Income Tax (Trading and Other Income) Act 2005 section 505

Assignments etc. involving co-ownership

Section 505 deals with how changes in the co-ownership of rights under a life insurance policy or capital redemption contract are treated as partial assignments for tax purposes, so that only those owners who have reduced their share are treated as having made a taxable assignment.

• When the beneficial ownership of rights under a policy or contract changes but at least one original owner remains involved, the transaction is re-characterised as one or more partial assignments of rights, as specified by section 506
• The section applies only where conditions A and B are both met, together with at least one of conditions C, D or E — broadly requiring continuity of at least one owner and a change in the composition or shares of ownership
• The section does not apply where there is a complete change of ownership to entirely different persons, because in that case the normal assignment rules apply without re-characterisation
• Only those owners whose share in the ownership interest has been reduced (wholly or partly) are treated as having made an assignment that may give rise to a chargeable event gain

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