Annex 1: Minor changes in the law made by the Act: Change 96: Gains from contracts for life insurance etc: reduction in gains where non-UK resident trustees hold policy: section 529
This adopts the conditions for trustees’ residence in section 110 of FA 1989 for the purposes of the disapplication of the rule in section 553(3) of ICTA about reduction of gains chargeable under Chapter 2 of Part 13 of ICTA where the policy was held by non-UK resident trustees.
Section 553(3) of ICTA provides that in the case of new non-resident policies and new offshore capital redemption policies (as defined in section 553(10) of ICTA) the gain that would otherwise arise under section 541 or 546C(7)(b) of ICTA is reduced to the proportion of it that corresponds with the proportion of the period during which the policy has been in force that the policyholder was resident in the United Kingdom.
Under section 553(5) of ICTA if, when the gain arises or at any time during that period, the policy is or was held by a trustee resident outside the United Kingdom or by two or more trustees any of whom is or was so resident, the reduction under section 553(3) of ICTA is only made if­:
However, the residence of a body of trustees is now generally determined by section 110 of FA 1989, so that if at least one of them is and at least one of them is not UK resident, they are all treated as UK resident or not UK resident according to the rule in section 110(1) of FA 1989, regardless of their individual status. Under section 110(6) of FA 1989, that section only applies for the tax year 1989-90 and subsequent years, so it would not apply to determine the trustees’ residence for section 553(5) of ICTA before that time.
Section 529(1) rewrites section 553(5) of ICTA for insurances made on or after 20 March 1985. Section 529 (1)(b) disapplies section 528 (the rewritten section 553(3) of ICTA) if, when the gain arises or at any time during the policy period, the policy is or was held by non-UK resident trustees. So the trustees are looked at as a group, rather than individually. Section 529(2) applies section 110 of FA 1989 whenever the policy period starts. Therefore the same test for the trustees’ residence will apply throughout.
This change provides a clarification of the law. But it is expected to have no practical effect as it is in line with current practice.