Finance Bill

House of Commons

Session 2003 - 04
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
400

(a)
the manufactured dividend is or was paid, or treated as paid, by the
person on or after 17th March 2004, or
(b)
the chargeable gain accrues or accrued to the person on or after that
date.
Schedule 25
5
Section 134

Lloyd’s names: conversion to limited liability underwriting
1
The Finance Act 1993 (c. 34) is amended as follows.
2
After section 179A insert—
“179B
  Conversion to limited liability underwriting
Schedule 20A to this Act (which makes provision for certain reliefs to
10
be available where a member converts to limited liability
underwriting) shall have effect.”.
3
After Schedule 20 insert—
“Schedule 20A
Lloyd’s underwriters: conversion to limited liability underwriting
15
Part 1
Conversion to underwriting through successor companies
Introduction
1     (1)
This Part of this Schedule applies if the following conditions are
satisfied.
20
      (2)
Condition 1 is that—
(a)
a member gives notice of his resignation from membership
of Lloyd’s in accordance with the rules or practice of
Lloyd’s,
(b)
in accordance with such rules or practice, the member does
25
not undertake any new insurance business at Lloyd’s after
the end of the member’s last underwriting year, and
(c)
the member does not withdraw that notice.
      (3)
Condition 2 is that all of the member’s outstanding syndicate
capacity is disposed of by the member under a conversion
30
arrangement to a successor company (“the syndicate capacity
disposal”) with effect from the beginning of the underwriting year
next following the member’s last underwriting year.
      (4)
Condition 3 is that, immediately before the syndicate capacity
disposal,—
35
(a)
the member controls the successor company, and
(b)
more than 50% of the ordinary share capital of the
successor company is beneficially owned by the member.

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
401

      (5)
Condition 4 is that the syndicate capacity disposal is made in
consideration solely of the issue to the member of shares in the
successor company.
      (6)
Condition 5 is that the successor company starts to carry on its
underwriting business in the underwriting year (“the successor
5
company’s first underwriting year”) next following the member’s
last underwriting year.
      (7)
In this paragraph “the member’s last underwriting year”, in
relation to a member who gives notice of his resignation from
membership of Lloyd’s, means the underwriting year during
10
which, or at the end of which, he ceases to be an underwriting
member and becomes a non-underwriting member in accordance
with the rules or practice of Lloyd’s.
      (8)
In this paragraph “outstanding syndicate capacity”, in relation to
a member, means the syndicate capacity of the member other than
15
any which—
(a)
the member disposes of to a person other than a successor
member at or before the end of the member’s last
underwriting year, or
(b)
ceases to exist with effect from the end of that year.
20
Income tax: carry forward of loss relief following conversion
2     (1)
This paragraph applies if—
(a)
the member’s total income for a year of assessment
includes any income derived by the member from the
successor company (whether by way of dividends on the
25
shares issued to the member or otherwise), and
(b)
throughout the period beginning with the time of the
syndicate capacity disposal and ending with the end of
that year of assessment,—
(i)
the member controls the successor company, and
30
(ii)
more than 50% of the ordinary share capital of the
successor company is beneficially owned by the
member.
      (2)
The carry-forward provision shall apply as if the income so
derived were profits on which the member was assessed under
35
Schedule D in respect of the member’s underwriting business for
that year.
      (3)
But where under the carry-forward provision as applied by sub-
paragraph (2) above a loss falls to be deducted from or set off
against any income for any year of assessment, the deduction or
40
set-off shall be made in the first place against that part, if any, of
the income in respect of which the member has been, or is liable to
be, assessed to tax for that year.
      (4)
In this paragraph “the carry-forward provision” means section 385
of the Taxes Act 1988 (carry-forward of trading losses against
45
subsequent profits).
Capital gains tax: roll-over relief on disposal of syndicate capacity
3     (1)
This paragraph applies if—

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
402

(a)
the aggregate of any chargeable gains accruing to the
member on the syndicate capacity disposal exceeds the
aggregate of any allowable losses accruing to him on that
disposal, and
(b)
the member makes a claim under this paragraph to an
5
officer of the Board.
      (2)
The amount of the excess mentioned in sub-paragraph (1)(a)
above (“the amount of the syndicate capacity gain”) shall for the
purposes of capital gains tax be reduced by the amount of the
rolled-over gain.
10
      (3)
For the purpose of computing any chargeable gain accruing to the
member on a disposal by him of any issued share or any asset
directly or indirectly derived from any issued share—
(a)
the amount of the rolled-over gain shall be apportioned
between the issued shares as a whole, and
15
(b)
the sums allowable as a deduction under section 38(1)(a) of
the Gains Tax Act shall be reduced by the amount
apportioned to the issued share under paragraph (a)
above; but, in the case of a derived asset, the reduction
shall be by an appropriate proportion of that amount;
20

and if the issued shares are not all of the same class, the
apportionment between the shares under paragraph (a) above
shall be in accordance with their market values at the time they
were acquired by the member.
      (4)
In this paragraph “the amount of the rolled-over gain” means the
25
lesser of—
(a)
the amount of the syndicate capacity gain, and
(b)
the aggregate amount of any sums which would be
allowable as a deduction under section 38(1)(a) of the
Gains Tax Act if the issued shares were disposed of as a
30
whole by the member in circumstances giving rise to a
chargeable gain.
      (5)
In this paragraph the “issued shares” means the shares in the
successor company issued to the member in consideration for the
syndicate capacity disposal.
35
Capital gains tax: roll-over relief on disposal of assets of ancillary trust fund
4     (1)
This paragraph applies if—
(a)
at the time of, or after, the syndicate capacity disposal,
assets forming some or all of the member’s ancillary trust
fund are—
40
(i)
withdrawn from the fund, and
(ii)
without unreasonable delay, disposed of by him to
the successor company (the “ATF disposal”),
(b)
the aggregate of any chargeable gains accruing to the
member on the ATF disposal exceeds the aggregate of any
45
allowable losses accruing to him on that disposal,
(c)
throughout the period beginning with the time of the
syndicate capacity disposal and ending with the time of
the ATF disposal,—

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
403

(i)
the member controls the successor company, and
(ii)
more than 50% of the ordinary share capital of the
successor company is beneficially owned by the
member,
(d)
the ATF disposal is made in consideration solely of the
5
issue to the member of shares (the “issued shares”) in the
successor company, and
(e)
the member makes a claim under this paragraph to an
officer of the Board.
      (2)
But this paragraph does not apply if—
10
(a)
the member could have made a claim under paragraph 3
above, and
(b)
at the time the member makes a claim under this
paragraph, no claim under paragraph 3 above is or has
been made by him.
15
      (3)
The amount of the excess mentioned in sub-paragraph (1)(b)
above (“the amount of the ATF assets gain”) shall for the purposes
of capital gains tax be reduced by the amount of the rolled-over
gain.
      (4)
For the purpose of computing any chargeable gain accruing to the
20
member on a disposal by him of any issued share or any asset
directly or indirectly derived from any issued share—
(a)
the amount of the rolled-over gain shall be apportioned
between the issued shares as a whole, and
(b)
the sums allowable as a deduction under section 38(1)(a) of
25
the Gains Tax Act shall be reduced by the amount
apportioned to the issued share under paragraph (a)
above; but, in the case of a derived asset, the reduction
shall be by an appropriate proportion of that amount;

and if the issued shares are not all of the same class, the
30
apportionment between the shares under paragraph (a) above
shall be in accordance with their market values at the time they
were acquired by the member.
      (5)
In this paragraph “the amount of the rolled-over gain” means the
lesser of—
35
(a)
subject to sub-paragraph (6) below, the amount of the ATF
assets gain, and
(b)
the aggregate amount of any sums which would be
allowable as a deduction under section 38(1)(a) of the
Gains Tax Act if the issued shares were disposed of as a
40
whole by the member in circumstances giving rise to a
chargeable gain.
      (6)
If the market value, immediately before the ATF disposal, of the
assets disposed of under that disposal exceeds the amount of the
ATF assets required, the amount of the ATF assets gain shall for
45
the purposes of sub-paragraph (5)(a) above be reduced by
multiplying it by—

where—

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
404

R is the amount of the ATF assets required, and
T is the market value, immediately before the ATF disposal,
of the assets disposed of under that disposal.
      (7)
In sub-paragraph (6) above “the amount of the ATF assets
required” means the lesser of—
5
(a)
the amount of security required to be provided by the
member in respect of his underwriting business in the
member’s last underwriting year, and
(b)
the amount of security required to be provided by the
successor company in respect of its underwriting business
10
in the successor company’s first underwriting year.
      (8)
This paragraph applies only on the first occasion on or after 6th
April 2004 on which the member makes an ATF disposal.
      (9)
If a claim made by the member under paragraph 3 above is
revoked, this paragraph shall apply as if the claim had never been
15
made.
Interpretation of this Part of this Schedule
5     (1)
In this Part of this Schedule—
“control” shall be construed in accordance with section 416
of the Taxes Act 1988;
20
“ordinary share capital” has the meaning given by section
832(1) of the Taxes Act 1988;
“successor company” means a corporate member (within
the meaning of Chapter 5 of Part 4 of the Finance Act
1994) which is a successor member;
25
“the member’s last underwriting year” has the meaning
given by paragraph 1(7) above;
“the successor company’s first underwriting year” has the
meaning given by paragraph 1(6) above;
“the syndicate capacity disposal” has the meaning given by
30
paragraph 1(3) above;
“underwriting business”, in relation to a successor
company, has the same meaning as in Chapter 5 of Part 4
of the Finance Act 1994.
      (2)
For the purposes of this Part of this Schedule, shares comprised in
35
any letter of allotment or similar instrument shall be treated as
issued unless—
(a)
the right to the shares conferred by it remains provisional
until accepted, and
(b)
there has been no acceptance.
40
      (3)
Paragraphs 3 and 4 above (and paragraph 1 above so far as
relating to those paragraphs) are to be construed as one with the
Gains Tax Act.

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
405

Part 2
Conversion to underwriting through successor partnerships
Introduction
6     (1)
This Part of this Schedule applies if the following conditions are
satisfied.
5
      (2)
Condition 1 is that—
(a)
a member gives notice of his resignation from membership
of Lloyd’s in accordance with the rules or practice of
Lloyd’s,
(b)
in accordance with such rules or practice, the member does
10
not undertake any new insurance business at Lloyd’s after
the end of the member’s last underwriting year, and
(c)
the member does not withdraw that notice.
      (3)
Condition 2 is that all of the member’s outstanding syndicate
capacity is disposed of by the member under a conversion
15
arrangement to a successor partnership (“the syndicate capacity
disposal”) with effect from the beginning of the underwriting year
next following the member’s last underwriting year.
      (4)
Condition 3 is that the member is the only person who disposes of
syndicate capacity under a conversion arrangement to the
20
successor partnership.
      (5)
Condition 4 is that the successor partnership starts to carry on its
underwriting business in the underwriting year next following the
member’s last underwriting year.
      (6)
In this paragraph “the member’s last underwriting year”, in
25
relation to a member who gives notice of his resignation from
membership of Lloyd’s, means the underwriting year during
which, or at the end of which, he ceases to be an underwriting
member and becomes a non-underwriting member in accordance
with the rules or practice of Lloyd’s.
30
      (7)
In this paragraph “outstanding syndicate capacity”, in relation to
a member, means the syndicate capacity of the member other than
any which—
(a)
the member disposes of to a person other than a successor
member at or before the end of the member’s last
35
underwriting year, or
(b)
ceases to exist with effect from the end of that year.
Income tax: carry forward of loss relief following conversion
7     (1)
This paragraph applies if—
(a)
the member’s total income for a year of assessment
40
includes profits of the successor partnership’s
underwriting business, and
(b)
throughout the period beginning with the time of the
syndicate capacity disposal and ending with the end of
that year of assessment, the member is beneficially entitled
45
to more than 50% of the profits of that business.

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
406

      (2)
Section 385 of the Taxes Act 1988 (carry-forward of trading losses
against subsequent profits) shall have effect, in its application in
relation to the losses of the old underwriting business, as if the
profits of the successor partnership’s underwriting business to
which the member is beneficially entitled for that year were profits
5
on which the member was assessed under Schedule D in respect
of the old underwriting business for that year.
      (3)
In sub-paragraph (2) above “the old underwriting business”
means the member’s underwriting business carried on otherwise
than through the successor partnership.
10
Interpretation of this Part of this Schedule
8
In this Part of this Schedule—

“successor partnership” means a limited partnership formed
under the law of Scotland which is a successor member;

“the syndicate capacity disposal” has the meaning given by
15
paragraph 6(3) above.
Part 3
Supplementary provisions
Withdrawal of resignation notice
9     (1)
This paragraph applies if a member—
20
(a)
makes a claim for relief under or by virtue of this Schedule,
and
(b)
subsequently withdraws the notice of his resignation from
membership of Lloyd’s.
      (2)
The member must give written notice of such withdrawal to an
25
officer of the Board.
      (3)
Such a notice must be given no later than six months from the date
of the withdrawal of the notice of resignation.
      (4)
All such adjustments shall be made, whether by discharge or
repayment of tax, the making of assessments or otherwise, as are
30
required as a result of the withdrawal of the notice of resignation
(notwithstanding any limitation on the time within which any
adjustment may be made).
      (5)
If a member fails, fraudulently or negligently, to comply with sub-
paragraphs (2) and (3) above, section 95 of the Taxes Management
35
Act 1970 shall apply to him as if he had fraudulently or negligently
made an incorrect return, statement or declaration in connection
with the claim for relief made by him under or by virtue of this
Schedule.
      (6)
In this paragraph “tax” means income tax, capital gains tax or
40
inheritance tax.
Interpretation of this Schedule
10
In this Schedule—