Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 33 — Insurance companies
    378

              (3)             For the purposes of this section an insurance company has unrepaid
contingent loan liabilities at any time if—
                    (a)                   one or more contingent loans have been made to the
company at or before that time, and
                    (b)                   amounts will or may at some later time become repayable by
5
the company in respect of the contingent loan or contingent
loans.
              (4)             Where, at the end of the period of account of an insurance company
(“the period of account in question”), the company has unrepaid
contingent loan liabilities—
10
                    (a)                   subsection (5) below applies if the company did not have
unrepaid contingent loan liabilities at the end of the period of
account immediately preceding the period of account in
question, and
                    (b)                   subsection (6) below applies if it did.
15
              (5)             Where this subsection applies, the appropriate amount for the period
of account in question is allowed as a deduction in calculating the
profits of the company for the period of account in question.
              (6)             Where this subsection applies—
                    (a)                   if the appropriate amount for the period of account in
20
question exceeds the appropriate amount for the
immediately preceding period of account, the excess is
allowed as a deduction in calculating the profits for the
period of account in question, but
                    (b)                   if the appropriate amount for the immediately preceding
25
period of account exceeds the appropriate amount for the
period of account in question, the excess is to be taken into
account as a receipt of the period of account in question.
              (7)             For the purposes of subsections (5) and (6) above the appropriate
amount for a period of account is the amount of the unrepaid
30
contingent loan liabilities at the end of the period of account reduced
(but not below nil) by the aggregate of—
                    (a)                   any relevant net transfers to shareholders, and
                    (b)                   any deficiencies of assets over liabilities received on relevant
transferred business.
35
              (8)             In subsection (7)(a) above “relevant net transfers to shareholders”
means the aggregate of the positive amounts brought into account as
transfers to non-technical account for—
                    (a)                   the period of account,
                    (b)                   the period of account in which the relevant contingent loan
40
was made to the company, and
                    (c)                   any period of account falling between the periods of account
mentioned in paragraphs (a) and (b) above,
                              as reduced in accordance with subsection (9) below.
              (9)             The reduction to be made from the positive amount brought into
45
account as a transfer to non-technical account for any of the periods
of account mentioned in subsection (8) above is so much of the

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Schedule 33 — Insurance companies
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positive amount as does not exceed 12% of the amount allocated to
policy holders as bonuses in relation to the period of account.
              (10)            In subsection (7)(b) above “deficiencies of assets over liabilities
received on relevant transferred business” means any amount by
which, on an insurance business transfer scheme having effect to
5
transfer long-term business from a person (“the transferor”) to the
company which has taken place since the time when the relevant
contingent loan was made to the company—
                    (a)                   the amount of the liabilities to policy holders and annuitants
transferred to the company, exceeded
10
                    (b)                   the element of the company’s line 15 figure representing the
transferor’s long-term insurance fund.
              (11)            In subsections (8) and (10) above “the relevant contingent loan”
means—
                    (a)                   if amounts will or may at some later time become repayable
15
by the company in respect of only one contingent loan, that
contingent loan, and
                    (b)                   if amounts will or may at some later time become repayable
by the company in respect of more than one contingent loan,
whichever of those contingent loans was made to the
20
company first.
              (12)            In subsection (10)(b) above “the element of the company’s line 15
figure representing the transferor’s long-term insurance fund”
means so much of the amount brought into account by the company
as other income in the period of account in which the transfer took
25
place as represents the assets transferred to the company.
              (13)            Where in a period of account of an insurance company—
                    (a)                   an amount becomes repayable under a contingent loan made
to the company, and
                    (b)                   the amount repayable is brought into account as other
30
expenses for the period of account,
                              so much of the amount repayable as does not exceed the amount
specified in subsection (14) below is allowed as a deduction in
calculating the profits of the company for the period of account.
              (14)            The amount referred to in subsection (13) above is the amount
35
arrived at by deducting from the amount taken into account as a
receipt of the company under section 83(2) above in relation to the
contingent loan the aggregate of any amounts which—
                    (a)                   have become repayable in respect of the contingent loan in
any earlier period of account, and
40
                    (b)                   have been allowed as a deduction in calculating the profits of
the company for any such period.”.
          (2)      In paragraph 2 of Schedule 11 to the Finance Act 1996 (c. 8) (loan
relationships: special provisions for insurers), after sub-paragraph (2)
insert—
45
                           “(2A)                  Where an insurance company stands in the position of a debtor as
respects a debt under a contingent loan made to the company
(within the meaning of section 83ZA(1) of the Finance Act 1989),

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Schedule 33 — Insurance companies
    380

the debt is to be regarded for the purposes of this Chapter as not
arising from a transaction for the lending of money.”.
          (3)      This paragraph has effect in relation to contingent loans made to an
insurance company in a period of account beginning on or after 1st January
2003.
5
  4       (1)      In section 83AA of the Finance Act 1989 (c. 26) (amounts added to long-term
insurance fund of a company in excess of company’s loss), omit—
              (a)             subsections (3) to (5),
              (b)             subsection (6)(a),
              (c)             subsection (7)(b) and the word “and” before it, and
10
              (d)             in subsection (10), the definitions of “the relevant accounting period”
and “the transferor company”.
          (2)      Sub-paragraph (1) has effect for periods of account beginning on or after 1st
January 2003.
  5       (1)      In section 83AB(1)(c) of the Finance Act 1989 (c. 26) (treatment of surplus
15
where there is a subsequent transfer of business from company etc)—
              (a)             omit sub-paragraph (i), and
              (b)             in sub-paragraph (ii), for “that section” substitute “section 83AA
above”.
          (2)      Sub-paragraph (1) has effect for periods of account beginning on or after 1st
20
January 2003.
  6       (1)      In section 88 of the Finance Act 1989 (corporation tax: policy holders’ share
of profits), after subsection (3) insert—
              “(3A)                In subsection (3) above “income and gains of the company’s life
assurance business” means the aggregate of—
25
                    (a)                   income and chargeable gains referable to the company’s
basic life assurance and general annuity business, and
                    (b)                   profits of the company chargeable under Case VI of Schedule
D under section 436, 439B and 441 of the Taxes Act 1988
(pension business, life reinsurance business and overseas life
30
assurance business).”.
          (2)      Section 89 of that Act (meaning of policy holders’ share of profits) is
amended as follows.
          (3)      In subsection (1), for the words after “references to” substitute—
                    “(a)                      in a case where there are no Case I profits of the company for
35
the period in respect of its life assurance business, the amount
of the relevant profits, and
                    (b)                      in any other case, the amount arrived at in accordance with
subsection (1A) below.”.
          (4)      After that subsection insert—
40
              “(1A)                An amount is arrived at in accordance with this subsection by—
                    (a)                   deducting from any profits of the company for the period
chargeable under Case VI of Schedule D under sections 436,
439B and 441 of the Taxes Act 1988 (as reduced by any losses
under those sections and any charges on income referable to
45
any category of business other than basic life assurance and
general annuity business) so much of the Case I profits of the

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Schedule 33 — Insurance companies
    381

company for the period in respect of its life assurance
business as does not exceed the amount of any profits of the
company for the period so chargeable, and
                    (b)                   deducting any remaining Case I profits of the company for
the period in respect of its life assurance business from any
5
BLAGAB profits of the company for the period.
              (1B)                For the purposes of this section, the BLAGAB profits of a company
for an accounting period are the income and chargeable gains
referable to the company’s basic life assurance and general annuity
business reduced by the aggregate amount of—
10
                    (a)                   any non-trading deficit on the company’s loan relationships,
                    (b)                   expenses of management falling to be deducted under
section 76 of the Taxes Act 1988, and
                    (c)                   charges on income,
                              so far as referable to the company’s basic life assurance and general
15
annuity business.”.
          (5)      In subsection (2), for “subsection (1)” substitute “subsections (1) and (1A)”.
          (6)      In section 76(2B) of the Taxes Act 1988 (expenses of management: relevant
income)—
              (a)             in paragraph (a), for “of the company’s life assurance business for
20
that accounting period; and” substitute “for that accounting period
which are referable to the company’s basic life assurance and general
annuity business;”, and
              (b)             after paragraph (b) insert “and
                           “(c)                             profits of the company for that accounting period
25
which are chargeable under Case VI of Schedule D
under section 436, 439B or 441.”.
          (7)      In—
              (a)             section 434(6A)(b) of the Taxes Act 1988 (franked investment
income), and
30
              (b)             the second sentence of section 434A(3) of that Act (computation of
losses and limitation on relief),
                   for “88” substitute “89”.
          (8)      In section 434A(1)(a)(i) of the Taxes Act 1988 (computation of losses and
limitation on relief), for “for the period, otherwise than in accordance with
35
those provisions, the profits or losses of the company’s life assurance
business” substitute “, otherwise than in accordance with those provisions,
the relevant profits (within the meaning of section 88(1) of the Finance Act
1989) of the company for the period”.
          (9)      In section 437(1A) of the Taxes Act 1988 (general annuity business), for
40
“profits for any accounting period of a company’s life assurance business”
substitute “the relevant profits (within the meaning of section 88(1) of the
Finance Act 1989) of an insurance company for any accounting period”.
          (10)     In paragraph 16(1) of Schedule 7 to the Finance Act 1991 (c. 31) (transitional
relief for old general annuity contracts), for “profits for any accounting
45
period of an insurance company’s life assurance business” substitute “the
relevant profits (within the meaning of section 88(1) of the Finance Act 1989)
of an insurance company for any accounting period”.

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Schedule 33 — Insurance companies
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          (11)     Section 89(1B) of the Finance Act 1989 (c. 26) (inserted by sub-paragraph (4))
has effect for the purposes of section 210A of the Taxation of Chargeable
Gains Act 1992 (c. 12) (inserted by paragraph 13(1)) in relation to any
accounting period of a company if it is necessary under that section to
determine the company’s BLAGAB profits for the period.
5
          (12)     But, subject to that, this paragraph has effect for accounting periods ending
on or after 9th April 2003.
  7       (1)      In section 89(7) of the Finance Act 1989 (which defines Case I profits for the
purposes of determining the policy holders’ share of relevant profits and the
shareholders’ share of income), in the definition of “Case I profits”, insert at
10
the end “and adjusted in respect of losses in accordance with section 76(2C)
and (2D) of the Taxes Act 1988;”.
          (2)      Sub-paragraph (1) has effect for accounting periods beginning on or after 1st
January 2003.
          (3)      But section 76(2C) of the Taxes Act 1988, as it applies by virtue of sub-
15
paragraph (1), has effect as if the reference in it to the amount which would
fall, in the case of a company, to be set off under section 393 of that Act were
to only so much of that amount as is attributable to losses incurred in the
accounting period of the company in which 31st December 2002 is included
or any later accounting period.
20
  8       (1)      In section 76(1)(e) of the Taxes Act 1988 (expenses of management), for the
words after paragraph (d) substitute—
                    “(e)                      expenses of management may be deducted for any
accounting period only from so much of the income and
gains of that accounting period referable to basic life
25
assurance and general annuity business as remains after any
deduction falling to be made by virtue of paragraph 4(2) of
Schedule 11 to the Finance Act 1996 (non-trading deficits on
loan relationships).”.
          (2)      In section 87(6)(b) of the Finance Act 1989 (c. 26) (management expenses),
30
omit “, disregarding section 76(1)(e) of that Act (as set out in subsection (2)
above),”.
          (3)      In paragraph 4 of Schedule 11 to the Finance Act 1996 (c. 8) (non-trading
deficits on loan relationships)—
              (a)             in sub-paragraph (2), omit “net” (in both places), and
35
              (b)             in sub-paragraph (16), omit the definition of “net income and gains”.
          (4)      This paragraph has effect for accounting periods beginning on or after 1st
January 2003 except those ending before 9th April 2003.
  9       (1)      Section 432E of the Taxes Act 1988 (apportionment of receipts brought into
account: participating funds) is amended as follows.
40
          (2)      In subsection (1), for “subsection (2)” substitute “subsections (2) and (2A)”.
          (3)      In subsection (2), omit—
              (a)             paragraph (a), and
              (b)             in paragraph (b), the words “in any other case,”.
          (4)      After subsection (2) insert—
45
              “(2A)                In a case where an amount is taken into account under subsection (2)
of section 83 of the Finance Act 1989 by virtue of subsection (2B) of

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Schedule 33 — Insurance companies
    383

that section, the amount determined under subsection (2) above is
increased by
                              where—
                                      CAS and AS have the same meanings as in subsection (2) above;
and
5
                                      RP is the amount taken into account under subsection (2) of
section 83 of the Finance Act 1989 by virtue of subsection (2B)
of that section.”.
          (5)      This paragraph has effect for periods of account beginning on or after 1st
January 2003; but sub-paragraph (3) does not have effect in relation to any
10
periods of account ending before 9th April 2003.
  10      (1)      In section 804B(7) of the Taxes Act 1988 (double taxation relief: insurance
companies carrying on more than one category of business)—
              (a)             in paragraph (a), for “that net amount which is referable by virtue of
section 432E to that category” substitute “the investment income
15
taken into account in that determination which would be referable to
that category by virtue of section 432E if the investment income were
the only amount included in the net amount”, and
              (b)             in paragraph (b), for “net amount” substitute “investment income”.
          (2)      Section 804C of the Taxes Act 1988 (insurance companies: allocation of
20
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—
25
              “(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
30
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.
  11      (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
35
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
“held in connection with a company’s life assurance business” substitute “of
a company’s long-term insurance fund”.
40
          (3)      In section 441(1) of the Taxes Act 1988 (overseas life assurance business),
omit “and section 441A” (in both places).
          (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
45
Kingdom in the period which are”.

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          (5)      Apart from sub-paragraph (3), this paragraph has effect in relation to
distributions on or after 9th April 2003.
Rate of tax on policy holders’ share of life assurance profits
  12      (1)      The Finance Act 1989 is amended as follows.
          (2)      In section 88(1) (corporation tax rate on policy holders’ share of relevant
5
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).
10
          (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.
15
          (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)
20
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—
25
                    (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—
30
                    (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
35
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
40
profits for the relevant accounting period, by
                    (b)                   the UK company’s BLAGAB profits for that period.
              (11C)                In subsections (11A) and (11B) above—



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