IPTM4220 | Purchased life annuities: different types of annuity: life annuities and purchased life annuities

Purchased life annuity

This is defined at ITTOIA05/S423 as an annuity:

• granted for consideration in money or money’s worth in the ordinary course of a business of granting annuities on human life, and

• payable for a term which requires the ending of a human life to be taken account of, even though the annuity may in the event end before or after the life.

It thus includes the guaranteed and temporary classes of annuities referred to in IPTM4210.

This definition applies for the purposes of the partial exemption scheme (ITTOIA05/S717(4) – see IPTM4300 onwards) but with the following categories of annuity excluded by ITTOIA05/S718:

• annuities that fall to be taxed under ITEPA03, which is given priority by ITTOIA05/S366 (3), in broad terms pensions annuities - see EIM74001 onwards

• annuities the consideration for which attracted life assurance premium relief, see IPTM2100

• annuities purchased under a direction in a will

• annuities purchased out of income of property disposed of by a will or settlement as a result of that will or settlement.

Life annuity

This is the term employed to identify annuities chargeable as contracts for life annuities under the chargeable event regime described in IPTM3000 onwards. The definition is the same as that for the purchased life annuity, ITTOIA05/S473(2)(a) making the link to ITTOIA05/S423.

In the UK, only insurance companies and friendly societies may sell life annuities. Outside the UK, a wider range of bodies of the necessary prudential standard, for instance government bodies, may offer life annuities. Pension arrangements in overseas territories may not follow the UK model and problems of interpretation may arise.

If HMRC offices have any difficulties, they should refer them to CS&TD, BAI Financial Services Team.