Office of Public Sector Information
SCHEDULE 33 continued
(2) Section 804C of the Taxes Act 1988 (insurance companies: allocation of expenses etc in computations under Case I of Schedule D) is amended as follows.
(3) In subsections (4) and (5), for “relevant amount” substitute “relevant income”.
(4) For subsection (13) substitute—
“(13) For the purposes of the operation of this section in relation to any income or gain in respect of which credit falls to be allowed under any arrangements, the amount of the income or gain that is referable to a category of insurance business is the same fraction of the income and gain as the fraction of the foreign tax that is attributable to that category of business in accordance with section 804B.”.
(5) This paragraph has effect for accounting periods beginning on or after 1st January 2003 except those ending before 9th April 2003.
12 (1) In section 76(2B)(b) of the Taxes Act 1988 (expenses of management), for “the franked investment income of, and foreign income dividends arising to, the company” substitute “distributions received by the company from companies resident in the United Kingdom”.
(2) In section 434(3A) of the Taxes Act 1988 (franked investment income etc), for “The policy holders' share of the franked investment income from investments held in connection with a company's” substitute “So much of the policy holders' share of the franked investment income from investments of a company’s long-term insurance fund as is referable to its”.
(3) In section 441(1) and (2) of the Taxes Act 1988 (overseas life assurance business), omit “and section 441A”.
(4) In section 89(2)(b) of the Finance Act 1989 (c. 26) (policy holders' share of profits), for “franked investment income arising in the period which is” substitute “distributions received from companies resident in the United Kingdom in the period which are”.
(5) Apart from sub-paragraph (3), this paragraph has effect in relation to distributions on or after 9th April 2003.
13 (1) The Finance Act 1989 is amended as follows.
(2) In section 88(1) (corporation tax rate on policy holders' share of relevant profits of companies carrying on life assurance business to be basic rate of income tax)—
(a) omit “and section 88A”, and
(b) for “basic” substitute “lower”.
(3) Omit section 88A (cases where tax rate already is lower rate).
(4) In section 89(1) (meaning of “policy holders' share of profits”)—
(a) for “sections 88 and 88A” substitute “section 88”, and
(b) omit “or, as the case may be, basic life assurance and general annuity business”.
(5) The Taxes Act 1988 is amended as follows.
(6) In section 438B(5) (income or gains arising from property investment LLP)—
(a) omit paragraph (b) and the word “and” before it, and
(b) for “section 88 of that Act” substitute “that section”.
(7) Section 755A (controlled foreign companies: chargeable profits and creditable tax apportioned to company carrying on life assurance business) is amended as follows.
(8) In subsection (3), for “88A(1)” substitute “88(1)”.
(9) For subsection (11) substitute—
“(11) For the purposes of this section the policy holders' part of any BLAGAB apportioned profit is—
(a) where subsection (11A) below applies, the whole of that profit, and
(b) in any other case, the relevant fraction (within the meaning of subsection (11B) below) of that profit.
(11A) This subsection applies if—
(a) the UK company’s life assurance business is mutual business,
(b) the policy holders' share of the UK company’s relevant profits for the relevant accounting period is equal to all those profits, or
(c) the policy holders' share of the UK company’s relevant profits for the relevant accounting period is more than its BLAGAB profits for that period.
(11B) The relevant fraction for the purposes of subsection (11)(b) above is the fraction arrived at by dividing—
(a) the policy holders' share of the UK company’s relevant profits for the relevant accounting period, by
(b) the UK company’s BLAGAB profits for that period.
(11C) In subsections (11A) and (11B) above—
(a) references to the policy holders' share of the UK company’s share of the relevant profits are to be construed in accordance with sections 88(3) and 89 of the Finance Act 1989, and
(b) references to the UK company’s BLAGAB profits are to be construed in accordance with section 89(1B) of that Act.”.
(10) In paragraph 5(6)(b) of Schedule 28AA (provision not at arm’s length), omit “or 88A”.
(11) This paragraph has effect for the financial year 2003 and subsequent financial years.
14 (1) In the Taxation of Chargeable Gains Act 1992 (c. 12), after section 210 insert—
(1) Section 8(1) has effect in relation to insurance companies subject to the provisions of this section.
(2) Non-BLAGAB allowable losses accruing to an insurance company are not allowable as a deduction from the policy holders' share of the BLAGAB chargeable gains accruing to the company.
(3) BLAGAB allowable losses accruing to an insurance company are allowable as a deduction from non-BLAGAB chargeable gains accruing to the company as permitted by the following provisions of this section (and not otherwise).
(4) They are allowable as a deduction from only so much of non-BLAGAB chargeable gains accruing to the company in an accounting period as exceeds the aggregate of—
(a) non-BLAGAB allowable losses accruing to the company in the accounting period, and
(b) non-BLAGAB allowable losses previously accruing to the company which have not been allowed as a deduction from chargeable gains accruing in any previous accounting period.
(5) And they are allowable as a deduction from non-BLAGAB chargeable gains accruing to the company in an accounting period only to the extent that they do not exceed the permitted amount for the accounting period.
(6) The permitted amount for the first accounting period of an insurance company in relation to which this section has effect is the aggregate of—
(a) the amount by which shareholders' share for that accounting period of BLAGAB allowable losses accruing to the company in the accounting period exceeds the shareholders' share of BLAGAB chargeable gains so accruing, and
(b) the shareholder’s share for the immediately preceding accounting period of BLAGAB allowable losses previously accruing to the company which have not been allowed as a deduction from chargeable gains accruing in that immediately preceding accounting period or any earlier accounting period.
(7) The permitted amount for any subsequent accounting period of the company is arrived at by—
(a) deducting from the permitted amount for the immediately preceding accounting period the amount of any BLAGAB allowable losses allowed as a deduction from non-BLAGAB chargeable gains accruing to the company in the immediately preceding accounting period, and
(b) adjusting the result in accordance with subsection (8) or (9) below.
(8) If the BLAGAB chargeable gains accruing to the company in the subsequent accounting period exceed the BLAGAB allowable losses so accruing, the amount arrived at under subsection (7)(a) above is reduced by a fraction of which—
(a) the denominator is the BLAGAB allowable losses accruing to the company in any previous accounting period which have not been allowed as a deduction from chargeable gains accruing to the company in any previous accounting period, and
(b) the numerator is so many of those allowable losses as are allowed as a deduction from BLAGAB chargeable gains accruing to the company in the accounting period.
(9) If the BLAGAB allowable losses accruing to the company in the subsequent accounting period exceed the BLAGAB chargeable gains so accruing, the amount arrived at under subsection (7)(a) above is increased by the shareholders' share of the amount by which those allowable losses exceed those chargeable gains.
(10) For the purposes of this section the policy holders' share of chargeable gains or allowable losses accruing to an insurance company in an accounting period—
(a) if the policy holders' share of the relevant profits for the accounting period exceeds the BLAGAB profits of the company for the period (within the meaning of section 89(1B) of the Finance Act 1989), is the whole amount of the chargeable gains or allowable losses, and
(b) otherwise, is the same proportion of that whole amount as the policy holders' share of the relevant profits of the company for the accounting period bears to those relevant profits.
(11) In arriving at the policy holders' share of chargeable gains accruing to an insurance company under subsection (10) above there is to be ignored—
(a) any deduction under section 202(9) (mineral leases: capital losses),
(b) any reduction under section 213(3) (spreading of losses from deemed disposal of holdings of unit trust etc), and
(c) any amount carried back under paragraph 4(3) of Schedule 11 to the Finance Act 1996 (non-trading deficit on loan relationships).
(12) For the purposes of this section the shareholders' share of chargeable gains or allowable losses in relation to an accounting period of an insurance company is the proportion of the whole which is not represented by the policy holders' share of them in relation to the accounting period.
(13) In this section—
“BLAGAB allowable losses”, in relation to an insurance company, means allowable losses referable to the company’s basic life assurance and general annuity business,
“BLAGAB chargeable gains”, in relation to an insurance company, means chargeable gains referable to the company’s basic life assurance and general annuity business,
“non-BLAGAB allowable losses”, in relation to an insurance company, means allowable losses of the company which are not BLAGAB allowable losses,
“non-BLAGAB chargeable gains”, in relation to an insurance company, means chargeable gains of the company which are not BLAGAB chargeable gains, and
“the relevant profits” and “the policy holders' share of the relevant profits” have the same meaning as they have for the purposes of subsection (1) of section 88 of the Finance Act 1989 by virtue of subsection (3) of that section and section 89 of that Act.”.
(2) Sub-paragraph (1) has effect to limit the deductions which may be made from chargeable gains accruing in—
(a) any accounting period of an insurance company beginning on or after 23rd December 2002, and
(b) any accounting period of an insurance company beginning before that date but ending on or after it,
in respect of allowable losses accruing in any accounting period (whenever beginning or ending).
(3) In relation to an accounting period within sub-paragraph (2)(b) the limitations imposed by virtue of sub-paragraph (1) apply only as respects chargeable gains accruing on or after 23rd December 2002.
15 (1) In the Taxation of Chargeable Gains Act 1992 (c. 12), after section 210A (inserted by paragraph 14(1)) insert—
(1) Subsections (2) to (4) below apply in a case where, within a period of 10 days, an insurance company disposes of a number of section 440A securities and (whether subsequently or previously) acquires a number of section 440A securities if—
(a) the securities disposed of decrease the size of a chargeable section 440A holding,
(b) the securities acquired increase the size of the same chargeable section 440A holding, and
(c) (apart from this section) an allowable loss would accrue on the disposal.
(2) The securities disposed of shall be identified with the securities acquired.
(3) The securities disposed of shall be identified with securities acquired before the disposal rather than securities acquired after the disposal and—
(a) in the case of securities acquired before the disposal, with those acquired later rather than those acquired earlier, and
(b) in the case of securities acquired after the disposal, with those acquired earlier rather than those acquired later.
(4) Where securities acquired could be identified with securities disposed of either at an earlier or at a later date, they shall be identified with the former rather than the latter; and the identification of securities acquired with securities disposed of on any occasion shall preclude their identification with securities comprised in a later disposal.
(5) Subsections (2) to (4) above have effect subject to section 105(1).
(6) Subsections (2) to (4) above do not apply to—
(a) securities which are section 212 assets within the meaning of section 214(1) (rights under authorised unit trusts and interests in offshore funds), or
(b) securities deemed by section 440 of the Taxes Act to be disposed of and immediately re-acquired by virtue of paragraph 3 of Schedule 19AA to the Taxes Act (assets becoming or ceasing to be assets of overseas life assurance fund).
(7) Subsections (2) to (4) above do not apply if—
(a) the securities disposed of are linked assets appropriated to a BLAGAB internal linked fund,
(b) the securities acquired are, on acquisition, appropriated to that or another internal linked fund, and
(c) the disposal and acquisition are made with a view to adjusting the value of the assets of that fund, or of those funds, in order to match its or their liabilities.
(8) In this section—
“BLAGAB internal linked fund” means an internal linked fund all the assets appropriated to which are linked solely to basic life assurance and general annuity business,
“chargeable section 440A holding” means a holding which is a separate holding by virtue of subsection (2)(a)(iii) or (d) of section 440A of the Taxes Act (and subsections (3) and (4) of that section),
“internal linked fund” has the same meaning as in section 432ZA of the Taxes Act, and
“section 440A securities” means securities within the meaning of section 440A of the Taxes Act.”.
(2) Sub-paragraph (1) has effect in relation to disposals on or after 23rd December 2002.
(3) But sub-paragraph (1) has effect in relation to disposals made by an insurance company during the period—
(a) beginning with 23rd December 2002, and
(b) ending with 31st December 2002,
only if the amount of the allowable losses referable to the company’s life assurance business which would have accrued to the company on the disposals (but for that sub-paragraph) would have been at least £10 million.
16 (1) Section 213 of the Taxation of Chargeable Gains Act 1992 (c. 12) (spreading of gains and losses under section 212) is amended as follows.
(2) In subsection (3)—
(a) for “subsection (3A)” substitute “subsection (8H)”,
(b) in paragraph (b), for “one of the next 6” substitute “either of the next 2” and for “subsection” substitute “section”,
(c) in paragraph (c), for “any intervening accounting period” substitute “the intervening accounting period (if there is one)”, and
(d) in paragraph (ca), for “none of the intervening accounting periods is” substitute “the intervening accounting period (if there is one) is not”.
(3) Omit subsections (3A) and (3B).
(4) For subsection (5) substitute—
“(4A) The following provisions apply where an insurance business transfer scheme has effect to transfer business which consists of the effecting or carrying out of contracts of long-term insurance from one person (“the transferor”) to another (“the transferee”).
(5) Subject to subsections (5A) to (7) below, any chargeable gain or allowable loss which (assuming that the transferor had continued to carry on the business transferred) would have accrued to the transferor by virtue of subsection (1) above after the transfer shall instead be deemed to accrue to the transferee.”.
(5) After subsection (8) insert—
“(8A) Subsection (8B) below applies where—
(a) immediately before the transfer the transferee did not carry on business consisting of the effecting or carrying out of contracts of long-term insurance,
(b) the transferor and the transferee are, at the time of the transfer, members of the same group,
(c) the net amount for the accounting period of the transferor ending with the day of the transfer, or for the immediately preceding accounting period of the transferor, (“the relevant pre-transfer period of the transferor”) represents an excess of gains over losses,
(d) the net amount for the accounting period of the transferee in which the transfer takes place, or for the immediately following accounting period of the transferee, (“the relevant post-transfer period of the transferee”) represents an excess of losses over gains (after taking account of any reductions made by virtue of this section), and
(e) within 2 years after the end of the relevant post-transfer period of the transferee, the transferor and the transferee make a joint election in respect of the whole or part of the net amount for that period by notice to an officer of the Board.
(8B) Subject to subsections (8C) to (8E) and (8H) below, the net amounts for both the relevant pre-transfer period of the transferor and the relevant post-transfer period of the transferee shall be reduced by the amount in respect of which the election is made.
(8C) Subsection (8B) above does not apply if—
(a) the relevant post-transfer period of the transferee is the accounting period immediately following that in which the transfer takes place, and
(b) the relevant pre-transfer period of the transferor is the accounting period immediately preceding that ending with the day of the transfer.
(8D) If—
(a) the relevant post-transfer period of the transferee is the accounting period immediately following that in which the transfer takes place, and
(b) the relevant pre-transfer period of the transferor is the accounting period ending with the day of the transfer,
subsection (8B) above applies only if the conditions in subsection (8F) below are satisfied in relation to the accounting period of the transferee in which the transfer takes place.
(8E) If—
(a) the relevant post-transfer period of the transferee is the accounting period in which the transfer takes place, and
(b) the relevant pre-transfer period of the transferor is the accounting period immediately preceding that ending with the day of the transfer,
subsection (8B) above applies only if the conditions in subsection (8F) below are satisfied in relation to the accounting period of the transferor ending with the day of the transfer.
(8F) The conditions referred to in subsections (8D) and (8E) above are that—
(a) there is (after taking account of any reductions made by virtue of this section) no net amount for the accounting period, and
(b) the company whose accounting period it is did not join a group of companies in the accounting period.
(8G) A copy of the notice containing an election under subsection (8A)(e) above must accompany the tax return for the relevant post-transfer period of the transferee; and paragraphs 54 to 60 of Schedule 18 to the Finance Act 1998 (claims and elections for corporation tax purposes) do not apply to such an election.
(8H) Subsections (3) and (8A) and (8B) above have effect where the company, or the transferee, in question joins a group of companies in the accounting period for which the net amount represents an excess of losses over gains as if a claim or election could not be made in respect of that net amount except to the extent (if any) that the net amount is an amount which, assuming there to be gains accruing to the company or transferee immediately after the beginning of that period, would fall to be treated under paragraph 4 of Schedule 7AA as a qualifying loss in relation to those gains.
(8I) References in this section to a company joining a group of companies are to be construed in accordance with paragraph 1 of Schedule 7AA as if those references were contained in that Schedule; and in subsection (8A)(b) above “group” has the same meaning as in that Schedule.”.
(6) This paragraph has effect where the accounting period for which the net amount represents an excess of losses over gains is an accounting period beginning on or after 1st January 2003.
17 (1) Section 171A of the Taxation of Chargeable Gains Act 1992 (c. 12) (notional transfers within group) is amended as follows.
(2) After subsection (3) insert—
“(3A) Section 440(3) of the Taxes Act does not cause subsection (3) above to prevent the making of an election in a case where B is an insurance company; and in such a case the asset or part deemed to be transferred to B by A, and by B to C, is to be treated for the purposes of subsections (2)(c) and (3) above as not being part of B’s long-term insurance fund.
“Insurance company” and “long-term insurance fund” have the same meaning as in Chapter 1 of Part 12 of the Taxes Act (see section 431(2) of that Act).”.
(3) In subsection (4), for “that subsection” substitute “subsection (2) above”.
(4) This paragraph has effect in relation to disposals on or after 23rd December 2002.
18 (1) In the Taxes Act 1988, after section 444A insert—
(1) This section applies where an insurance business transfer scheme has effect to transfer the whole of the long-term business of one person (“the transferor”).
(2) Where the last period covered by a periodical return of the transferor ends otherwise than immediately before the transfer, there is to be deemed for the purposes of corporation tax to be a periodical return of the transferor covering the period—
(a) beginning immediately after the last period ending before the transfer which is covered by an actual periodical return of the transferor, and
(b) ending immediately before the transfer,
containing such entries as would have been included in an actual periodical return of the transferor covering that period (and so making that period a period of account of the transferor).
(3) Where the last period covered by a periodical return of the transferor (whether or not by virtue of subsection (2) above) ends immediately before the transfer, there is to be deemed for the relevant purpose to be a periodical return of the transferor—
(a) covering the time of the transfer, and
(b) containing such entries as would have been included in an actual periodical return covering the time of the transfer,
(and so making the time of the transfer a period of account of the transferor for the relevant purpose).
(4) Where the last period covered by a periodical return of the transferor ends after the transfer, the periodical return covering that period is to be ignored for all purposes of corporation tax other than the relevant purpose.
(5) In this section “the relevant purpose” means determining for the purposes of section 83(2B) of the Finance Act 1989 whether a transfer is brought into account as part of total expenditure.
(6) For the purposes of this section “insurance business transfer scheme” includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State).”.
(2) Sub-paragraph (1) has effect in relation to insurance business transfer schemes (within the meaning of section 444AA of the Taxes Act 1988) taking place on or after 1st January 2003 unless the accounting period of the transferor which ends with the day of the transfer began before that date.
19 (1) In the Taxes Act 1988, after section 444AA (inserted by paragraph 18(1)) insert—
(1) This section applies where, immediately after an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to one or more others (“the transferee” or “the transferees”), the transferor—
(a) does not carry on long-term business, but
(b) holds assets which, immediately before the transfer, were assets of its long-term insurance fund.
(2) The transferor shall be charged to tax under Case VI of Schedule D in respect of the taxable amount as if it had been received by the transferor during the accounting period beginning immediately after the day of the transfer.
(3) If the transferor was charged to tax on the profits of its life assurance business under Case I of Schedule D for the accounting period ending with the day of the transfer, the taxable amount is the whole of the previously untaxed amount.
(4) Otherwise, the taxable amount is the non-BLAGAB fraction of the previously untaxed amount.
(5) The previously untaxed amount is the lesser of—
(a) the fair value of such of the assets held by the transferor immediately after the transfer as were assets of its long-term insurance fund immediately before the transfer, and
(b) the amount by which the fair value of the assets of the transferor’s long-term insurance fund immediately before the transfer exceeds the amount of the relevant pre-transfer liabilities.
(6) In subsection (5) above “fair value”, in relation to assets, means the amount which would be obtained from an independent person purchasing them or, if the assets are money, its amount.
(7) Subject to subsection (8) below, the amount of the relevant pre-transfer liabilities is the aggregate of the amounts shown in column 1 of lines 14 and 49 of Form 14 in the periodical return of the transferor covering the period of account ending immediately before the transfer.
(8) If the amount of the liabilities transferred exceeds the value of the assets so transferred, as brought into account for the first period of account of the transferee (or any of the transferees) ending after the transfer, the amount of the relevant pre-transfer liabilities is the amount arrived at by deducting the excess from the aggregate of the amounts shown as mentioned in subsection (7) above.
(9) For the purposes of subsection (4) above the non-BLAGAB fraction of the previously untaxed amount is the fraction of which—
(a) the numerator is the amount of the liabilities transferred, apart from those which are liabilities of basic life assurance and general annuity business, and
(b) the denominator is the amount of the liabilities transferred.
(10) References in this section to assets held by the transferor after the transfer do not include any held on trust for the transferee or any of the transferees.
(11) For the purposes of this section “insurance business transfer scheme” includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State).”.
(2) Sub-paragraph (1) has effect in relation to insurance business transfer schemes (within the meaning of section 444AB of the Taxes Act 1988) taking place in a period of account of the transferor beginning on or after 1st January 2003.
20 (1) In the Taxes Act 1988, after section 444AB (inserted by paragraph 19(1)) insert—
(1) This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).
(2) If—
(a) the element of the transferee’s line 15 figure representing the transferor’s long-term insurance fund, exceeds
(b) the amount of the liabilities to policy holders and annuitants transferred to the transferee,
the excess is not to be regarded as other income of the transferee for the purposes of section 83(2)(d) of the Finance Act 1989.
(3) In this section and section 444AD “the element of the transferee’s line 15 figure representing the transferor’s long-term insurance fund” means so much of—
(a) the amount which is brought into account by the transferee as other income in the period of account of the transferee in which the transfer takes place, as represents
(b) the assets transferred to the transferee.
(1) This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).
(2) If the transferor and the transferee jointly elect, section 83(2B) of the Finance Act 1989 does not apply to the transferor by reason of the transfer as respects so much of the value of the assets to which it would otherwise so apply as does not exceed the amount specified in subsection (4) below.
(3) An election under subsection (2) above—
(a) is irrevocable, and
(b) is to be made by notice to an officer of the Board no later than the end of the period of 28 days beginning with the day following that on which the transfer takes place;
and a copy of the notice containing the election must accompany the tax return of the transferee for the first accounting period ending after the transfer.
Paragraphs 54 to 60 of Schedule 18 to the Finance Act 1998 (claims and elections for corporation tax purposes) do not apply to such an election.
(4) The amount referred to in subsection (2) above is the amount by which—
(a) the fair value of the assets of the long-term insurance fund of the transferee immediately after the transfer, is greater than
(b) the element of the transferee’s line 15 figure representing the transferor’s long-term insurance fund.
(5) In subsection (4) above “fair value”, in relation to assets, means the amount which would be obtained from an independent person purchasing them or, if the assets are money, its amount.
Finance Act 2003