Finance Bill

Session 2012 - 13
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Finance Bill

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 3 — The I - E basis
48

81
Amounts treated as ordinary BLAGAB management expenses
(1)
This section applies in relation to amounts which meet the conditions in section
77(2)(a) and (b).
(2)
The relevant permissive rules apply for the purpose of treating the amounts as
ordinary BLAGAB management expenses for the purposes of section 76 as
5
they apply for the purpose of treating amounts as expenses of management for
the purposes of Chapter 2 of Part 16 of CTA 2009 (companies with investment
business).
(3)
The following provisions of CTA 2009 are “relevant permissive rules”—
(a)
section 1000 (costs of setting up employee share ownership trust),
10
(b)
section 1234 (payments for restrictive undertakings),
(c)
section 1235 (employees seconded to charities and educational
establishments),
(d)
section 1237 (counselling and other outplacement expenses),
(e)
section 1238(1) to (3) (retraining courses),
15
(f)
sections 1239 to 1242 (redundancy payments and approved contractual
payments),
(g)
section 1243 (payments made by the Government), and
(h)
section 1244 (contributions to local enterprise organisations or urban
regeneration companies).
20
(4)
If—
(a)
an employer’s liability to corporation tax for an accounting period is
determined on the assumption that a deduction for expenditure is
allowed as a result of the application by this section of section 1238(1)
to (3) of CTA 2009, and
25
(b)
the deduction would not otherwise have been allowed,

section 75(2) to (4) of CTA 2009 (retraining courses: recovery of tax) apply.
(5)
If—
(a)
an amount is treated as an ordinary BLAGAB management expense as
a result of the application by this section of section 1242 of CTA 2009,
30
and
(b)
the amount would otherwise be regarded as an acquisition expense for
the purposes of section 79,

the expense is not to be so regarded.
(6)
Section 1253 of CTA 2009 (contributions to local enterprise organisations or
35
urban regeneration companies: disqualifying benefits) applies in the case of
amounts treated, as a result of the application by this section of section 1244 of
that Act, as ordinary BLAGAB management expenses as it applies in the case
of amounts for which a deduction has been made under section 1219 of that Act
as a result of section 1244 of that Act.
40
(7)
For the purposes of this section—
(a)
references in any relevant permissive rule to a company carrying on
business that consists wholly or partly of making investments or to a
company with investment business are to be read as references to a
company carrying on basic life assurance and general annuity business,
45
(b)
references in any relevant permissive rule to an amount being
deductible under section 1219 of CTA 2009 are to be read as references

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Part 2 — Insurance companies carrying on long-term business
Chapter 3 — The I - E basis
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to an amount being deductible as an ordinary BLAGAB management
expense,
(c)
section 1239 of CTA 2009 is to be treated as having effect with the
omission of subsection (1)(c),
(d)
the reference in section 1240(4) of CTA 2009 to sections 1224 to 1227 of
5
that Act is to be read as a reference to section 77(8) and (9) of this Act,
and
(e)
section 1243 of CTA 2009 is to be treated as having effect with the
omission of subsection (1)(c).
(8)
An amount is treated as an ordinary BLAGAB management expense as a result
10
of this section only so far as it would not otherwise be regarded as an ordinary
BLAGAB management expense.
82
Restrictions in relation to ordinary BLAGAB management expenses
(1)
This section applies in relation to an amount which is (or, but for this section,
would be) regarded for the purposes of section 76 as an ordinary BLAGAB
15
management expense of an insurance company.
(2)
Section 1249(1) and (2) of CTA 2009 (unpaid remuneration) apply for the
purpose of determining the period of account for which the amount is debited
in the accounts of the company for the purposes of section 77; but this
subsection is subject to the operation of section 79.
20
(3)
Section 1249(1) and (3) of CTA 2009 apply for the purpose of determining
whether the amount is to be regarded as an ordinary BLAGAB management
expense of the company.
(4)
Section 1251(1) and (2) of CTA 2009 (car hire) apply for the purpose of
determining the amount of the ordinary BLAGAB management expense of the
25
company.
(5)
For the purposes of subsections (2) to (4)—
(a)
references in section 1249 or 1251 of CTA 2009 to a company with
investment business are to be read as references to a company carrying
on basic life assurance and general annuity business (and, accordingly,
30
the reference in section 1251(1) to total profits is to be read as a reference
to profits of basic life assurance and general annuity business), and
(b)
references in section 1249 or 1251 of CTA 2009 to an amount being
deductible under section 1219 of CTA 2009 are to be read as references
to an amount being deductible as an ordinary BLAGAB management
35
expense.
(6)
If—
(a)
an amount is reduced as a result of subsection (4) or a corresponding
rule,
(b)
subsequently there is a rebate (however described) of the hire charges,
40
and
(c)
an amount representing the rebate is deductible as a reversed expense
or taken into account in calculating the amount of an I - E receipt under
section 92,

the amount that would otherwise be so deductible or taken into account is
45
reduced by 15%.
(7)
If—

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 3 — The I - E basis
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(a)
an amount is reduced as a result of subsection (4) or a corresponding
rule,
(b)
subsequently a debt in respect of any of the hire charges is released
otherwise than as part of a statutory insolvency arrangement, and
(c)
an amount representing the release is deductible as a reversed expense,
5

the amount that would otherwise be so deductible is reduced by 15%.
(8)
For the purposes of subsections (6) and (7)—
“corresponding rule” means section 56(2) or 1251(2) of CTA 2009 or
section 48(2) of ITTOIA 2005,
“deductible as a reversed expense” means deductible at step 4 in section
10
76 as an expense reversed in an accounting period, and
“statutory insolvency arrangement” has the meaning given by section
1319(1) of CTA 2009.
83
General annuity business
(1)
This section applies if an insurance company pays qualifying BLAGAB
15
annuities in an accounting period.
(2)
An amount equal to the difference between—
(a)
the total amount of those annuities paid by the company in the
accounting period, and
(b)
the total of the amounts exempt under section 717 of ITTOIA 2005
20
(exemption for part of purchased life annuity payments) contained in
those annuities so paid,

is treated for the purposes of section 76 as a deemed BLAGAB management
expense for the accounting period.
(3)
An annuity is a “qualifying BLAGAB annuity” if—
25
(a)
it is referable to the company’s basic life assurance and general annuity
business, and
(b)
it is paid under a contract made by the company in an accounting
period beginning on or after 1 January 1992 (but see section 85).
(4)
For the purposes of this section the amounts exempt under section 717 of
30
ITTOIA 2005 are so much of the payments under the qualifying BLAGAB
annuities as would be within the exemption under that section if—
(a)
section 718 of ITTOIA 2005 were omitted, and
(b)
the exemption under section 717 of ITTOIA 2005 applied in relation to
companies as well as individuals.
35
(5)
If a qualifying BLAGAB annuity (“the actual annuity”) is a steep-reduction
annuity, the calculations required by subsection (2)(a) and (b) are to be made
as if—
(a)
the contract for the actual annuity provided instead for the annuities
identified below (“the deemed annuities”), and
40
(b)
the consideration for each of the deemed annuities were equal to an
apportionment of the consideration for the actual annuity on a just and
reasonable basis.
(6)
The deemed annuities are—
(a)
an annuity the payments in respect of which are confined to payments
45
in respect of the actual annuity that fall to be made at the earliest time

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Chapter 3 — The I - E basis
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for the making in respect of that annuity of a reduced payment within
section 84(1)(c), and
(b)
an annuity the payments in respect of which are all the payments in
respect of the actual annuity other than those mentioned in paragraph
(a).
5
(7)
If a deemed annuity within subsection (6)(b) (“the later annuity”) would itself
be a steep-reduction annuity, the deemed annuities—
(a)
do not include the later annuity, but
(b)
include instead the annuities which would be identified by subsection
(6) (with as many further applications of this subsection as may be
10
necessary for securing that none of the deemed annuities is a steep-
reduction annuity) if references in that subsection to the actual annuity
were to the later annuity.
(8)
This section needs to be read with section 84 (meaning of “steep-reduction
annuity” etc).
15
84
General annuity business: meaning of “steep-reduction annuity” etc
(1)
For the purposes of section 83 an annuity is a “steep-reduction annuity” if—
(a)
the amount of any payment in respect of it (but not its term) depends
on a contingency other than the duration of a human life or lives,
(b)
the annuitant is entitled to payments of different amounts at different
20
times, and
(c)
the payments include a payment (“a reduced payment”) of an amount
which is substantially smaller than the amount of at least one of the
earlier payments.
(2)
If there are different intervals between the payments, it is to be assumed for the
25
purposes of subsection (1)(b) and (c)—
(a)
that the annuitant’s entitlement, after the first payment, to payments is
an entitlement to payments at yearly intervals on the anniversary of the
first payment, and
(b)
that the amount to which the annuitant is assumed to be entitled is
30
equal to the annuitant’s assumed entitlement for the year ending with
the anniversary in question.
(3)
For this purpose the annuitant’s assumed entitlement for a year is determined
as follows—
(a)
the annuitant’s entitlement to each payment is taken to accrue at a
35
constant rate during the interval between the previous payment and
that payment, and
(b)
the annuitant’s assumed entitlement for a year is taken to be equal to
the total amount which, in accordance with paragraph (a), is treated as
accruing in the year.
40
(4)
In the case of an annuity to which subsection (2) applies, the reference in
section 83(6)(a) to the making of a reduced payment is to be read as a reference
to the making of a payment which (applying subsection (3)(a)) is taken to
accrue at a rate that is substantially less than the rate at which at least one of
the earlier payments is taken to accrue.
45
(5)
If—

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Part 2 — Insurance companies carrying on long-term business
Chapter 3 — The I - E basis
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(a)
a question arises whether a payment is substantially smaller than, or
accrues at a rate substantially less than, an earlier payment, and
(b)
the annuitant or (as the case may be) every annuitant is an individual
who is beneficially entitled to all the rights conferred on him or her as
such an annuitant,
5

the question is determined without regard to so much of the difference
between the amounts or rates as is referable to a reduction falling to be made
as a result of a death.
(6)
If the amount of any one or more of the payments depends on a contingency,
the annuitant’s entitlement to the payments is determined for the purposes of
10
section 83 and this section according to whatever is the most likely outcome in
relation to the contingency (applying any relevant actuarial principles).
(7)
If an agreement or other arrangement has effect for varying the rights of the
annuitant in relation to a payment, the payment is taken for the purposes of
section 83 and this section to be a payment of the amount to which the
15
annuitant is entitled in accordance with the agreement or other arrangement.
(8)
For the purposes of this section references to a contingency include a
contingency consisting wholly or partly in the exercise of an option.
85
General annuity business: payments made in pre-1992 accounting periods
(1)
If—
20
(a)
a payment in respect of an annuity is made by an insurance company
under a group annuity contract made in a pre-1992 accounting period,
and
(b)
the company’s liabilities first include an amount in respect of that
annuity in a post-1992 accounting period,
25

the payment is treated for the purposes of section 83(3)(b) as if the contract had
been made in a post-1992 accounting period.
(2)
If—
(a)
a payment in respect of an annuity is made by a re-insurer under a re-
insurance treaty made in a pre-1992 accounting period, and
30
(b)
the re-insurer’s liabilities first include an amount in respect of that
annuity in a post-1992 accounting period,

the payment is, as respects the re-insurer, treated for the purposes of section
83(3)(b) as if the treaty had been made in a post-1992 accounting period.
(3)
In this section—
35
“a pre-1992 accounting period” means an accounting period beginning
before 1 January 1992,
“a post-1992 accounting period” means an accounting period beginning
on or after 1 January 1992,
“group annuity contract” means a contract under which the insurance
40
company undertakes to become liable to pay annuities to or in respect
of persons who may subsequently be specified or otherwise ascertained
under or in accordance with the contract (whether or not annuities
under the contract are also payable to or in respect of persons who are
specified or ascertained at the time the contract is made), and
45
“re-insurance treaty” means a contract under which one insurance
company is obliged to cede, and another (referred to in this section as a

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Part 2 — Insurance companies carrying on long-term business
Chapter 3 — The I - E basis
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“re-insurer”) to accept, the whole or part of a risk of a class or
description to which the contract relates.
Special rules applying to I - E basis
86
Separate property businesses for BLAGAB etc
(1)
This section modifies the rules in sections 208 and 209 of CTA 2009 (basic
5
meaning of UK and overseas property business) for the purpose of applying
the I - E rules in relation to an insurance company.
(2)
The company is treated as carrying on separate UK property businesses or
overseas property businesses in accordance with the following provisions.
(3)
The exploitation of land held otherwise than for the purposes of the company’s
10
long-term business is treated as a separate business from the exploitation of
land held for those purposes.
(4)
In the case of the exploitation of land held for the purposes of the company’s
long-term business, each of the following is treated as a separate business—
(a)
the exploitation of land which is matched to BLAGAB liabilities of the
15
company,
(b)
the exploitation of land which is matched to other long-term business
liabilities of the company, and
(c)
the exploitation of land so far as it is not matched to long-term business
liabilities of the company.
20
(5)
In the case of land part of which is matched to a BLAGAB liability or other
long-term business liability, only the part of the land in question is to count for
the purposes of this section as matched to the liability in question.
(6)
In this section “land” means any estate, interest or right in or over land.
87
Losses from property businesses where land held for long-term business
25
(1)
This section applies for the purpose of applying the I - E rules in relation to an
insurance company if, in an accounting period, the company makes a loss in
any of its separate UK property businesses or overseas property businesses
within section 86(4).
(2)
The provisions of Chapter 4 of Part 4 of CTA 2010 (loss relief: property
30
businesses) do not apply to the loss.
(3)
So far as the loss is referable, in accordance with Chapter 4, to the company’s
basic life assurance and general annuity business, it is treated for the purposes
of section 76 as a deemed BLAGAB management expense for the accounting
period.
35
(4)
If the company has two or more separate property businesses within section
86(4), then for the purposes of subsection (3) the loss in question is taken to be
the total net loss after—
(a)
setting the losses from the businesses which are referable, in
accordance with Chapter 4, to the company’s basic life assurance and
40
general annuity business, against
(b)
the profits from the businesses which are so referable.