Annex 1: Minor changes in the law made by the Act: Change 92: Gains from contracts for life insurance etc: removal of requirement for calculation under section 546(1) of ICTA to be made annually: section 498
This change replaces the requirement that the calculation under section 546(1) of ICTA should be made annually with a requirement that it should be made only where relevant partial surrenders and assignments of rights under insurance policies and contracts have occurred.
Under sections 540(1)(a)(v), 542(1)(c), 545(1)(d) and 546C(7)(a) of ICTA, a chargeable event is treated as occurring at the end of a policy year where the calculation mentioned in section 546(1) of ICTA produces an “excess”. In broad terms, the calculation compares the proceeds of a part surrender or part assignment of rights in the policy or contract that has occurred in the policy year with a portion of the premiums or other consideration paid under it to date.
Section 546(1) of ICTA requires that calculation to be performed “as at the end of each year” (that is, successive 12 month periods beginning with the making of the insurance or contract: see section 546(4) of ICTA). But unless an assignment for money or money’s worth or a surrender has occurred during the policy year, the calculation cannot show a gain, and so will be otiose for the purposes of Chapter 2 of Part 13 of ICTA.
The requirement to carry out that calculation is rewritten primarily in section 498, which is expressed only to apply if there has been an assignment for money or money’s worth or a surrender of a part of or share in the rights under a policy or contract in an insurance year. (“Insurance year” is defined in section 499 which mirrors section 546(4) of ICTA.)
This change has no implications for the amount of tax due, who pays it or when. It affects (in principle and in practice) only administrative matters.