Income Tax (Trading and Other Income) Act 2005 section 491

Calculating gains: general rules

Section 491 sets out the general rules for determining whether a gain has arisen on certain chargeable events relating to life insurance policies and similar contracts, and how to calculate the amount of any such gain.

• A gain arises when the total benefit value (TB) of a policy or contract exceeds the sum of the total allowable deductions (TD) plus any previous gains (PG) already brought into account; the gain equals that excess
• The chargeable events covered include full surrender or assignment of rights, final participation in profits, death of the life insured, maturity, and taking a capital sum as a complete alternative to annuity payments
• Previous gains (PG) include gains on related policies, where a related policy is one that arose through substitution or variation of the original policy, or through a chain of such substitutions
• Where no gain arises under this calculation but gains did arise on earlier calculation events for the same policy, relief for the resulting deficiency may be available under section 539