Income Tax (Trading and Other Income) Act 2005 section 541

Calculation of deficiencies

Section 541 explains how to calculate the amount of a deficiency arising on a chargeable event in relation to a life insurance policy or capital redemption contract, providing relief where earlier taxed gains are effectively reversed by a later loss.

• A deficiency arises when a later chargeable event shows that earlier gains on a policy or contract were, with hindsight, overstated
• If the total allowable deductions equal or exceed the total benefit value at the later event, the full amount of all previous taxed gains is treated as the deficiency
• If the total benefit value exceeds the total allowable deductions, the deficiency equals the total previous gains minus that excess
• Total previous gains include only gains from earlier calculation events (excluding personal portfolio bond events) that were included in the individual's total income for earlier tax years or included under the temporary non-residence rules