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Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 1 — Group life policies

    408

 

Schedule 34

Section 171

 

Policies of life insurance etc: miscellaneous amendments

Part 1

Group life policies

Exception of certain group life policies from Chapter 2 of Part 13

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  1       (1)      Section 539 of the Taxes Act 1988 (introductory) is amended as follows.

          (2)      In subsection (2) (policies and contracts to which the Chapter does not

apply) at the end of paragraph (d) add “; or

                    (e)                      to any group life policy having as its sole object the provision,

on the death or disability of any of the individuals insured

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under the policy, of a sum substantially the same as any

amount then outstanding under a loan made by a credit

union to that individual; or

                    (f)                      to any group life policy with respect to which the conditions

in section 539A are satisfied (“an excepted group life

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policy”).”.

          (3)      In subsection (3) (defined expressions) insert each of the following

definitions at the appropriate place—

                                      ““credit union” means a society registered as a credit union

under the Industrial and Provident Societies Act 1965 or the

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Credit Unions (Northern Ireland) Order 1985;”;

                                      ““excepted group life policy” shall be construed in accordance

with subsection (2)(f) above;”;

                                      ““group life policy” means a policy of life insurance whose

terms provide—

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                           (a)                          for the payment of benefits on the death of more than

one individual; and

                           (b)                          for those benefits to be paid on the death of each of

those individuals;”.

Excepted group life policies

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  2        After section 539 of the Taxes Act 1988 insert—

       “539A             The conditions for being an excepted group life policy

              (1)             The conditions mentioned in section 539(2)(f) (excepted group life

policies) are those set out in the following provisions of this section.

              (2)             Condition 1 is that under the terms of the policy a sum or other

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benefit of a capital nature is payable or arises on the death of each of

the individuals insured under the policy who dies without attaining

an age which is specified in the policy and is not greater than 75

years.

                              In determining whether this condition is satisfied, disregard any

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terms of the policy which exclude from benefit the death of a person

in specified circumstances, if the exclusion applies in relation to

 

 

Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 1 — Group life policies

    409

 

death in those circumstances in the case of each of the individuals

insured under the policy.

              (3)             Condition 2 is that under the terms of the policy—

                    (a)                   the same method is to be used for calculating the sums or

other benefits of a capital nature payable or arising on each

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death, and

                    (b)                   if there is any limitation on those sums or other benefits, the

limitation is the same in the case of any death.

              (4)             Condition 3 is that the policy does not have, and is not capable of

having, on any day—

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                    (a)                   a surrender value that exceeds the proportion of the

premiums paid which, on a time apportionment, is referable

to the unexpired paid-up period beginning with that day, or

                    (b)                   if there is no such period, any surrender value.

                              For the purposes of this subsection the unexpired paid-up period

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beginning with any day is the period (if any) which—

                    (i)                   begins with that day, and

                    (ii)                  ends with the earliest subsequent day on which—

                           (a)                          a payment of premium falls due under the policy, or

                           (b)                          the term of the policy ends.

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              (5)             Condition 4 is that no sums or other benefits may be paid or

conferred under the policy, except as mentioned in condition 1 or

condition 3.

              (6)             Condition 5 is that any sums payable or other benefits arising under

the policy must (whether directly or indirectly) be paid to or for, or

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conferred on, or applied at the direction of—

                    (a)                   an individual or charity beneficially entitled to them, or

                    (b)                   a trustee or other person acting in a fiduciary capacity who

will secure that the sums or other benefits are paid to or for,

or conferred on, or applied in favour of, an individual or

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charity beneficially.

                              In this subsection “charity” means any body of persons or trust

established for charitable purposes only.

              (7)             Condition 6 is that no person—

                    (a)                   who is an individual whose life is insured under the policy,

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or

                    (b)                   who is, within the meaning of section 839, connected with an

individual whose life is so insured,

                              may, by virtue of a group membership right relating to that

individual, receive (directly or indirectly) any death benefit in

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respect of another group member.

                              In this subsection—

                    (i)                   “group membership right”, in relation to an individual,

means any right (including the right of any person to be

considered by trustees in their exercise of a discretion) that is

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referable to that individual’s being one of the individuals

whose lives are insured by the policy; and

 

 

Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 1 — Group life policies

    410

 

                    (ii)                  “death benefit in respect of another group member” means—

                           (a)                          any sums or other benefits payable or arising under

the policy on the death of any other of those

individuals, or

                           (b)                          anything representing any such sums or benefits.

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              (8)             Condition 7 is that a tax avoidance purpose is not the main purpose,

or one of the main purposes, for which a person is at any time—

                    (a)                   the holder, or one of the holders, of the policy, or

                    (b)                   the person, or one of the persons, beneficially entitled under

the policy.

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                              In this subsection—

                    (i)                   “tax avoidance purpose” means any purpose that consists in

securing a tax advantage (whether for the holder of the policy

or any other person); and

                    (ii)                  “tax advantage” has the same meaning as in Chapter 1 of Part

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17 (tax avoidance).”.

Retrospective exception of past and present pure protection group life policies

  3       (1)      For the purposes of Chapter 2 of Part 13 of the Taxes Act 1988 (and any

former enactment that is re-enacted in that Chapter), any event happening

before 9th April 2003 in relation to a policy of life insurance which, at the

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time of the event, was a pure protection group life policy shall be deemed

not to have been a chargeable event.

          (2)      For the purposes of this paragraph a policy of life insurance is at any time a

pure protection group life policy if at that time it is a group life policy whose

terms do not provide for any sums or other benefits to be paid or conferred

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except on death or disability.

Existing group life policies: time for compliance with the conditions in section 539A

  4       (1)      Where—

              (a)             on 9th April 2003 a policy of life insurance issued in respect of an

insurance made before that date is a group life policy but the

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conditions in section 539A of the Taxes Act 1988 are not satisfied,

              (b)             on or after that date, the terms of the policy are varied so that those

conditions are satisfied before 6th April 2004, and

              (c)             during the period beginning with 9th April 2003 and ending with the

date when the variation takes effect (“the transitional period”), no

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sums become payable, and no other benefits arise, under the policy

except on death or disability,

                   the conditions in section 539A of the Taxes Act 1988 shall be taken for the

purposes of Chapter 2 of Part 13 of the Taxes Act 1988 to have been satisfied

with respect to the policy throughout the transitional period.

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          (2)      Where, for the purposes of Chapter 2 of Part 13 of the Taxes Act 1988,—

              (a)             on 9th April 2003 a policy of life insurance issued in respect of an

insurance made before that date (“the old policy”) is a group life

policy but the conditions in section 539A of the Taxes Act 1988 are

not satisfied,

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Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 2 — Charitable and non-charitable trusts

    411

 

              (b)             on or after that date, the terms of the insurance are varied solely for

the purpose of securing that those conditions are satisfied before 6th

April 2004 with respect to a policy in respect of the insurance, and

              (c)             as a result of the variation, the old policy is replaced by a new policy

(“the new policy”),

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                   sub-paragraph (3) applies.

          (3)      Where this sub-paragraph applies—

              (a)             the old policy and the new policy shall be treated for the purposes

of—

                    (i)                   paragraph 3(1),

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                    (ii)                  sub-paragraph (1), and

                    (iii)                 Chapter 2 of Part 13 of the Taxes Act 1988,

                              as a single policy issued in respect of an insurance made at the time

of the making of the insurance in respect of which the old policy was

issued, and

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              (b)             that deemed single policy shall be treated for the purposes of sub-

paragraph (1) as if the variation mentioned in sub-paragraph (2)(b)

had been a variation of its terms taking effect on the date on which

that variation takes effect (but not resulting in the replacement of the

deemed single policy).

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Deaths before 6th April 2004: period for insurer to give certificate under section 552(1)(a)

  5       (1)      If any death giving rise to benefits under a group life policy occurs—

              (a)             on or after 9th April 2003, but

              (b)             before 6th April 2004,

                   subsection (6) of section 552 of the Taxes Act 1988 (relevant three month

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period for insurer to give certificate under section 552(1)(a) to policy holder)

shall have effect in relation to that policy and that death as if there were

included among the paragraphs of that subsection the unnumbered

paragraph set out in sub-paragraph (2).

          (2)      That paragraph is—

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                    “( )                      if the event is a death and the policy in question is a group life

policy, the period of three months following 5th April 2004;”.

Part 2

Charitable and non-charitable trusts

Interpretation

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  6        In section 539 of the Taxes Act 1988 (introductory) in subsection (3), insert

each of the following definitions at the appropriate place—

                                      ““charitable trust” means any trust established for charitable

purposes only;”

                                      ““non-charitable trust” means any trust other than a charitable

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trust.”.

Method of charging gain to tax

  7       (1)      Section 547 of the Taxes Act 1988 is amended as follows.

 

 

Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 2 — Charitable and non-charitable trusts

    412

 

          (2)      In subsection (1) (attribution of gain) in paragraph (a) (which refers to trusts

created by an individual) before “trusts” insert “non-charitable”.

          (3)      In paragraph (b) of that subsection (which refers to trusts created by a

company) before “trusts” insert “non-charitable”.

          (4)      After paragraph (c) of that subsection (personal representatives) insert—

5

                    “(cc)                      if, immediately before the happening of that event, those

rights—

                           (i)                          were held on charitable trusts, or

                           (ii)                         were held as security for a debt owed by trustees of a

charitable trust,

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                                          subsection (9) or (10) below (as the case may be) shall apply

in relation to the amount of the gain;”.

          (5)      In paragraph (d) of that subsection (trusts) in sub-paragraph (i) (rights held

on trusts etc) before “trusts”, where first occurring, insert “non-charitable”.

          (6)      For the word “or” at the end of sub-paragraph (i) of that paragraph

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substitute the following sub-paragraph—

                           “(ia)                             those rights were held on non-charitable trusts and

the circumstances were not such as are mentioned in

paragraph (a), (b) or (c) above or sub-paragraph (i)

above, or”.

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          (7)      In sub-paragraph (ii) of that paragraph (rights held as security for debt owed

by trustees) after “trustees” insert “of a non-charitable trust”.

          (8)      After subsection (4) insert—

              “(4A)                In subsection (1) above—

                    (a)                   paragraph (cc) is subject to paragraph 12(1) of Schedule 34 to

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the Finance Act 2003 (which applies paragraph 7(1) of

Schedule 14 to the Finance Act 1998);

                    (b)                   paragraph (d)(ia) is subject to paragraph 12(2) of that

Schedule (exception for certain cases where insurance etc

made or effected before 9th April 2003).”.

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          (9)      In subsection (5AA) (which, in a case falling within subsection (1)(d),

applies, with modifications, to trustees the tax treatment for individuals

under subsection (5)) for “subsection (1)(d)” substitute “subsection (1)(cc) or

(d)”.

          (10)     In subsection (9) (treatment of gains in case falling within subsection (1)(d)

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where trustees resident in United Kingdom)—

              (a)             for “(1)(d)” substitute “(1)(cc) or (d)”; and

              (b)             in paragraph (b) (gain to be chargeable to income tax at the rate

applicable to trusts) for “the rate applicable to trusts” substitute “the

appropriate rate”.

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          (11)     After subsection (9) insert—

              “(9A)                For the purposes of subsection (9) above, the “appropriate rate” for

any year—

                    (a)                   in a case falling within subsection (1)(cc) above, is the basic

rate for that year; and

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                    (b)                   in a case falling within subsection (1)(d) above, is the rate

applicable to trusts for that year.”.

 

 

Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 2 — Charitable and non-charitable trusts

    413

 

          (12)     In subsection (10) (treatment of gains in case falling within subsection (1)(d)

where trustees not resident in United Kingdom) for “(1)(d)” substitute

“(1)(cc) or (d)”.

Method of charging gain to tax: multiple interests

  8       (1)      Section 547A of the Taxes Act 1988 is amended as follows.

5

          (2)      In subsection (3) (the cases where a person has a relevant interest) in

paragraph (a) (which refers to trusts created by an individual) before

“trusts” insert “non-charitable”.

          (3)      In paragraph (b) of that subsection (which refers to trusts created by a

company) before “trusts” insert “non-charitable”.

10

          (4)      After paragraph (c) of that subsection (personal representatives) insert—

                    “(cc)                      in the case of trustees of a charitable trust, if a share in the

rights is held by them or as security for a debt owed by

them;”.

          (5)      In paragraph (d) of that subsection (trustees) after “trustees” insert “of a non-

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charitable trust”.

          (6)      For the word “or” at the end of sub-paragraph (i) of that paragraph

substitute the following sub-paragraph—

                           “(ia)                             if a share in the rights is held by them which does not

also fall within paragraph (a), (b) or (c) above or sub-

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paragraph (i) above; or”.

          (7)      In subsection (6) (rights or share held on trusts created by two or more

persons) before “trusts”, where first occurring, insert “non-charitable”.

          (8)      In subsection (10) (case where different shares of the whole trust property

originate from different persons)—

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              (a)             in paragraph (a), before “trusts” insert “non-charitable”; and

              (b)             in the closing words, before “trusts” insert “non-charitable”.

Deemed surrender of certain loans

  9       (1)      Section 548(1) of the Taxes Act 1988 is amended as follows.

          (2)      In paragraph (a) (condition that gain would be treated under section 547 as

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part of an individual’s total income or income of a company) after “income

of a company” insert “or of any trustees”.

          (3)      In paragraph (c) (condition that sum is lent to, or at the direction of, the

individual or company by, or by arrangement with, the body issuing etc the

policy or contract) after “company” insert “or those trustees”.

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Right of individual to recover tax from trustees

  10       In section 551 of the Taxes Act 1988, in subsection (1) (individual liable as

settlor) in paragraph (b), for “trust” substitute “non-charitable trusts”.

Right of company to recover tax from trustees

  11       In section 551A of the Taxes Act 1988, in subsection (1) (company liable as

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settlor) in paragraph (b), for “trust” substitute “non-charitable trusts”.

 

 

Finance Bill
Schedule 34 — Policies of life insurance etc: miscellaneous amendments
Part 3 — Meaning of “life annuity”

    414

 

Section 547(1)(cc) and (d)(ia): exception for certain old policies and contracts

  12      (1)      Paragraph 7(1) of Schedule 14 to the Finance Act 1998 (c. 36) (exception for

certain cases where the trust was created before 17th March 1998, the creator

etc was an individual who died before that date and the insurance etc was

made or effected before that date) has effect in relation to section 547(1)(cc)

5

of the Taxes Act 1988 as it has effect in relation to section 547(1)(d) of that

Act.

          (2)      Paragraph (d) of section 547(1) of the Taxes Act 1988 (trustees of a non-

charitable trust) does not have effect by virtue of sub-paragraph (ia) of that

paragraph in relation to the amount of a gain if the gain is treated as arising

10

on the happening of a chargeable event in relation to a pre-commencement

policy or contract.

          (3)      In this paragraph “pre-commencement policy or contract” means—

              (a)             any policy of life insurance issued in respect of an insurance made

before 9th April 2003,

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

              (c)             any capital redemption policy where the contract was effected before

that date,

                   but does not include any such policy or contract falling within sub-

paragraph (4).

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          (4)      A policy or contract falls within this sub-paragraph if, on or after 9th April

2003 (but before the happening of the chargeable event in question),—

              (a)             the policy or contract has been varied so as to increase the benefits

secured or to extend the term of the insurance, annuity or capital

redemption policy (any exercise of rights conferred by the policy

25

being regarded for this purpose as a variation); or

              (b)             there has been an assignment (whether or not for money’s worth) of

the rights, or a share in the rights, conferred by the policy or contract

to trustees of a non-charitable trust, as defined in section 539(3) of the

Taxes Act 1988.

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Part 3

Meaning of “life annuity”

Restriction of “life annuity” to contracts to which section 656 of the Taxes Act 1988 applies

  13       In section 539 of the Taxes Act 1988 (introductory) in subsection (3), for the

definition of “life annuity” substitute—

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                    ““life annuity” means any annuity to which section 656 (as read with

section 657) applies.”.

 

 

 
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