(1) In this section and in section 730G, "appropriate tax", in connection with a chargeable event in relation to a life policy, means a sum representing income tax on the amount of the gain treated in accordance with section 730D as thereby arising―

[(a) subject to paragraph (b), where the chargeable event falls on or after 1 January 2001, at the rate of 28 per cent,]¹

(b) where, in the case of a personal portfolio life policy, the chargeable event falls on or after 26 September 2001, at a rate determined by the formula―

[(S + 28) per cent]²

where S is the standard rate per cent (within the meaning of section 4), and

(c) where the chargeable event falls on or before 31 December 2000, at a rate of 40 per cent.]³

(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 [within the meaning of section 730C(1)(a)(iv) in relation to the life policy and which has not been repaid;]¹

["new gain", in relation to a life policy, means a gain referred to in section 730D(1A)(a) determined in accordance with section 730D in relation to the life policy;]²

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

(b)(i) Where at any time [section 730D(1A)(a)]³ 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 ...⁴―

(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.

...⁵

(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.

(2) An assurance company shall account for appropriate tax in accordance with section 730G.

(3)(a) An assurance company which is liable to account for appropriate tax in connection with a chargeable event in relation to a life policy shall, at the time of the chargeable event, be entitled―

(i) where the chargeable event is the maturity or surrender whether in whole or in part of the rights conferred by the life policy, to deduct from the proceeds payable to the policyholder on maturity, as the case may be, surrender in whole or in part, an amount equal to the appropriate tax,

(ii) where the chargeable event―

(I) is the assignment, in whole or in part, of the rights conferred by the life policy, or

[(Ia) is the ending of a relevant period in accordance with section 730C(1)(a)(iv), or]¹

(II) is deemed to happen on 31 December 2000 under section 730C(1)(b),

to appropriate and realise sufficient assets underlying the life policy, to meet the amount of appropriate tax for which the assurance company is liable to account,

(b) the policyholder shall allow such deduction or, as the case may be, such appropriation, and

(c) the assurance company shall be acquitted and discharged of so much as is represented by the deduction or, as the case may be, the appropriation as if the amount of the deduction or the value of the appropriation had been paid to the policyholder.

(4) Where in the period commencing on 26 September 2001 and ending on 5 December 2001 in connection with a chargeable event in relation to a personal portfolio life policy―

(a) an assurance company which is entitled to deduct an amount equal to the appropriate tax in accordance with subsection (3)(a)(i), or to appropriate and realise sufficient assets to meet the amount of appropriate tax for which the assurance company is liable to account for in accordance with subsection (3)(a)(ii), and

(b) the assurance company fails to deduct an amount equal to the appropriate tax due or fails to appropriate and realise sufficient assets to account for the amount of appropriate tax due,

then, for the purposes of regulating the time and manner in which any appropriate tax, which has not been accounted for or paid, shall be accounted for and paid, section 730FA shall apply to the exclusion of section 730G (apart from subsection (7)) and section 730GA.