Annex 1: Minor changes in the law made by the Act: Change 123: Exempt income: health and employment insurance payments: extension to insurance against loss of office: sections 736(2) and 737(2)(b)
This change extends the risks against which insurance policies may provide if payments under them are to be exempt to loss of office.
Sections 580A and 580B of ICTA exempt payments under insurance policies providing cover against risks to health or employment from income tax where they meet specified conditions.
Under section 580A(3)(b) of ICTA the risk of loss of employment is described as “a risk that circumstances will arise as a result of which the insured will cease to be employed or will cease to carry on any trade, profession or vocation carried on by him”. Under section 580A(4)(b) of ICTA the related period during which payments may continue is described as “any period during which the insured is, in circumstances insured against by the relevant part of the policy, either unemployed or not carrying on a trade, profession or vocation”.
In practice, although section 580A(3)(b) of ICTA refers to loss of employment and not loss of office, the Inland Revenue does not distinguish between employees and office holders in deciding whether there is a qualifying risk relating to employment. So, taken together with the reference to trades, professions and vocations in section 580A(3)(b) of ICTA, the risk that a person will no longer be in receipt of income as a result of a loss of work of any sort is included. Accordingly, in rewriting that section in section 736(2), the risk that circumstances will arise as a result of which the insured will cease to hold an office has been included.
Similarly, in rewriting section 580A(4)(b) of ICTA in section 737(2)(b), a period during which the insured, in circumstances insured against by the relevant part of the policy, does not hold an office is expressly included.
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.