Taxes Consolidation Act 1997 section 725

Special investment policies: breaches of conditions

Section 725 deals with cases where a life assurance policy does not qualify (or ceases to qualify) as a special investment policy on or before 31 December 2002, and imposes an additional corporation tax charge on the assurance company in such circumstances.

• A life assurance policy is not a special investment policy if the required declaration has not been made, if the qualifying conditions are not met, or if the policyholder holds prohibited classes of investment under section 839.
• Where an assurance company discovers on or before 31 December 2002 that a policy it has been treating as a special investment policy does not qualify, it must remove the policy from its special investment fund.
• An additional corporation tax liability arises, calculated by reference to the increase in the company's liability on the policy from when it ceased to qualify (or from issue if it never qualified) to when the company became aware of the problem.
• The additional tax is computed using a formula that regrosses the increase (net of the 10 per cent rate) and applies the difference between the standard income tax rate and the 10 per cent rate.