Taxes Consolidation Act 1997 section 242

Annual payments for non-taxable consideration

Section 242 prevents tax avoidance through "reverse annuity" schemes by requiring certain annual payments made for a lump sum of capital to be paid gross and denying any tax deduction for them.

• A reverse annuity scheme involves a financial institution providing a lump sum of capital, which the individual repays through a series of annual payments; where these payments are made for consideration not taken into account in computing the payer's taxable income, they are caught by this section.
• Genuine interest payments, annuities granted in the ordinary course of an annuity business, and payments made by an individual for surrendering an interest in settled property to the holder of a subsequent interest are all excluded from the section's scope.
• Payments caught by the section must be made without deduction of income tax, are not deductible in computing the payer's income or total income, and are not treated as a charge on income for corporation tax purposes.
• Under section 237(1), reverse annuity payments made on or after 9 May 1989 may be assessed to tax in the hands of the recipients, ensuring the income is taxed on at least one side of the transaction.