Annex 1: Minor changes in the law made by the Act: Change 117: Exempt income: purchased life annuity payments: claim for exemption of capital element of purchased life annuity: section 717(3)
This change relates to the rewriting in this Act (and so as primary legislation) of the requirement in regulation 4 of the Income Tax (Purchased Life Annuities) Regulations 1956 SI 1956/1230 for a claim to be made to obtain the benefit of section 656(1) of ICTA.
Case law has established that the whole of an annuity payment received by an annuitant is chargeable to income tax. (See, for example, the judgment of the Lord President (Inglis) in Coltness Iron Co v Black (1881), 1 TC 287 CS, which was cited with approval by Lord Wilberforce in CIR v Church Commissioners for England (1976), 50 TC 516 HL(20).) However, section 656(1) of ICTA provides for a part of an annuity payment made under a purchased life annuity to be treated as capital (the “capital element”). The effect is that, so far as it consists of the capital element, the annuity payment is exempt from income tax.
To obtain the benefit of section 656(1) of ICTA, an annuitant has to make a claim under regulation 4 of the Income Tax (Purchased Life Annuities) Regulations 1956 SI 1956/1230. Section 658(4) of ICTA provides that the regulations may “make provision for the time limit for making any claim for relief from or repayment of tax”. But that is the only specific reference to a claim in the primary legislation. So that it is clear to a reader of the exemption that it is subject to a claim, the implied requirement for a claim in regulation 4 is rewritten in section 717(3) of this Act. Accordingly, the power in section 658(3) of ICTA to make regulations about this is not rewritten. As a result, the requirement for a claim cannot be revoked or amended by regulations.
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.