Annex 1: Minor changes in the law made by the Act: Change 88: Gains from contracts for life insurance etc: individuals who are not resident in the United Kingdom in the tax year not liable for tax: sections 465 and 539
This change gives statutory effect to part of Part 1 of ESC B53.
Section 547(1)(a) of ICTA provides that gains under Chapter 2 of Part 13 of ICTA are deemed to form part of an individual’s total income for the tax year in which the chargeable event giving rise to the gain occurred if any of the following conditions are met. They are:
	that the rights under the policy or contract in question are vested in the individual as beneficial owner;
	that the rights under the policy or contract are held on trusts created by the individual; or
	that the rights are held as security for a debt owed by the individual.
Section 547(1)(a) of ICTA applies wherever the individual is resident. (Section 549 of ICTA (corresponding deficiency relief) applies similarly.) But Part 1 of ESC B53 provides that the Inland Revenue will not pursue liability to tax on a gain that is treated as income of an individual who is not resident in the UK at any time during the tax year in which the gain is chargeable.
Section 465 gives statutory effect to this part of the concession by providing that an individual is only liable for tax under Chapter 9 of Part 4 of this Act, which rewrites Chapter 2 of Part 13 of ICTA, if the individual is UK resident in the tax year in which the chargeable gain arises.
Under section 549 of ICTA certain deficiencies are allowable as deductions if, had such an excess as is mentioned in section 541(1)(a) or 543(1)(a) of ICTA arisen, it would have been treated as a gain and would form part of the individual’s total income for the final year of the policy in question. In rewriting this relief for deficiencies, section 539 provides for the relief to apply also where the gain would form part of the individual’s total income apart from the condition in section 465 requiring UK residence, so that a non-UK resident individual continues to be eligible for the relief despite the new condition. But in some circumstances the effect of the condition in section 465 may be to reduce the amount of relief to which an individual is entitled. This will happen if an individual was not liable at all for earlier gains because of the operation of the condition, and so they did not form part of the individual’s total income as required by section 541(4)(b) of this Act (calculation of deficiencies).
This change is broadly in taxpayers' favour in principle. But it is expected to have little practical effect as it is in line with current practice. It may reduce the amount of relief for deficiencies. But the numbers affected and the amounts involved are likely to be small.