Income Tax (Trading and Other Income) Act 2005 section 507

Method for making periodic calculations under section 498

Section 507 sets out the method for calculating whether a chargeable gain has arisen on the part surrender or assignment of rights under a life insurance policy or contract, and if so, how much that gain is.

• A gain arises when the net total value of rights surrendered or assigned exceeds the net total allowable payments, with the gain being equal to that excess.
• The net total value of surrendered or assigned rights is calculated by totalling the values of all surrenders and assignments to date, then subtracting amounts already taken into account at previous calculation events.
• The net total allowable payments are calculated by giving a cumulative annual allowance of 5% of each premium paid (up to a maximum of 100% of that premium), then subtracting allowable elements already used at previous calculation events.
• An "allowable payment" means a premium paid under the policy, but excludes any retained replacement policy premium — that is, a sum retained by the insurer from an ending policy and applied towards premiums on a replacement policy.

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