Income Tax (Trading and Other Income) Act 2005 section 719

Extent of exemption under section 717

Section 719 sets out the rules for determining how much of each purchased life annuity payment qualifies for the capital element exemption from income tax, depending on the nature of the annuity.

• Where annuity payment amounts depend solely on the duration of a human life or lives, a constant proportion of each payment (the "exempt proportion") is exempt; where amounts also depend on another contingency, each payment is exempt up to a fixed sum (the "exempt sum"), with any unused shortfall carried forward to the next payment.
• Where the annuity's term depends solely on the duration of a human life or lives, the exempt proportion and exempt sum are calculated using the specific formulas set out in sections 720 and 721 respectively.
• Where the annuity's term also depends on a non-life contingency, the exempt proportion or exempt sum is instead determined on a just and reasonable basis, having regard to the additional contingencies and the relevant formula in section 720 or 721.
• The vast majority of purchased life annuities have terms that depend solely on the duration of a human life or lives, so in most cases the standard formulas in sections 720 and 721 will apply directly.