Commentary on Sections Structure of Chapters Overview Section 531: Exceptions to section 530
2087.Broadly, this section denies the income tax allowance provided by section 530 to policies and contracts where the underlying investment profit is not subject to UK tax. Where this section applies, the tax charge for the person liable includes the starting rate of income tax (section 1(2)(aa) of ICTA) where applicable. It is based on sections 547, 553 and 553A of ICTA.
2088.This section is disregarded for the purposes of a top-slicing relief calculation (see sections 535 to 537) so that the calculation assumes there was an income tax allowance.
2089.And the income tax allowance may be available where the policy or contract is with a European Economic Area (“EEA”) or other non-UK resident insurer (subsection (2)), or where a foreign policy of life insurance is issued by the UK permanent establishment of a non-UK resident insurer (subsections (5) and (6)). In these circumstances, the underlying investment profit has been subject to UK tax or to comparable tax in an EEA or other country.
2090.Subsection (5) refers only to policies which are foreign policies of life insurance under the first part of the definition in section 476(3), and not to policies under the second part. This preserves the intended operation of section 553(7) of ICTA for such policies despite the apparent override of that provision in section 553A(3) of ICTA for all foreign policies. See Change 97 in Annex 1.
2091.Subsection (3) sets out the types of policies and contracts which are excepted by this section from section 530.
2092.Paragraph (a) makes clear that life annuity contracts issued by a friendly society in its tax-exempt business are within the exception, as well as life insurance policies so issued, despite the reference in the source legislation to policies only. Section 547(7) of ICTA applies to gains under both sections 541 and 543 of ICTA. Its opening words are “Where under section 541, 543 or 546C(7)(b), a gain is to be treated as arising in connection with a policy…”. However, while section 541 of ICTA deals with gains on policies, section 543 of ICTA deals with gains on contracts for life annuities. Section 547(7) of ICTA therefore applies to contracts for life annuities.
2093.Paragraph (b) indicates section 530 does not apply to a gain on a foreign policy of life insurance unless the policy meets conditions which indicate that the underlying investment profit earned by the policy has borne UK tax.