Finance Bill

Session 2012 - 13
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Finance Bill

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 5 — I - E profit: policyholders’ rate of tax
63

103
Rules for determining policyholders’ share of I - E profit
(1)
This section determines for the purposes of section 102 the policyholders’ share
of the I - E profit of an insurance company for an accounting period.
(2)
If the basic life assurance and general annuity business of the company carried
on by the company in the accounting period is mutual business, the
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policyholders’ share of the I - E profit is the whole of that profit.
(3)
In any other case, the policyholders’ share of the I - E profit is determined as
follows.
(4)
The first step is to calculate whether the company has a BLAGAB trade profit
for the accounting period, and, if so, its amount.
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(5)
If the company does not have a BLAGAB trade profit for that period, the
policyholders’ share of the I - E profit is the whole of that profit.
(6)
If—
(a)
the company has a BLAGAB trade profit for that period, and
(b)
the adjusted amount of the BLAGAB trade profit is less than the
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amount of the I - E profit for that period,

the difference between those amounts represents the policyholders’ share of
the I - E profit.
(7)
If—
(a)
the company has a BLAGAB trade profit for that period, and
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(b)
the adjusted amount of the BLAGAB trade profit is equal to or more
than the amount of the I - E profit,

there is no policyholders’ share of the I - E profit.
(8)
References to the adjusted amount of the BLAGAB trade profit are to be read
in accordance with section 104.
25
104
Meaning of “the adjusted amount”
(1)
This section explains for the purposes of section 103 what is meant by the
adjusted amount of the BLAGAB trade profit.
(2)
The following adjustments are to be made to the amount of the BLAGAB trade
profit.
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(3)
If relief is available under section 124 (carry forward of BLAGAB trade losses
against subsequent profits), the BLAGAB trade profit is to be reduced as
mentioned in that section.
(4)
If, as a result of relief given under that section, the BLAGAB trade profit is
reduced to nil, then the adjusted amount of the BLAGAB trade profit for the
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purposes of section 103 is nil.
(5)
If—
(a)
the BLAGAB trade profit is not reduced to nil as a result of relief given
under section 124 or no relief is available under that section, and
(b)
in the accounting period BLAGAB non-taxable distributions are
40
receivable by the company,

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 5 — I - E profit: policyholders’ rate of tax
64


the BLAGAB trade profit is reduced or further reduced (but not below nil) by
subtracting from it an amount equal to the shareholders’ share of those
distributions.
(6)
The BLAGAB trade profit as so reduced or further reduced is the adjusted
BLAGAB trade profit for the purposes of section 103.
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105
Meaning of “BLAGAB non-taxable distributions” and “shareholders’ share”
(1)
This section explains for the purposes of section 104 what is meant by—
“BLAGAB non-taxable distributions”, and
“the shareholders’ share” of BLAGAB non-taxable distributions.
(2)
Non-taxable distributions are “BLAGAB” non-taxable distributions if they are
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referable, in accordance with Chapter 7, to the company’s basic life assurance
and general annuity business.
(3)
The “shareholders’ share” of the BLAGAB non-taxable distributions receivable
by the company in the accounting period is the relevant proportion of those
distributions.
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(4)
The relevant proportion is—

BTP

BNTD + I


where—
BTP is the amount of the BLAGAB trade profit of the company for the
accounting period,
BNTD is the amount of the BLAGAB non-taxable distributions receivable
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by the company in the accounting period, and
I is the total of the amounts given by the calculations required by steps 1
to 3 in section 73 (I - E basis: income referable to BLAGAB) in relation
to the company’s basic life assurance and general annuity business for
the accounting period.
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(5)
If BTP exceeds BNTD + I, the shareholders’ share of the BLAGAB non-taxable
distributions receivable by the company in the accounting period is the whole
of those distributions.
Policyholder tax and calculation of BLAGAB trade profit or loss
106
Deduction for current policyholder tax
30
(1)
This section applies for the purpose of calculating the BLAGAB trade profit or
loss for an accounting period of any basic life assurance and general annuity
business carried on by an insurance company in a case where the company has
an I - E profit for that period.
(2)
In calculating the profit or loss for the accounting period, a deduction is
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allowed for an amount equal to the amount of corporation tax charged at the
policyholders’ rate of tax on the policyholders’ share of the company’s I - E
profit for that period.

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 5 — I - E profit: policyholders’ rate of tax
65

107
Expenses or receipts for deferred policyholder tax
(1)
This section applies for the purpose of calculating the BLAGAB trade profit or
loss for a period of account of any basic life assurance and general annuity
business carried on by an insurance company.
(2)
In calculating the profit or loss, an amount is brought into account that is equal
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to—
(a)
the closing deferred policyholder tax balance for the period of account,
less
(b)
the closing deferred policyholder tax balance for the previous period of
account.
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(3)
The amount—
(a)
is brought into account as an expense, if it is a negative figure, and
(b)
is brought into account as a receipt, if it is a positive figure.
(4)
The amount is brought into account under this section only if, in accordance
with generally accepted accounting practice, it is debited or credited in
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accounts drawn up by the company for the period of account.
(5)
If the closing deferred policyholder tax balance for a period of account is a
liability, the amount of the balance is taken to be a negative figure for the
purposes of this section.
(6)
If the closing deferred policyholder tax balance for a period of account is an
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asset, the amount of the balance is taken to be a positive figure for the purposes
of this section.
(7)
Section 108 applies for determining the closing deferred policyholder tax
balance for a period of account.
108
Meaning of “the closing deferred policyholder tax balance” etc
25
(1)
For the purposes of section 107 “the closing deferred policyholder tax balance
for a period of account” means so much of the closing amount shown, in
accordance with generally accepted accounting practice, in the accounts of the
company for that period in respect of deferred tax as is wholly attributable to
policyholder tax.
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(2)
Provision forming part of the closing amount is “wholly attributable to
policyholder tax” if—
(a)
the provision is made in respect of a BLAGAB matter (see subsection
(3)), and
(b)
anything included in the closing amount in respect of that matter is
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calculated wholly by reference to the policyholders’ rate of tax
chargeable on the policyholders’ share of the company’s I - E profit for
any accounting period.
(3)
A “BLAGAB matter” means—
(a)
an amount of excess BLAGAB expenses,
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(b)
an amount of acquisition expenses falling to be relieved in the future in
accordance with section 79,
(c)
an amount of expenses otherwise falling to be taken into account in the
future under the I - E rules,

Finance Bill
Part 2 — Insurance companies carrying on long-term business
Chapter 6 — Trade calculation rules applying to long-term business
66

(d)
an amount of BLAGAB allowable loss (within the meaning of section
210A of TCGA 1992) carried forward for future use,
(e)
an amount to which section 213 of TCGA 1992 applies (spreading of
gains and losses under section 212), or
(f)
an amount in respect of the future disposal (or part disposal) of an asset
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which would fall to be taken into account in accordance with section 75.
(4)
If—
(a)
for a period of account of the company the provision made in respect of
a BLAGAB matter is taken into account for the purposes of section 107,
and
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(b)
for a subsequent period of account of the company the provision made
in respect of that matter is no longer wholly attributable to policyholder
tax because the condition in subsection (2)(b) ceases to be met,

there is to be a reversal in the subsequent period of account in respect of the
provision (so far as section 107 does not otherwise apply in relation to the case).
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(5)
The reversal in the subsequent period of account is to be made as follows—
(a)
if the provision was an amount which for accounting purposes was
regarded as an asset, a negative amount equal to that amount is to be
taken into account in calculating the closing deferred policyholder tax
balance for that period for the purposes of section 107, and
20
(b)
if the provision was an amount which for accounting purposes was
regarded as a liability, a positive amount equal to that amount is to be
taken into account in calculating the closing deferred policyholder tax
balance for that period for the purposes of section 107.
(6)
The Treasury may by order amend the definition of a “BLAGAB matter”.
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(7)
An order under subsection (6) may contain incidental, supplementary,
consequential, transitional, transitory or saving provision.
Chapter 6
Trade calculation rules applying to long-term business
109
Application of Chapter
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(1)
The rules contained in this Chapter have effect for the purpose of—
(a)
calculating the BLAGAB trade profit or loss of any basic life assurance
and general annuity business carried on by an insurance company, and
(b)
calculating for corporation tax purposes the profits of any non-
BLAGAB long-term business carried on by an insurance company,
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but, in the case of section 112, see also subsection (6) of that section.
(2)
In this Chapter references to the calculation of the profits are, in the case of the
calculation of the BLAGAB trade profit or loss, to be read as references to the
calculation of that profit or loss.
(3)
See also section 47 of CTA 2009 (losses calculated on same basis as profits).
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(4)
In the case of the calculation of the BLAGAB trade profit or loss, see also
sections 106 to 108.