Finance Bill Tracking Service 2010 | Budget 2010


Who is likely to be affected?

1. Individuals who are subject to the additional rate of tax from 2010-11 and who are entitled to deficiency relief on a surrender of their policies on or after 6 April 2010.

General description of the measure

2. This measure will provide that life insurance deficiency relief will be made available to reduce tax due on income subject to the additional rate and dividend additional rate of tax.

3. The Government intends to legislate this measure in a Finance Bill to be introduced as soon as possible in the next Parliament.

Operative date

3. The measure will have effect on and after 6 April 2010.

Current law and proposed revisions

4. Sections 539 to 541 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) provide a special relief, known as deficiency relief, which may be available to individuals when their life insurance policy, life annuity contract or capital redemption policy comes to an end.

5. Individuals may be entitled to the relief if the tax calculation needed when a policy or contract comes to an end gives a negative result rather than a gain, but taxable gains have arisen earlier in the life of the same policy or contract.

6. At present, a tax reduction may be due for the year in which the policy comes to an end if the individual has income subject to the higher rate and dividend upper rate of tax. The legislation will extend the relief so that a tax reduction may also be due if the individual has income subject to the additional and dividend additional rates of tax.

7. This measure also provides that deficiency relief triggered by the surrender of a policy on or after 6 April 2010 may be restricted. The restriction will apply if the main purpose of an individual being a party to arrangements is to secure a tax reduction greater than the income tax due on earlier chargeable events that led to the relief. This provision applies to arrangements made on or after 22 April 2009 that culminate in the surrender of the policy on or after 6 April 2010.

Further advice

8. A Technical Note providing further details on this measure has been published today on the HM Revenue & Customs website.

9. If you have any questions about this change, please contact Jon Prothero on 020 7147 2785 (email: Information about Budget measures is available on the HM Revenue & Customs website at