of the individual's preliminary income tax liability for the tax year again, on these assumptions—
Assume that any income attributed to the deficiency at Step 1 is liable at the dividend ordinary rate.
F5...
F8Assume that any income liable at the higher rate F17, or at the default higher rate or the savings higher rate and attributed to the deficiency at Step 3, Step 3A or Step 3B is liable at the basic rate.
F9Assume that any income liable at the Scottish higher rate F18, or at the Welsh higher rate and attributed to the deficiency at Step 3A or Step 3B is liable at the Scottish basic rate F19or (as the case may be) the Welsh basic rate.
Step 6
Deduct the amount found at Step 5 from the amount found at Step 4.
The result is the amount of the tax reduction.
6
The individual's preliminary income tax liability is the amount found by calculating the individual's income tax liability in accordance with section 23 of ITA 2007, ignoring Steps 6 and 7 of that calculation.
F117
For the purposes of Steps 3A and 3B of the calculation at subsection (3) of this section—
a
if the Scottish higher rate and the savings higher rate are equal, the Scottish higher rate is to be treated as the higher of the two rates (and the savings higher rate as the lower), and
b
if the Welsh higher rate and the savings higher rate are equal, the Welsh higher rate is to be treated as the higher of the two rates (and the savings higher rate as the lower).
Pt. 4 Ch. 9 applied (with modifications) by The Individual Savings Account Regulations 1998 (S.I. 1998/1870), reg. 36 (as added by S.I. 1998/3174, reg. 12 and as amended (6.4.2008) by S.I. 2008/704, regs. 1, 17(4))