Finance Act 2006

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Amendment of Chapter 5 (policyholders — new basis) of Part 26 of Principal Act, etc.

48.— (1) Chapter 5 of Part 26 of the Principal Act is amended—

(a) in section 730C(1)(a) by substituting the following for subparagraph (iv):

“(iv) the ending of a relevant period, where such ending is not otherwise a chargeable event within the meaning of this section, and for the purposes of this subparagraph ‘relevant period’ in relation to a life policy means a period of 8 years beginning with the inception of the policy and each subsequent period of 8 years beginning immediately after the preceding relevant period; but where—

(I) premiums under the terms of a policy are paid annually or at more frequent intervals, and

(II) the total amount of such premiums does not exceed €3,000 per annum,

then this subparagraph shall apply as if each reference to 8 years were a reference to 12 years,”,

(b) in section 730D—

(i) in subsection (1) by substituting “subject to subsections (1A) and (2)” for “subject to subsection (2)”,

(ii) by inserting the following after subsection (1):

“(1A) Where—

(a) a chargeable event, not being a chargeable event within the meaning of section 730C(1)(a)(iv), occurs in relation to a life policy, and

(b) a chargeable event within the meaning of section 730C(1)(a)(iv) occurred previously in relation to that policy,

then the gain arising on the chargeable event referred to in paragraph (a) shall be determined as if section 730C(1)(a)(iv) had not been enacted.”,

(iii) in subsection (4) by deleting paragraph (ba), and

(iv) in subsection (5)(a)(i) by substituting “1 May 2006” for “1 May 2005”,

(c) in section 730F by inserting the following after subsection (1):

“(1A) (a) In this subsection—

‘first tax’, in relation to a life policy, means the appropriate tax that was accounted for and paid in accordance with section 730G in respect of a chargeable event referred to in subsection 730D(1A)(b) in relation to the life policy;

‘new gain’, in relation to a life policy, means the gain determined in accordance with section 730D in respect of a chargeable event referred to in subsection 730D(1A)(a) in relation to the life policy;

‘second tax’ means appropriate tax calculated in accordance with subsection (1) in respect of that new gain.

(b) (i) Where at any time subsection 730D(1A) applies in respect of a life policy commenced by an assurance company, a proportion (in this subsection referred to as the ‘relevant proportion’) of first tax shall be set off against any amount of second tax.

(ii) Where such relevant proportion exceeds such second tax, an amount equal to the amount of the excess shall, subject to subparagraph (iii)—

(I) be paid by the assurance company to the policy holder in relation to the life policy,

(II) be included in a return under section 730G(2), and

(III) be treated as an amount which may be set off against appropriate tax payable by the assurance company in respect of any chargeable event in the period for which such a return is to be made, or any subsequent period.

(iii) Subparagraph (ii) shall not apply unless—

(I) the policy holder makes a declaration to the assurance company that the chargeable event referred to in subsection 730D(1A)(a) is effected for bona fide reasons and does not form part of any transaction of which the main purpose or one of the main purposes is the recovery of appropriate tax under the provisions of this subsection, and

(II) the assurance company does not have reasonable grounds to believe that the declaration under clause (I) is false.

(c) For the purposes of this subsection, the ‘relevant proportion’ is determined by the formula—

A x B

C

where—

A is the first tax,

B is the new gain, and

C is a gain determined in accordance with section 730D if the policy matured at that time.”,

and

(d) in section 730G—

(i) in subsection (2)—

(I) in paragraph (a) by inserting “, and amounts which may be credited under section 730F(1A),” after “the appropriate tax”, and

(II) in paragraph (b) by inserting “, and amounts which may be credited under section 730F(1A),” after “the appropriate tax”,

and

(ii) in subsection (3) by inserting “(reduced by any amount which is to be credited in accordance with subsection 730F(1A))” after “in a return”.

(2) Section 42 of the Finance Act 2005 is amended by substituting the following for subsection (2):

“(2) (a) Paragraph (c) of subsection (1) applies as respects any policy taken out on or after 1 May 2006.

(b) Paragraphs (a), (b) and (d) of subsection (1) apply and have effect as respects any chargeable event (within the meaning of section 730C(1)(a)(iv) of the Principal Act) occurring from the time immediately before the passing of the Finance Act 2006.”.

(3) Subsection (1) applies and has effect as respects any chargeable event (within the meaning of section 730C(1)(a)(iv) of the Principal Act) occurring on or after the passing of this Act.