Income Tax (Trading and Other Income) Act 2005 section 721

Exempt sum: term dependent solely on duration of life

Section 721 sets out how to calculate the tax-exempt portion of each payment from a purchased life annuity whose term depends solely on the duration of a human life, but whose payment amounts may vary due to other factors.

• The exempt sum for each annuity payment is calculated using the formula: purchase price divided by the expected term in years, multiplied by the payment period in months divided by 12.
• The expected term of the annuity runs from the date the first payment starts to accrue to the date the last payment is expected to become payable, determined using prescribed mortality tables.
• Because the annuity payment amounts may fluctuate unpredictably (for example, with index-linking), the exempt portion is set as a constant sum rather than varying with each payment.
• Where the expected term cannot be determined from the prescribed mortality tables, it must be certified by the Government Actuary or the Deputy Government Actuary.