What is the purpose of section 740 of ITTOIA 2005?

Section 740 prevents abuse of the health and employment insurance payments exemption under section 735 by imposing conditions where an insured person is covered under more than one linked policy. It ensures that connected policies are not used to manipulate or enhance policy terms to exploit the exemption available under United Kingdom tax law.

What are 'connected policies' under section 740 ITTOIA 2005?

Connected policies are other insurance policies under which the insured person is or has been covered. Each connected policy must have been in force either at the same time as the policy in question or immediately before that policy was entered into. Their existence triggers additional conditions that must be met for the exemption to apply.

What conditions must be met where connected policies exist under section 740?

The terms of the policy relating to the health or employment risk must not differ significantly from what they would have been without the connected policies. Additionally, the way those terms are applied in practice must not be significantly different. The existence of linked policies should not manipulate or enhance the policy terms to exploit the exemption.

Are any differences between linked policies permitted under section 740 ITTOIA 2005?

Yes. Where benefits under a policy are reduced solely because the insured person also receives benefits under a connected policy, that reduction is not treated as a significant difference. This permits legitimate coordination of benefits across policies to avoid over-compensation, which is a common feature of insurance arrangements in the United Kingdom.

Income Tax (Trading and Other Income) Act 2005 section 740

Conditions to be met where policies are linked

Section 740 sets out the conditions that must be satisfied where a person claiming the health and employment insurance exemption is or has been insured under more than one linked policy, to prevent abuse of the exemption.

These conditions only apply where the insured person is or has been covered under one or more other "connected policies" that were in force at the same time as, or immediately before, the policy in question.
The terms of the policy relating to health or employment risk must not differ significantly from what they would have been had no connected policies existed.
The way those terms are given effect must also not differ significantly from what would have applied without the connected policies.
Any difference that arises solely because benefits are reduced to account for benefits payable under a connected policy may be ignored.

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