Income Tax (Trading and Other Income) Act 2005 section 512A

Recalculating gains under section 511

Section 512A provides a mechanism for policyholders who have part surrendered or part assigned life assurance policies, and generated a wholly disproportionate taxable gain under section 511, to apply to HMRC to have that gain recalculated on a just and reasonable basis.

• An interested person — meaning anyone liable for all or part of the tax on the gain — may apply in writing to HMRC for a review if they consider the gain calculated under section 511 is wholly disproportionate; the application must be received within four tax years after the year the gain arose, unless HMRC agrees a longer period.
• HMRC may consider any relevant factors when assessing whether the gain is disproportionate, including the economic gain on the rights surrendered or assigned, the premiums paid under the policy or contract, and the amount of tax that would otherwise be chargeable.
• If HMRC agrees the gain is wholly disproportionate, the officer must recalculate it on a just and reasonable basis; the recalculated figure then replaces the original section 511 gain for all purposes of this chapter, and all necessary tax adjustments and repayments must be made.
• No recalculation will be made where the gain arises from transactions or arrangements whose main purpose, or one of whose main purposes, is to obtain a tax advantage for any person.