What is the effect of Schedule 2 paragraph 114 on section 467 for UK resident trustees?

Paragraph 114 of Schedule 2 disapplies condition C in section 467 for life insurance policies, life annuity contracts and capital redemption policies taken out before 9th April 2003. This means UK resident trustees of non-charitable trusts holding these older arrangements are only liable to tax in more limited circumstances, not under the wider charging provision.

What qualifies as a 2003 Act excluded policy or contract under ITTOIA 2005?

A 2003 Act excluded policy or contract is a life insurance policy issued before 9th April 2003, a life annuity contract made before that date, or a capital redemption policy where the contract was made before that date. The policy or contract must not have been varied or assigned to a non-charitable trust on or after that date.

When do UK resident trustees lose the transitional protection under paragraph 114?

The protection is lost if the policy or contract was varied on or after 9th April 2003 to increase benefits or extend its term, or if rights were assigned to trustees of a non-charitable trust. Any exercise of rights conferred by the policy, such as extending the term or increasing cover, counts as a variation and removes the transitional protection.

How does exercising an option under a pre-2003 policy affect the trustee tax charge?

Exercising any rights under a pre-9th April 2003 policy or contract is treated as a variation. For example, if trustees exercise an option to extend the policy term, the arrangement loses its status as a 2003 Act excluded policy. Condition C in section 467 then applies, and the trustees face the wider tax liability on any subsequent chargeable event gains.

Income Tax (Trading and Other Income) Act 2005 section 467

Pre-9th April 2003 policy or contract: UK resident trustees

Section 467(1), as modified by Schedule 2 paragraph 114, deals with the tax liability of UK resident trustees holding older life insurance policies, life annuity contracts or capital redemption policies taken out before 9th April 2003, and explains when the wider charging provisions do not apply to them.

For policies or contracts taken out before 9th April 2003, the extended tax charge on trustees of non-charitable trusts (condition C in section 467) does not apply, meaning trustees are only liable in more limited circumstances.
Qualifying policies and contracts include life insurance policies issued before 9th April 2003, life annuity contracts made before that date, and capital redemption policies with contracts made before that date.
The protection is lost if the policy or contract was varied on or after 9th April 2003 (but before the chargeable event) to increase benefits or extend its term, or if rights under it were assigned to trustees of a non-charitable trust — and any exercise of rights under the policy counts as a variation.
This transitional rule preserves the pre-2003 position for genuinely old policies and contracts, but prevents taxpayers from exploiting the exemption by modifying those arrangements or transferring them into non-charitable trusts after that date.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member