Finance Bill

Session 2012 - 13
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Finance Bill

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 1 — Introductory
37

(2)
Life assurance business is “protection business” if it consists of the effecting or
carrying out of any contract of long-term insurance in relation to which the
following conditions are met—
(a)
the benefits payable cannot exceed the amount of premiums paid
except on death or in respect of incapacity due to injury, sickness or
5
other infirmity, and
(b)
the contract is made on or after 1 January 2013.
(3)
For the purposes of subsection (2)(a) ignore—
(a)
any benefit (other than a payment of money) that, when the contract is
entered into, is provided as an inducement for entering into the
10
contract and that is not repayable (to any extent) in any circumstances,
(b)
any case where the amount by which the benefits can exceed the
amount of premiums paid is an insignificant proportion of those
premiums, and
(c)
any case which a reasonable person, as the policyholder under the
15
policy effected by the contract, can reasonably regard as highly unlikely
to arise.
(4)
If at any time—
(a)
a contract is varied otherwise than as a result of the operation of, or the
exercise of rights conferred by, provisions forming part of the contract
20
or a connected arrangement, and
(b)
as a result of the variation the contract becomes, or ceases to be, one in
respect of which the condition in subsection (2)(a) is met,

the contract is to be treated for the purposes of this section as ending at that
time and a new contract (on the varied terms) is to be treated for those
25
purposes as being made immediately after that time.
(5)
For this purpose a “connected arrangement”, in relation to a contract, means
any agreement or other arrangement entered into in connection with the
making of the contract.
(6)
If—
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(a)
a contract (“the new contract”) is made on or after 1 January 2013 as a
result of the operation of, or the exercise of rights conferred by,
provisions of a contract (“the old contract”) made before that date, and
(b)
the provisions of the new contract were (or could have been)
determined by reference to provisions of the old contract when the old
35
contract was made,

the new contract is to be regarded for the purposes of this section as if it were
made before 1 January 2013.
Meaning of “long-term business” and “PHI business”
63
Meaning of “long-term business” and “PHI business”
40
(1)
For the purposes of this Part “long-term business” means—
(a)
life assurance business, or
(b)
other business which consists of the effecting or carrying out of
contracts of long-term insurance.
(2)
For the purposes of this Part “PHI business” means the other business
45
mentioned in subsection (1)(b).

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 2 — Charge to tax on I - E basis etc
38

Meaning of contract of “insurance” or “long-term insurance” and “insurance company”
64
Meaning of “contract of insurance” and “contract of long-term insurance”
For the purposes of this Part—
“contract of insurance” has the meaning given by article 3(1) of the FISMA
(Regulated Activities) Order 2001, and
5
“contract of long-term insurance” means a contract which falls within Part
2 of Schedule 1 to that Order.
65
Meaning of “insurance company”
(1)
This section defines for the purposes of this Part what is meant by an
“insurance company”.
10
(2)
A person who carries on the activity of effecting or carrying out contracts of
insurance is an “insurance company” if—
(a)
the person has permission under Part 4 of FISMA 2000 to carry on that
activity,
(b)
the person is of the kind mentioned in paragraph 5(d) or (da) of
15
Schedule 3 to FISMA 2000 (EEA passport rights) and carries on that
activity in the United Kingdom through a permanent establishment
there, or
(c)
the person qualifies for authorisation under Schedule 4 to FISMA 2000
(Treaty rights) and carries on that activity in the United Kingdom
20
through a permanent establishment there.
(3)
The above definition is subject to the following qualifications—
(a)
a friendly society within the meaning of Part 3 is not an insurance
company, and
(b)
an insurance special purpose vehicle (see section 139) is an insurance
25
company only if, in addition to falling within subsection (2)(a), (b) or
(c), it is a BLAGAB group re-insurer.
(4)
A person is a “BLAGAB group re-insurer” if for an accounting period—
(a)
the person carries on basic life assurance and general annuity business,
(b)
it is not the case that substantially all of the person’s long-term business
30
is long-term business other than basic life assurance and general
annuity business, and
(c)
all of its life assurance business is re-insurance business of a description
which is excluded business for the purposes of section 57(2)(e).
Chapter 2
35
Charge to tax on I - E basis etc
Separate businesses etc
66
Separate businesses for BLAGAB and other long-term business
(1)
If an insurance company carries on—
(a)
basic life assurance and general annuity business, and
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(b)
other long-term business,

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 2 — Charge to tax on I - E basis etc
39


the general rule is that business within paragraphs (a) and (b) is to be treated
for corporation tax purposes as two separate businesses carried on by the
company.
(2)
One of the separate businesses is to consist of the basic life assurance and
general annuity business.
5
(3)
The other separate business is to be regarded for corporation tax purposes as a
single trade consisting of the other long-term business.
(4)
If an insurance company carries on—
(a)
life assurance business none of which is basic life assurance and general
annuity business, and
10
(b)
PHI business,

the company is to be treated for corporation tax purposes as carrying on a
single trade consisting of the businesses within paragraphs (a) and (b).
(5)
For the purposes of this Part “non-BLAGAB long-term business” means—
(a)
a single trade within subsection (3) or (4), or
15
(b)
in a case where an insurance company carries on life assurance business
none of which is basic life assurance and general annuity business but
does not carry on other long-term business, that life assurance business.
(6)
If an insurance company carries on short-term insurance business, that
business is to be regarded for corporation tax purposes as a separate trade.
20
(7)
For this purpose “short-term insurance business” means any insurance
business which is not long-term business.
67
Exception where BLAGAB small part of long-term business
(1)
There is an exception to the general rule set out in section 66(1) if for an
accounting period of an insurance company substantially all of its long-term
25
business is not basic life assurance and general annuity business.
(2)
In that case, there is for the accounting period to be no separate business
consisting of the company’s basic life assurance and general annuity business.
(3)
There is instead to be one business that is to be regarded for corporation tax
purposes as a single trade of the company consisting of its long-term business.
30
(4)
That single trade is to be regarded as “non-BLAGAB long-term business” for
the purposes of this Part.
(5)
Accordingly, references in this Part (apart from in section 66 and this section)
to a company’s basic life assurance and general annuity business do not
include any business which, as a result of this section, is regarded as non-
35
BLAGAB long-term business.
BLAGAB taxed on I - E basis
68
Charge to tax on I - E profit
(1)
The charge to corporation tax applies to the I - E profit of the basic life
assurance and general annuity business carried on by an insurance company.
40
(2)
For the meaning of “I - E profit”, see section 73.

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 2 — Charge to tax on I - E basis etc
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69
Exclusion of charge under s.35 of CTA 2009 etc
The charge to corporation tax under section 68 has effect instead of—
(a)
the charge to corporation tax on income under section 35 of CTA 2009
(charge to tax on trade profits),
(b)
any other charge to corporation tax on income under any other
5
provision of the Corporation Tax Acts that would otherwise have
applied, and
(c)
the charge to corporation tax on chargeable gains so far as referable, in
accordance with Chapter 4, to the company’s basic life assurance and
general annuity business.
10
70
Rules for calculating I - E profit or excess BLAGAB expenses
(1)
The rules set out in Chapter 3 determine whether for an accounting period an
insurance company carrying on basic life assurance and general annuity
business has an I - E profit or excess BLAGAB expenses (and, if so, the amount
of the profit or expenses).
15
(2)
Those rules are referred to in this Part as “the I - E rules”.
(3)
The calculation of the I - E profit or excess BLAGAB expenses is to operate by
reference to the amounts that are credited or debited in the accounts of the
company for a period of account drawn up in accordance with generally
accepted accounting practice.
20
(4)
But, in the case of amounts of a particular description, that is subject to any
provision which (whether expressly or by implication) provides for that
calculation to operate by reference to something else.
(5)
For the meaning of “excess BLAGAB expenses”, see section 73.
Non-BLAGAB long-term business
25
71
Charge to tax on profits of non-BLAGAB long-term business
(1)
The charge to corporation tax on income under section 35 of CTA 2009 (charge
to tax on trade profits) applies to the profits of non-BLAGAB long-term
business carried on by an insurance company.
(2)
The rules for calculating those profits are subject to the provision made by—
30
(a)
Chapter 6 (trade calculation rules applying to long-term business),
(b)
Chapter 7 (trading apportionment rules), and
(c)
section 131 (transfers of business).
(3)
Subsection (1) does not apply if the business is mutual business, and in that
case no other provision of the Corporation Tax Acts has effect to charge the
35
income of the business to corporation tax.
PHI only business
72
Companies carrying on only PHI business
Nothing in—
(a)
this Part, or
40

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 3 — The I - E basis
41

(b)
any other provision of the Corporation Tax Acts that makes special
provision in relation to, or by reference to, long-term business carried
on by insurance companies,
is to apply in relation to a company which carries on long-term business which
consists wholly of PHI business.
5
Chapter 3
The I - E basis
Introduction
73
The I - E basis
This section sets out rules, in relation to the basic life assurance and general
10
annuity business carried on by an insurance company, for determining
whether the company has an I - E profit or excess BLAGAB expenses for an
accounting period (and, if so, the amount of the profit or expenses).

Step 1
15
Calculate the income chargeable for the accounting period that is referable, in
accordance with Chapter 4, to the company’s basic life assurance and general
annuity business.
The meaning here of “income” is given by section 74.

20
Step 2
Calculate the BLAGAB chargeable gains of the company for the accounting
period as adjusted for allowable losses (see section 75).

Step 3
25
Calculate so much of the amount (or the total amount) of any I - E receipt under
section 92 or 93(5)(a) as is not taken into account in the calculation required by
step 1 or 2.

Step 4
30
Add together the amounts given by the calculations required by steps 1 to 3.
Reduce the total of those amounts (but not below nil) by the amount of any
non-trading deficit which the company has for the accounting period under
section 388 of CTA 2009 (loan relationships and derivative contracts).
The result is “I”.
35

Step 5
Calculate the adjusted BLAGAB management expenses of the company for the
accounting period (see section 76).
The result is “E”.
40

Step 6
Subtract E from I (which, if E is a negative figure, would have the effect of
increasing the result of the calculation).

45

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 3 — The I - E basis
42

If the result is a positive amount, that is (subject to section 95) the amount for
the accounting period chargeable to corporation tax under section 68.
That amount is referred to in this Part as an “I - E profit”.

If the result is a negative amount, that amount is to be carried forward by the
5
company as an expense to its next accounting period to be used in accordance
with step 5 of section 76.
That amount is referred to in this Part as “excess BLAGAB expenses”.
Definitions of expressions comprising “I”
74
Meaning of “income”
10
(1)
In section 73 “income”, in relation to an insurance company, means the
following income or credits so far as arising from the company’s long-term
business—
(a)
income of the company chargeable under Chapter 3 of Part 4 of CTA
2009 in respect of any separate UK property business or overseas
15
property business within section 86(4),
(b)
credits in respect of any loan relationships of the company,
(c)
credits in respect of any derivative contracts of the company,
(d)
credits brought into account by the company under Part 8 of CTA 2009
(intangible fixed assets),
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(e)
income of the company chargeable under Part 9A of CTA 2009
(company distributions),
(f)
income of the company chargeable under Chapter 5 of Part 10 of CTA
2009 (distributions from unauthorised unit trusts),
(g)
income of the company chargeable under Chapter 6 of Part 10 of CTA
25
2009 (sale of foreign dividend coupons),
(h)
income of the company chargeable under Chapter 7 of Part 10 of CTA
2009 (annual payments not otherwise charged),
(i)
income of the company arising from a source outside the United
Kingdom which is chargeable under Chapter 8 of Part 10 of CTA 2009
30
(income not otherwise charged), and
(j)
income of the company chargeable under any provision to which
section 1173 of CTA 2010 (miscellaneous charges) applies other than
section 752 of CTA 2009 (non-trading gains on intangible fixed assets).
(2)
The reference in subsection (1)(a) to income chargeable under Chapter 3 of Part
35
4 of CTA 2009 includes income chargeable under that Chapter in respect of
distributions treated by section 548(5) of CTA 2010 as profits of a UK property
business carried on by the company.
(3)
References in subsection (1)(b) to (d) to credits need to be read with section
88(3) and (4).
40
(4)
The reference in subsection (1)(j) to income chargeable as mentioned there
needs to be read with section 89(1).
(5)
For the purposes of this section references to income or credits that are
chargeable or brought into account under any provision are to income or
credits that, but for sections 68 and 69, would be chargeable or brought into
45
account under that provision.

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 3 — The I - E basis
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(6)
For the purposes of this section no account is to be taken of income which arises
from an asset forming part of the long-term business fixed capital of the
company (see section 137).
75
Meaning of “BLAGAB chargeable gains” etc
(1)
This section explains for the purposes of section 73 how to calculate the
5
BLAGAB chargeable gains of the company for the accounting period as
adjusted for allowable losses.


Step 1

First, calculate the chargeable gains—
10
(a)
that accrue to the company in the accounting period from the disposal
of assets held for the purposes of the company’s long-term business,
and
(b)
that are referable, in accordance with Chapter 4, to its basic life
assurance and general annuity business.
15


Step 2

Then, deduct from the amount of those gains—
(a)
any allowable losses that accrue to the company in the accounting
period from the disposal of assets held for the purposes of the
20
company’s long-term business and that are so referable, and
(b)
so far as not previously deducted from any chargeable gains, any
allowable losses that accrued to the company in a previous accounting
period from the disposal of assets held for the purposes of the
company’s long-term business and that were so referable.
25


The resulting amount is the amount of the BLAGAB chargeable gains of the
company for the accounting period as adjusted for allowable losses.
(2)
The deduction at step 2 may reduce an amount to nil but no further.
(3)
For the purposes of this section no account is to be taken of a chargeable gain
30
or allowable loss accruing to the company on a disposal for the purposes of
TCGA 1992 of an asset that forms part of the long-term business fixed capital
of the company.
(4)
References in this section to chargeable gains or allowable losses are references
to those gains or losses as calculated in accordance with the rules contained in
35
TCGA 1992.
Definitions of expressions comprising “E”
76
Meaning of “adjusted BLAGAB management expenses”
This section explains for the purposes of section 73 how to calculate the
adjusted BLAGAB management expenses of the company for the accounting
40
period.

Step 1
Calculate the ordinary BLAGAB management expenses of the company
referable to the accounting period (see sections 77, 81 and 82).
45