Note on annuity certain contracts

Abstract

The contracts discussed in this note are annuities certain provided by Life Offices. A schedule for income-tax purposes dividing payments into capital and interest determines the variable net sum paid by the office from year to year to the payee under each contract; it is the effect of this arrangement on the office to which attention will be drawn.To comply with the Assurance Companies Acts, 1909–46, and the Finance Act, 1938, section 27, the office must pay the considerations for such contracts into a fund which is separate from the life assurance and life annuity funds, and which must not relate to business effected before 1 January 1938. This fund is taxed on an interest less expenses basis (subject to certain limitations), and the full standard rate of tax is applied. However, the office is permitted to withhold tax on the interest portion of each annuity payment from the payee, and to retain this tax provided its amount is exceeded by the tax suffered on interest credited to the fund, adjusted for the relief on expenses. Profits tax will be ignored in this note; the tax position of the office as a whole has such an intimate bearing on the problem that further discussion would be outside the intended scope of the present analysis.