Revenue Note for Guidance
As a result of section 735 the tax regime in respect of a life company’s unit linked business is that gains on the disposal of units are exempt from tax (section 731(6)), but the disposal of assets in the unit trust gives rise to a tax charge. However, since 1992 the annual increase in value of a life companies chargeable assets has generally been subjected to tax. Life companies can opt, using this section, to bring their unit linked business within this regime if certain conditions are met. This essentially means that the unit trust is, despite section 735, deemed to be a collective investment undertaking.
(1) There are 3 conditions for a unit trust to be allowed “collective investment undertaking” status —
When the 3 conditions are fulfilled the unit trust is deemed to have been a collective investment undertaking from 31 March, 1992 for the purposes of section 734 and Schedule 18.
(2) The life company is thereafter liable to tax on the annual increase in value of the units held by it.
(3) The notional disposal of assets on 31 March, 1992 is deemed to have been for a consideration equal to the market value of the assets on that day.
Relevant Date: Finance Act 2020