723 Special investment policies

Summary

This section makes provision for special investment policies which are essentially life company investment products based on investment in Irish equities. The annual income and gains (both realised and unrealised) arising, for the benefit of policyholders, to the related investment fund within the life company are liable to a 20 per cent tax charge. No further tax charge arises on encashment of the policy by a policyholder. Such policies cannot be issued after 31 December 2001 and for accounting periods of the life company ending in 2003 their tax treatment is the same as ordinary life policies.

Details

Definitions

(1) “excluded shares” are shares in companies which are either investment companies, corporate undertakings for collective investment in transferable securities or any other corporate entity used primarily as an investment vehicle. An investment fund only qualifies as a fund eligible for the 20 per cent tax rate if a minimum percentage of the fund’s assets are qualifying shares, other than excluded shares.

“inspector” is an inspector appointed under section 852, and includes other officers appointed by the Revenue Commissioners in that behalf.

“mortality cover” is any amount payable under a life assurance policy on the death of a person specified in the terms of the policy.

“qualifying shares” are ordinary shares (that is, shares forming part of a company’s ordinary share capital) in a company which is either Irish resident or quoted on the Irish Stock Exchange.

“special investment business”; “special investment fund”; and “special investment policy” are definitions relevant to a life company’s business which is to be charged to corporation tax at 20 per cent.

The income and gains accruing to the special investment fund, created by special investment policy premiums, are to be charged at an effective tax rate of 20 per cent. The conditions in respect of the fund are set out in subsection (2). The conditions governing the policies are set out in subsection (3) and the declaration required to be made by special investment policyholders is provided for in subsection (4). These conditions only apply for accounting periods ending on or before 31 December 2002

“specified qualifying shares” are qualifying shares in companies with issued share capital valued at less than €255 million. Alongside the general requirement to invest special investment funds in Irish equities, there is also a requirement to invest a minimum percentage in specified qualifying shares.

Special investment funds

(2) In respect of accounting periods ending on or before 31 December 2002, for a fund to be treated as a special investment fund, the fund has to be a life assurance company fund and must be kept separate from all other funds of the assurance company, and the assets of the fund must relate solely to special investment business. In addition, paragraphs (d) to (g) of the subsection set out the Irish equity investment requirements which since 1 February, 1996 require that the percentage of assets (on a cost of asset basis) of the fund which are Irish equities should be not less than 55 per cent of qualifying shares and 10 per cent of specified qualifying shares. This requirement was removed from 31 December 2000.

Special investment policies

(3) In respect of accounting periods ending on or before 31 December 2002, the requirements for a policy to be treated as a special investment policy were —

• the assurance company had to designate the policy as a special investment policy,
• not more than a total of €63,500 premiums could be accepted in respect of a policy,
• the policy must be issued to and owned by an individual who is either married or is 18 years of age or older,
• the policyholder must be the beneficial owner of the policy and the payee for all amounts to be paid under the policy, other than any amount payable in respect of the life cover element of the policy in the event of the death of the person whose life is assured, and
• a joint policy was only permitted in the case of a married individual and such policy must be owned jointly by the individual and the spouse of the individual. A married couple could own 2 joint policies; otherwise an individual was only permitted to have one special investment policy.

Declarations

(4) The “declaration” mentioned in the definition of “special investment policy” must be made in writing on a prescribed form and given to the assurance company at the time that the policy is issued. The declaration is to be made and signed by the beneficial owner of the policy who must certify that certain conditions are met, undertake to notify the life assurance company if these conditions cease to be met and give his/her name and address.

(5) Life assurance companies which issue special investment policies are obliged to retain and make available to an inspector (on written request) any such declarations made by policyholders. The inspector is empowered to copy or to take extracts from such declarations.

The 20 per cent corporation tax charge

(6) For accounting periods ending in 2003 and subsequently the special investment fund was required to be merged with the ordinary life fund.

(7) For prior accounting periods, a number of computational adjustments in respect of income and gains of a special investment fund were—

• the assets of the fund, including Government securities, were deemed to be disposed of and immediately reacquired at the end of each accounting period of the assurance company, and this deemed disposal results in the inclusion of unrealised gains and losses in taxable profits,
• gains, whether realised or unrealised, accruing to the fund in respect of BES shares were not be charged to tax – losses were, however, allowable,
• dividends received by the fund in respect of BES shares were not to be charged to tax but the tax credit attaching to such a dividend was not available for set-off or payment under section 712, and
• section 726, which apportions the world-wide investment income of an “overseas” life assurance company carrying on a branch business in the State, was not to apply to special investment business carried on by such a company. Corporation tax was charged at the effective rate of 20 per cent on the actual investment income and gains accruing to the special investment fund of such a company.

Relevant Date: Finance Act 2021