Income Tax (Earnings and Pensions) Act 2003 section 561

Connected contracts

Section 561 sets out the rules for determining when two insurance contracts are treated as connected with one another for the purposes of the qualifying insurance contract rules, and the circumstances in which such a connection may be disregarded.

• Two insurance contracts are connected if one was entered into by reference to the other or to facilitate entry into the other on particular terms, and the terms of one contract are significantly different from what they would have been without the other contract
• Both conditions must be met either when the contracts first come into force together, or at any subsequent time
• Where there is only one significant difference in terms and the contracts otherwise meet the qualifying conditions (A, B and C in section 560), the difference may be disregarded if it relates to a premium reduction attributable to renewal rights or to the contract being entered into by way of renewal
• The difference may also be disregarded where multiple contracts were entered into as part of a single transaction and the premium reductions arise only because each individual premium was calculated as a proportion of what a single combined contract covering all the risks would have cost