Income Tax (Trading and Other Income) Act 2005 section 720

Exempt proportion: term dependent solely on duration of life

Section 720 sets out how to calculate the exempt (capital) proportion of each annuity payment where the term of the annuity depends solely on the duration of a human life or lives.

• The exempt proportion is calculated using the formula: Annuity Payment × Purchase Price ÷ Actuarial Value (AP × PP / AV)
• The purchase price is the total consideration paid for the annuity, and the actuarial value is determined at the date the first payment starts to accrue
• The actuarial value is worked out using prescribed mortality tables, taking the annuitant's age in whole years, and without discounting future payments for the time until they become payable
• Where the prescribed mortality tables cannot produce a result, the actuarial value is certified by the Government Actuary or the Deputy Government Actuary