Income Tax (Trading and Other Income) Act 2005 section 496

Modification of section 494: qualifying endowment policies held as security for company debts

Section 496 modifies the calculation of gains on qualifying endowment policies where the policy has been held as security for a company's debt related to trade premises, allowing the debt amount to replace premiums paid when computing the chargeable gain.

• Where a qualifying endowment policy is held as security for a company's trade premises debt and a chargeable event occurs, the company may claim to substitute the debt amount for total premiums paid when calculating the gain
• The company must claim within two years after the end of the accounting period in which the chargeable event occurs, and the debt must exceed the total premiums paid
• Strict conditions apply: the policy must have been held as security throughout, the death benefit must be at least equal to the original debt, proceeds must be used to repay the debt, and the borrowing must have funded the purchase, construction, extension or improvement of trade premises
• If the debt varied during the policy period, the lowest amount during that period is used; and if the company refinanced by borrowing to repay an earlier debt, both debts are taken into account where appropriate