Income Tax (Trading and Other Income) Act 2005 section 504

Part surrenders: payments under guaranteed income bonds etc.

Section 504 deals with how periodic payments from guaranteed income bonds are taxed — specifically, it re-characterises what would normally be treated as interest or annual payments so that they are instead treated as part surrenders of the policy for income tax purposes.

• Periodic payments from guaranteed income bonds that would otherwise be taxed as interest or annual payments are stripped of that character and treated instead as part surrenders of the life insurance policy
• Three conditions must be met: the payment would normally count as interest or an annual payment; it does not arise from non-life insurance provisions within the contract; and it does not represent late payment interest
• The final payment under the bond is excluded from this treatment — it is instead dealt with as a full surrender of all remaining rights under the policy
• A guaranteed income bond is a life insurance contract that falls within specified regulatory categories but is not an annuity contract or one written as part of a company's pension business