ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small. Change 153: Tax calculation: highest part of income: priority between items specified in section 833(3) of ICTA: section 1012
This change introduces an order of priority between employment termination payments and gains from life assurance contracts in treating such amounts as the highest part of income.
There are a number of provisions in the Income Tax Acts which specify that items are to be treated as the highest part of income. They are subject to the rule in section 833(3) of ICTA which says that employment termination payments within Chapter 3 of Part 6 of ITEPA and gains from life assurance contracts within section 465 of ITTOIA outrank income under all other such provisions and form the topmost slice of income. But section 833(3) of ICTA gives no order of priority between those two types of income.
In practice, because life assurance gains carry a notional tax credit that might otherwise be lost, it will always be to the taxpayer’s advantage to treat such gains as the highest slice. Accordingly, in rewriting section 833(3) of ICTA in section 1012 it has been made clear that, that life assurance gains outrank termination payments. See also new section 404A of ITEPA and new section 465A of ITTOIA inserted by Schedule 1 to this Act.