Finance Bill (HC Bill 49)

CHAPTER 7 Trading apportionment rules

114 Application of Chapter

(1) This Chapter applies in the case of an insurance company which, as a result of
section 66, has—

(a) 5a business consisting of basic life assurance and general annuity
business, and

(b) a non-BLAGAB long-term business.

(2) The rules contained in this Chapter determine—

(a) how to allocate between those two businesses the profits or loss of the
10long-term business calculated in accordance with generally accepted
accounting practice, and

(b) how to allocate the tax adjustments in making the calculations
mentioned in subsection (5)(a) and (b).

(3) The amount of the profits or loss mentioned in subsection (2)(a) is referred to
15in this Chapter as the “accounting profit or loss”.

(4) For the purposes of this Chapter “the tax adjustments” means the adjustments
required or authorised by law in calculating for corporation tax purposes the
profits of the long-term business (applying the same rules as apply to the
calculation for those purposes of the profits of non-BLAGAB long-term
20business).

(5) The rules contained in this Chapter have effect for the purpose of—

(a) calculating the BLAGAB trade profit or loss of the company, and

(b) calculating for corporation tax purposes the profits of the non-
BLAGAB long-term business carried on by the company.

115 25Commercial allocation of accounting profit or loss and tax adjustments

(1) The accounting profit or loss, and the tax adjustments, are to be allocated
between the two separate businesses in accordance with an acceptable
commercial method adopted by the company.

(2) A method is an “acceptable commercial method” if it secures that the
30accounting profit or loss, and the tax adjustments, are allocated to the two
separate businesses in a way that fairly represents the contribution made by
those businesses to the accounting profit or loss as adjusted to take into account
the tax adjustments.

(3) The Treasury may make regulations for the purposes of this section—

(a) 35prescribing cases in which a method is, or is not, to be regarded as an
acceptable commercial method, and

(b) prescribing cases in which the only acceptable commercial method is to
be a method prescribed, or of a description prescribed, in the
regulations.

(4) 40Subject to any provision made by regulations under subsection (3), the method
adopted for the purposes of this section for a period of account—

(a) must be consistent with the method adopted for the purposes of section
98 for that period, and

(b) in the case of an overseas life insurance company, must also be
consistent with the method for that period for attributing assets in
accordance with the provision made by or under Chapter 4 of Part 2 of
CTA 2009 to its permanent establishment in the United Kingdom.

CHAPTER 8 5Assets held for purposes of long-term business

Transfers of assets from different categories

116 UK life insurance companies

(1) If, at any time in a period of account of a UK life insurance company, an asset
(or a part of an asset) held by the company—

(a) 10ceases to be within one of the long-term business categories, and

(b) comes within another of those categories,

the company is treated for the purposes of corporation tax on chargeable gains
as if it had disposed of and immediately re-acquired the asset (or part) at that
time for a consideration equal to the fair value of the asset (or part) at that time.

(2) 15The long-term business categories in question are—

(a) assets which are matched to BLAGAB liabilities of the company,

(b) assets which are matched to other long-term business liabilities of the
company,

(c) assets which are held by the company for the purposes of any with-
20profits fund but which are not matched to its long-term business
liabilities, and

(d) assets which are held for the purposes of the company’s long-term
business but which are not matched to its long-term business liabilities
or held by it for the purposes of any with-profits funds.

(3) 25If the company has more than one with-profits fund within subsection (2)(c),
the assets which are held by it for the purposes of a particular fund but which
are not matched to its long-term business liabilities are treated as assets within
a separate long-term business category.

(4) Subsection (1) does not apply if all the income of the company’s long-term
30business is chargeable to corporation tax on income under section 35 of CTA
2009.

(5) If, at any time in a period of account of a UK life insurance company, an asset
(or a part of an asset) held by the company—

(a) ceases to be within a category set out in subsection (6), and

(b) 35comes within the other category set out there,

the company is treated for the purposes of corporation tax as if it had disposed
of and immediately re-acquired the asset (or part) for a consideration equal to
the fair value of the asset (or part) at that time.

(6) The categories in question are—

(a) 40assets which are held for the purposes of the company’s long-term
business, and

(b) other assets.

117 Overseas life insurance companies: rule corresponding to s.116

(1) If, at any time in a period of account of an overseas life insurance company, an
asset (or a part of an asset) held by the company—

(a) ceases to be within one of the UK long-term business categories, and

(b) 5comes within another of those categories,

the company is treated for the purposes of corporation tax on chargeable gains
as if it had disposed of and immediately re-acquired the asset (or part) at that
time for a consideration equal to the fair value of the asset (or part) at that time.

(2) The UK long-term business categories in question are—

(a) 10UK assets which are matched to BLAGAB liabilities of the company,

(b) UK assets which are matched to other long-term business liabilities of
the company,

(c) UK assets which are held by the company for the purposes of any with-
profits fund but which are not matched to its long-term business
15liabilities, and

(d) UK assets which are held for the purposes of the company’s long-term
business but which are not matched to its long-term business liabilities
or held by it for the purposes of any with-profits funds.

(3) If the company has more than one with-profits fund within subsection (2)(c),
20the UK assets which are held by it for the purposes of a particular fund but
which are not matched to its long-term business liabilities are treated as assets
within a separate UK long-term business category.

(4) Subsection (1) does not apply if all the income of the company’s long-term
business is chargeable to corporation tax on income under section 35 of CTA
252009.

(5) If, at any time in a period of account of an overseas life insurance company, an
asset (or a part of an asset) held by the company—

(a) ceases to be within a category set out in subsection (6), and

(b) comes within another category set out there,

30the company is treated for the purposes of corporation tax as if it had disposed
of and immediately re-acquired the asset (or part) for a consideration equal to
the fair value of the asset (or part) at that time.

(6) The categories in question are—

(a) UK assets which are held for the purposes of the company’s long-term
35business,

(b) other UK assets, and

(c) assets which are held by the company but which are not UK assets.

(7) For the purposes of this section and section 118, assets (whether situated in the
United Kingdom or elsewhere) are “UK assets” of an overseas life insurance
40company if, in accordance with the provision made by or under Chapter 4 of
Part 2 of CTA 2009, they fall to be attributed to the permanent establishment in
the United Kingdom through which the company carries on life assurance
business.

118 Transfers of business and transfers within a group

(1) 45If—

(a) as a result of an insurance business transfer scheme transferring long-
term business, a UK life insurance company or an overseas life
insurance company acquires an asset, and

(b) the asset (or part of it) is within one of the applicable categories at the
5time immediately before the acquisition but is not within that category
immediately after that time,

the transferor is treated for the purposes of corporation tax on chargeable gains
as if it had disposed of and immediately re-acquired the asset (or part) at the
time immediately before the acquisition.

(2) 10The consideration for this deemed disposal and re-acquisition is equal to the
fair value of the asset (or part) at that time.

(3) If the transferor or the transferee is an overseas life insurance company, an
asset (or part of an asset) is taken as being in the same category immediately
before and after the acquisition if the asset (or part)—

(a) 15was within one category immediately before the acquisition, and

(b) was within a corresponding category immediately after the acquisition.

(4) Subsections (1) to (3) do not apply if all the income of the long-term business of
either the transferor or the transferee is chargeable to corporation tax on
income under section 35 of CTA 2009.

(5) 20For the purposes of subsections (1) to (3) “the applicable categories” means—

(a) in the case of a UK life insurance company, the long-term business
categories or a category of assets which are not held for the purposes of
its long-term business, and

(b) in the case of an overseas life insurance company, the UK long-term
25business categories, a category of UK assets which are not held for the
purposes of its long-term business or a category of assets which are
held by it but which are not UK assets.

(6) If—

(a) a UK life insurance company or an overseas life insurance company
30disposes of or acquires an asset (or part of an asset),

(b) immediately before or after doing so, the asset (or part) is within the
applicable category, and

(c) section 171 or 173 of TCGA 1992 (transfers within a group) would, but
for this subsection, apply to the disposal or acquisition,

35that section does not apply to the disposal or acquisition.

(7) For the purposes of subsection (6) “the applicable category” means—

(a) in the case of a UK life insurance company, the category of assets which
are held for the purposes of its long-term business, and

(b) in the case of an overseas life insurance company, the category of UK
40assets which are held for the purposes of its long-term business.

Share pooling rules

119 UK life insurance companies

(1) If the assets of a UK life insurance company include securities of a class all of
which would, but for this section, be regarded as one holding for the purposes

of corporation tax on chargeable gains, the following pooling rules apply
instead for those purposes—

(a) so many of the securities so far as matched to BLAGAB liabilities of the
company are treated as a separate holding,

(b) so many of the securities so far as matched to other long-term business
5liabilities of the company are treated as a separate holding,

(c) so many of the securities as are held by the company for the purposes
of any with-profits fund but are not matched to its long-term business
liabilities are treated as a separate holding,

(d) so many of the securities as are held for the purposes of the company’s
10long-term business but are not matched to its long-term business
liabilities or held by it for the purposes of any with-profits funds are
treated as a separate holding, and

(e) any remaining securities are treated as a separate holding which is held
otherwise than for the purposes of the company’s long-term business.

(2) 15If the company has more than one with-profits fund within subsection (1)(c),
so many of the securities as are held by it for the purposes of a particular fund
but are not matched to its long-term business liabilities are treated as a separate
holding for the purposes of corporation tax on chargeable gains.

(3) Subsection (1) does not apply if all the income of the company’s long-term
20business is chargeable to corporation tax on income under section 35 of CTA
2009.

(4) In that case, if the company’s assets include securities of a class all of which
would, but for this section, be regarded as one holding for the purposes of
corporation tax on chargeable gains, the following pooling rules apply instead
25for those purposes—

(a) so many of the securities as are held for the purposes of its long-term
business are treated as a separate holding, and

(b) any remaining securities are treated as a separate holding which is held
otherwise than for the purposes of its long-term business.

120 30Overseas life insurance companies: rule corresponding to s.119

(1) If the assets of an overseas life insurance company include securities of a class
all of which would, but for this section, be regarded as one holding for the
purposes of corporation tax on chargeable gains, the following pooling rules
apply instead for those purposes—

(a) 35so many of the securities so far as UK securities matched to BLAGAB
liabilities of the company are treated as a separate holding,

(b) so many of the securities so far as UK securities matched to other long-
term business liabilities of the company are treated as a separate
holding,

(c) 40so many of the securities as are UK securities held by the company for
the purposes of any with-profits fund but not matched to its long-term
business liabilities are treated as a separate holding,

(d) so many of the securities as are UK securities held for the purposes of
the company’s long-term business but not matched to its long-term
45business liabilities or held by it for the purposes of any with-profits
funds are treated as a separate holding,

(e) any remaining UK securities are treated as a separate holding which is
held otherwise than for the purposes of the company’s long-term
business, and

(f) any securities which are held by the company but which are not UK
5securities are treated as a separate holding.

(2) If the company has more than one with-profits fund within subsection (1)(c),
so many of the securities as are UK securities held by it for the purposes of a
particular fund but are not matched to its long-term business liabilities are
treated as a separate holding for the purposes of corporation tax on chargeable
10gains.

(3) Subsection (1) does not apply if all the income of the company’s long-term
business is chargeable to corporation tax on income under section 35 of CTA
2009.

(4) In that case, if the company’s assets include securities of a class all of which
15would, but for this section, be regarded as one holding for the purposes of
corporation tax on chargeable gains, the following pooling rules apply instead
for those purposes—

(a) so many of the securities as are UK securities held for the purposes of
its long-term business are treated as a separate holding,

(b) 20any remaining UK securities are treated as a separate holding which is
held otherwise than for the purposes of its long-term business, and

(c) any securities which are held by the company but which are not UK
securities are treated as a separate holding.

(5) For the purposes of this section, securities (whether situated in the United
25Kingdom or elsewhere) are “UK securities” of an overseas life insurance
company if, in accordance with the provision made by or under Chapter 4 of
Part 2 of CTA 2009, they fall to be attributed to the permanent establishment in
the United Kingdom through which the company carries on life assurance
business.

121 30Sections 119 and 120: supplementary

(1) The applicable pooling rules also apply if the assets of the company in question
include securities of a class and but for this section—

(a) some of them would be regarded as a 1982 holding for the purposes of
corporation tax on chargeable gains, and

(b) 35the rest of them would be regarded as a section 104 holding for those
purposes.

(2) “The applicable pooling rules” means—

(a) the pooling rules set out in section 119(1)(a) to (e) and (4)(a) and (b), or

(b) the pooling rules set out in section 120(1)(a) to (f) and (4)(a) to (c).

(3) 40In applying the applicable pooling rules in a case within subsection (1)—

(a) the reference in any of the paragraphs in section 119(1) or (4) or 120(1)
or (4) to a separate holding is to be read, where necessary, as a reference
to a separate 1982 holding and a separate section 104 holding, and

(b) the questions whether that reading is necessary for a paragraph and, if
45it is, how many securities falling within the paragraph constitute each
of the two holdings are determined in accordance with paragraph 12 of

Schedule 6 to FA 1990 and the identification rules applying on any
subsequent acquisitions and disposals.

(4) If the applicable pooling rules apply, section 105 of TCGA 1992 has effect as if
securities regarded as included in different holdings as a result of those rules
were securities of different classes.

(5) 5In this section—

• “1982 holding” has the same meaning as in section 109 of TCGA 1992, and

• “section 104 holding” has the same meaning as in section 104(3) of TCGA
  1992.

(6) In this section and sections 119 and 120 “securities” means—

(a) 10shares,

(b) securities of a company, and

(c) any other assets where they are of a nature to be dealt in without
identifying the particular assets disposed of or acquired.

Long-term business fixed capital

122 15Assets forming part of long-term business fixed capital

For the purposes of this Chapter assets that form part of the long-term business
fixed capital of an insurance company are to be regarded as assets held by the
company otherwise than for the purposes of its long-term business.

CHAPTER 9 Relief for BLAGAB trade losses etc

20The reliefs

123 Relief for BLAGAB trade losses against total profits

(1) Section 37 of CTA 2010 (relief for trade losses against total profits) is to apply
in relation to a BLAGAB trade loss for an accounting period as it applies in
relation to any other loss made in a trade for an accounting period.

(2) 25Subsection (1) applies despite the fact that, had there been a BLAGAB trade
profit for the accounting period, that profit would not have been charged to tax
under section 35 of CTA 2009 and the I - E rules would have been applicable
instead.

124 Carry forward of BLAGAB trade losses against subsequent profits

(1) 30This section applies if an insurance company carrying on basic life assurance
and general annuity business makes a BLAGAB trade loss for an accounting
period.

(2) Relief is available under this section for that part of the BLAGAB trade loss
(“the unrelieved loss”) for which no relief is given under section 37 of CTA 2010
35(as applied by section 123).

(3) The relief for the unrelieved loss is to be given as follows.

(4) The unrelieved loss is to be carried forward to subsequent accounting periods
(so long as the company continues to carry on basic life assurance and general
annuity business).

(5) For the purposes of—

(a) 5section 93 (minimum profits charge), and

(b) section 104 (policyholders’ rate of tax),

the BLAGAB trade profit of any such period is reduced by the unrelieved loss
so far as that loss cannot be used under this subsection to reduce the BLAGAB
trade profit of an earlier period.

(6) 10Relief under this section is subject to restriction or modification in accordance
with section 137(7) of CTA 2010 and other applicable provisions of the
Corporation Tax Acts.

125 Group relief

(1) Part 5 of CTA 2010 (group relief) is to apply in relation to a BLAGAB trade loss
15for an accounting period as it applies in relation to any other loss made in a
trade for an accounting period.

(2) Subsection (1) applies despite the fact that, had there been a BLAGAB trade
profit for the accounting period, that profit would not have been charged to tax
under section 35 of CTA 2009 and the I - E rules would have been applicable
20instead.

(3) If for an accounting period an insurance company has—

(a) an I - E profit, and

(b) losses or other amounts within section 99(1)(d) to (g) of CTA 2010,

the company’s gross profits of the accounting period for the purposes of
25section 105 of that Act (restriction on surrender of those amounts) are not to
include the policyholders’ share of the I - E profit (as determined for the
purposes of section 102).

Restrictions

126 Restrictions in respect of non-trading deficit

(1) 30The amount of a BLAGAB trade loss for an accounting period of an insurance
company that is available for relief under—

(a) section 37 of CTA 2010 (as applied by section 123), or

(b) Part 5 of CTA 2010 (group relief) (as applied by section 125),

is to be reduced by the amount of any relevant non-trading deficit which the
35company has for the accounting period.

(2) The reference to a relevant non-trading deficit for an accounting period is a
reference to the non-trading deficit which the company would have under
section 388 of CTA 2009 (loan relationships and derivative contracts) if credits
and debits given in respect of the company’s creditor relationships (within the
40meaning of Part 5 of that Act) were ignored.

127 No relief against policyholders’ share of I - E profit

(1) This section applies in the case of an insurance company carrying on basic life
assurance and general annuity business.

(2) None of the following reliefs are to be given against the policyholders’ share of
5any I - E profit of the company for any accounting period (as determined for
the purposes of section 102).

(3) The reliefs in question are—

(a) relief under section 37 of CTA 2010 (including as applied by section
123),

(b) 10relief under Chapter 2 or 4 of Part 4 of CTA 2010 (loss relief),

(c) relief under Part 5 of CTA 2010 (group relief) (including as applied by
section 125),

(d) relief in respect of any qualifying charitable donation,

(e) relief in respect of any amount representing a non-trading deficit on the
15company’s loan relationships calculated otherwise than by reference to
debits and credits referable, in accordance with Chapter

4

, to its basic
life assurance and general annuity business.

(4) 20If the company’s basic life assurance and general annuity business is mutual
business, subsection (3)(d) does not apply.

CHAPTER 10 Transfers of long-term business

Transfers of BLAGAB

128 Relief for transferee in respect of transferor’s BLAGAB expenses

(1) 25This section applies if, under an insurance business transfer scheme, there is a
transfer of basic life assurance and general annuity business (or any part of that
business) from one insurance company to another.

(2) Acquisition expenses relief is to be given to the transferee for any acquisition
expenses for which, on the assumptions set out below, that relief would have
30been given to the transferor for an accounting period starting after the date of
the transfer.

(3) “Acquisition expenses relief” means relief given, in accordance with section 79
(spreading of acquisition expenses), at step 3 in section 76.

(4) For the transferee’s first accounting period ending after the date of the transfer,
35acquisition expenses relief for the acquisition expenses within subsection (2) is
to be determined as if that period had started with the date after the date of the
transfer.

(5) Relief at step 5 in section 76 is to be given to the transferee for any excess
BLAGAB expenses for which, on the assumptions set out below, that relief
40would have been given to the transferor for an accounting period starting after
the date of the transfer.

(6) For the purposes of this section it is to be assumed that—

(a) the transferor had continued to carry on the transferred business after
the transfer, and

(b) the transferor had an accounting date ending with the date of the
transfer (if that would not otherwise be the case).

(7) 5If the transfer is a transfer of part of the business, references in this section to
any expenses are to be read as references to the appropriate part of the
expenses.

(8) Any relief given to the transferee as a result of this section is instead of any
relief that would otherwise have been given to the transferor.

129 10Intra-group transfers and demutualisation

(1) This section applies if—

(a) under an insurance business transfer scheme, there is a transfer of basic
life assurance and general annuity business (or any part of that
business) from one insurance company to another, and

(b) 15the transfer is a relevant intra-group transfer or is in connection with a
demutualisation.

(2) A transfer is a “relevant intra-group transfer” if—

(a) the transferor and transferee are members of the same group of
companies when the transfer occurs, and

(b) 20the transferee is within the charge to corporation tax in relation to the
transfer.

(3) A transfer is “in connection with a demutualisation” if—

(a) it is for the purposes of the conversion of a company (under the law of
any territory) from one without share capital to one with share capital
25(without any change of legal personality), or

(b) it is a transfer by a mutual life insurance company of all, or
substantially all, of its basic life assurance and general annuity business
to an insurance company which is not a mutual life insurance company,

and for the purposes of paragraph (b) a “mutual life insurance company”
30means an insurance company which carries on mutual life assurance business.

(4) For the purpose of calculating the BLAGAB trade profit or loss of the transferor
for any accounting period, any amount in respect of the transfer that is debited
or credited in accounts drawn up by the transferor in accordance with
generally accepted accounting practice is to be ignored.

(5) 35For the purpose of calculating the BLAGAB trade profit or loss of the transferee
for any accounting period, any amount in respect of the transfer that is debited
or credited in accounts drawn up by the transferee in accordance with
generally accepted accounting practice is to be ignored.

(6) But if there is a difference between—

(a) 40the net amount recognised by the transferee in respect of the transfer of
contracts of long-term insurance or contracts made in the course of
capital redemption business, and

(b) the net amount recognised by the transferor in respect of the transfer of
those contracts,