Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 6 — Expenses of companies with investment business and insurance companies
291

(b)
in paragraph (b) (company other than investment company) for “an
investment company” substitute “a company with investment
business”.
      (3)
In subsection (4) (apportionment of profits and losses to two periods)—
(a)
in paragraph (a) (investment company) for “an investment
5
company” substitute “a company with investment business”, and
(b)
in paragraph (b) (company other than investment company) for “an
investment company” substitute “a company with investment
business”.
      (4)
In subsection (6) (restriction of profits from which certain losses may be
10
deducted) for “an investment company”, wherever occurring, substitute “a
company with investment business”.
      (5)
In subsection (8) (definitions) for paragraph (b) (investment company)
substitute—
“(b)
“company with investment business” has the same meaning
15
as in Part 4.”.
Change in ownership of company with unused non-trading loss on intangible fixed assets
6     (1)
Section 768E of the Taxes Act 1988 is amended as follows.
      (2)
In subsection (1) (change in ownership of investment company) for “an
investment company” substitute “a company with investment business”.
20
      (3)
In subsection (7) (definition of “investment company”) for “ “investment
company” ” substitute “ “company with investment business” ”.
Finance Act 1989
Charge of certain receipts of basic life assurance business
7     (1)
Section 85 of the Finance Act 1989 (c. 26) is amended as follows.
25
      (2)
In subsection (2) (receipts excluded from subsection (1)) omit paragraphs (c)
to (d).
      (3)
After subsection (2) insert—
“(2A)
Receipts falling within subsection (1) above are to be taken into
account for the purposes of corporation tax when they are brought
30
into account.

Subsection (6) of section 89 (meaning of “brought into account”) shall
also apply for the purposes of this section.
(2B)
Expenses fall to be deducted from receipts falling within subsection
(1) above in accordance with the provisions of the Corporation Tax
35
Acts applicable to Case VI of Schedule D.
(2C)
For the purposes of subsection (1) above, a receipt is referable to basic
life assurance and general annuity business if—
(a)
in the case of a repayment or refund of acquisition expenses,
the acquisition expenses fell within section 86 below,
40
(b)
in the case of a reinsurance commission, the policy or contract
reinsured under the arrangement in respect of which the
commission is paid constitutes basic life assurance and
general annuity business, and

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Schedule 6 — Expenses of companies with investment business and insurance companies
292

(c)
in any other case, it is income which, if it were income from
an asset, would by virtue of section 432A of the Taxes Act
1988 (apportionment of insurance companies’ income) be
referable to basic life assurance and general annuity
business.”.
5
Spreading of relief for acquisition expenses
8     (1)
Section 86 of the Finance Act 1989 (c. 26) is amended as follows.
      (2)
For subsections (1) to (1B) (meaning of “acquisition expenses”) substitute—
“(1)
For the purposes of this section, the acquisition expenses for any
period of an insurance company carrying on life assurance business
10
are such of the following as for that period fall to be included at
Step 1 in section 76(7) of the Taxes Act 1988 (expenses of insurance
companies)—
(a)
commissions (however described), other than commissions
for persons who collect premiums from house to house,
15
(b)
any other expenses payable solely for the purpose of the
acquisition of business,
(c)
so much of any other expenses payable partly for the purpose
of the acquisition of business and partly for other purposes as
are properly attributable to the acquisition of business,
20

reduced by the appropriate portion of the adjusted loss deduction (if
any) for the purposes of Step 5 for the period.

The appropriate portion of the adjusted loss deduction is the amount
which bears to the whole of that deduction the proportion which
UAE bears to S1, where—
25

UAE is the amount of the acquisition expenses, before
making the reduction required by this subsection; and

S1 is the sum of the amounts described in paragraphs (a) and
(b) in Step 4.”.
      (3)
In subsection (2) (which relates to commissions for persons who collect
30
premiums from house to house) for “expenses of management” substitute
“expenses payable”.
      (4)
Omit—
(a)
subsection (5) (expenses of management attributable to basic life
assurance and general annuity business), and
35
(b)
subsection (5A) (exclusion of additional expenses of management
under section 256(2)(a) of the Capital Allowances Act).
      (5)
For subsection (6) (only one‑seventh of acquisition expenses to be treated as
deductible under sections 75 and 76 of the Taxes Act 1988) substitute—
“(6)
Only a portion of the acquisition expenses for any accounting period
40
(in this section referred to as “the base period”) is to be relieved
under section 76 of the Taxes Act 1988 for that period.

That portion is one-seventh of the adjusted amount of the acquisition
expenses for the period.

For the purposes of this section the adjusted amount of the
45
acquisition expenses for the period is so much of those expenses as
remains after—
(a)
including the whole of those expenses at Step 1,

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Schedule 6 — Expenses of companies with investment business and insurance companies
293

(b)
making any reduction in those expenses which is required at
Step 2, and
(c)
deducting any amount of reinsurance commission or any
repayment or refund (in whole or in part) that falls for the
period to be charged to tax under section 85 above,
5

Effect is given to this subsection at Step 6 (which requires the
deduction of six‑sevenths of the adjusted amount of the acquisition
expenses for the period).”.
      (6)
Omit subsection (7) (which relates to accounting periods falling wholly or
partly within the years 1990 to 1993).
10
      (7)
For subsections (8) and (9) (deduction of further one‑sevenths of full amount
for succeeding accounting periods) substitute—
“(8)
This subsection applies in any case where, in accordance with
subsection (6) above, only a fraction of the adjusted amount of the
acquisition expenses for the base period is to be relieved under
15
section 76 of the Taxes Act 1988 for that period.

In any such case—
(a)
a further fraction of the adjusted amount of those expenses is
to be relieved under that section for each succeeding
accounting period after the base period, until the whole of the
20
adjusted amount has been relieved,
(b)
the fraction is one‑seventh, except that for any accounting
period of less than a year the fraction is to be proportionately
reduced, and
(c)
the relief is given by including that fraction of the adjusted
25
amount at paragraph (b) of Step 8,

but this is subject to subsection (9) below.
(9)
For any accounting period for which—
(a)
the fraction of the adjusted amount of the acquisition
expenses for the base period which would otherwise fall to be
30
relieved in accordance with subsection (8) above,
  exceeds
(b)
the balance of that adjusted amount which has not been so
relieved for earlier accounting periods,

only that balance shall be so relieved.”.
35
      (8)
After subsection (9) insert—
“(9A)
In this section “expenses payable” has the same meaning as in Step 1.
(9B)
Any reference in this section to a numbered Step is a reference to the
Step so numbered in section 76(7) of the Taxes Act 1988.”.
Finance Act 1996
40
Loan relationships: special provisions for insurers: treatment of deficit
9     (1)
In Schedule 11 to the Finance Act 1996 (c. 8) paragraph 4 is amended as
follows.
      (2)
In sub-paragraph (2), in the words following paragraph (b) (which require a
reduction under that sub-paragraph to be made before any deduction by
45
virtue of section 76 of the Taxes Act 1988 for expenses of management) for

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Schedule 7 — Insurance companies etc
294

“any deduction by virtue of section 76 of the Taxes Act 1988 of any expenses
of management” substitute “any expenses deduction under section 76 of the
Taxes Act 1988”.
      (3)
In sub-paragraph (3) (claim to carry back whole or part of excess of deficit
over net income and gains) in the opening words, omit “net”.
5
      (4)
In sub-paragraph (4) (deficit, so far as not set off, to be carried forward and
included in expenses of management for following period) for “an amount
to be included in the company’s expenses of management for the period
following the deficit period” substitute “expenses payable which are
referable to the period following the deficit period and are to be brought into
10
account at Step 3 in section 76(7) of the Taxes Act 1988”.
      (5)
In sub-paragraph (11) (meaning of references in sub-paragraph (10) to
deductions by virtue of section 76 of the Taxes Act 1988) for “the deductions
by way of management expenses” substitute “the expenses deduction”.
      (6)
In sub-paragraph (12) (treatment of section 76(5) amount attributable to a
15
claim under sub-paragraph (3) etc)—
(a)
for “section 76(5) amount”, in both places, substitute “section 76(13)
amount”;
(b)
for “section 75(3)” substitute “section 76(13)”.
      (7)
In sub-paragraph (13) (treatment of section 76(5) amount to which the sub-
20
paragraph applies) for “section 76(5) amount” substitute “section 76(13)
amount”.
      (8)
In sub-paragraph (14) (the section 76(5) amount attributable to a claim under
sub-paragraph (3))—
(a)
in the opening words, for “section 76(5) amount” substitute “section
25
76(13) amount”; and
(b)
in paragraphs (a) and (b) for “section 75(3)” substitute “section
76(13)”.
      (9)
The amendment made by sub-paragraph (4) also has effect where the deficit
period is the last accounting period of the company to begin before 1st April
30
2004.
Schedule 7
Section 47

Insurance companies etc
Transfers of business
1
In section 444A(3ZA) of the Taxes Act 1988 (losses), for “343(2), (4),”
35
substitute “343(4),”.
2     (1)
Section 444AB of the Taxes Act 1988 (charge on transferor retaining assets)
is amended as follows.
      (2)
In subsection (5) (which defines, as “the previously untaxed amount”, the
amount which, or a fraction of which, is chargeable to tax), for paragraph (a)
40
substitute—
“(a)
if there are no retained liabilities, the fair value of the retained
assets or, if there are, so much of the fair value of the retained
assets as exceeds the amount of the retained liabilities, and”.

Finance Bill
Schedule 7 — Insurance companies etc
295

      (3)
After subsection (6) insert—
“(6A)
In subsection (5) above—
(a)
“the retained assets” means such of the assets held by the
transferor immediately after the transfer as were assets of its
long-term insurance fund immediately before the transfer;
5
and
(b)
“the retained liabilities” means such of the liabilities of the
transferor immediately after the transfer as were included in
column 1 of line 14, 17, 22, 31 or 38 of Form 14 in the
periodical return of the transferor covering the period of
10
account ending immediately before the transfer.”.
      (4)
Sub-paragraphs (1) to (3) have effect in relation to insurance business
transfer schemes (within the meaning of section 444AB of the Taxes Act
1988) taking place on or after 17th March 2004.
3     (1)
In the Taxes Act 1988, after section 444AB insert—
15
“444ABA
Subsequent charge in certain cases within s.444AB
(1)
This section applies where—
(a)
section 444AB applies in relation to a transfer in the case of
which there are retained liabilities, and
(b)
in any accounting period of the transferor beginning after the
20
day of the transfer there is a reduction in the amount of the
retained liabilities occasioned otherwise than by the making
of a payment in or towards their discharge.
(2)
The transferor shall be charged to tax under Case VI of Schedule D in
respect of the taxable amount as if it had been received by the
25
transferor in the accounting period in which the reduction occurs.
(3)
If the transferor was charged to tax on the profits of its life assurance
business under Case I of Schedule D for the accounting period
ending with the day of the transfer, the taxable amount is the whole
amount of the reduction.
30
(4)
Otherwise the taxable amount is the non-BLAGAB fraction of the
amount of the reduction.
(5)
The non-BLAGAB fraction of the amount of the reduction is the
fraction of which—
(a)
the numerator is the amount of the liabilities transferred,
35
apart from those which are liabilities of basic life assurance
and general annuity business, and
(b)
the denominator is the amount of the liabilities transferred.
(6)
Where in any accounting period of the transferor beginning after the
transfer there is an increase in the amount of the retained liabilities,
40
this section applies in relation to subsequent accounting periods of
the transferor as if the amount of the retained liabilities were reduced
by the amount of the increase.
(7)
Where an amount is shown as post-transfer reduction liabilities in
the transferor’s accounts for any accounting period beginning after
45
the transfer, this section applies as if the amount of the retained

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Schedule 7 — Insurance companies etc
296

liabilities at the end of that accounting period (and the beginning of
the next) were increased by the amount so shown.
(8)
In subsection (7) above “post-transfer reduction liabilities” means
liabilities of the transferor to make payments to relevant persons
which, in accordance with the terms of the insurance business
5
transfer scheme, have arisen in consequence of a reduction in the
amount of the retained liabilities at any time after the transfer.
(9)
In subsection (8) above “relevant persons” means—
(a)
if the transferor’s life assurance business immediately before
the transfer was mutual business, persons who were policy
10
holders or annuitants, or members of the transferor, at that
time, and
(b)
in any other case, persons who were policy holders or
annuitants at that time.”.
      (2)
Sub-paragraph (1) has effect where section 444AB of the Taxes Act 1988
15
applies by reason of an insurance business transfer scheme (within the
meaning of that section) taking place on or after 17th March 2004.
4     (1)
In section 444AD of the Taxes Act 1988 (modification of section 83(2B) of the
Finance Act 1989 (c. 26)), in subsection (4) (amount to which section 83(2B)
is not to apply to be difference between value of assets of long-term
20
insurance fund of transferee and element of line 15 figure representing
transferor’s long-term insurance fund), for paragraph (a) substitute—
“(a)
the fair value of such of the assets of the long-term insurance
fund of the transferee immediately after the transfer as were
assets of the transferor’s long-term insurance fund
25
immediately before the transfer, is greater than”.
      (2)
Sub-paragraph (1) has effect in relation to insurance business transfer
schemes taking place on or after 17th March 2004.
5     (1)
In section 82(1) of the Finance Act 1989 (provisions applying for purposes of
computations of profits in accordance with provisions applicable to Case I
30
of Schedule D), for “and 82B” substitute “to 82C”.
      (2)
In that Act, after section 82B insert—
“82C
Relevant financial reinsurance contracts
(1)
This section applies where—
(a)
an insurance company (“the company”) enters into a contract
35
of reinsurance which is a relevant financial reinsurance
contract, and
(b)
either condition A or condition B is met.
(2)
A contract of reinsurance is a relevant financial reinsurance contract
if, under the contract—
40
(a)
some or all of the liabilities reinsured may cease to be
reinsured (without the cedant having any right of recovery
against the reinsurer), or
(b)
the cedant may become liable to pay premiums wholly or
partly determined (directly or indirectly) by reference to any
45
amount which the reinsurer becomes liable to pay to the
cedant under the contract.

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Schedule 7 — Insurance companies etc
297

(3)
Condition A is that the reduction in the company’s liabilities
resulting from the reinsurance under the relevant financial
reinsurance contract is not taken into account in calculating the
profits of the company.
(4)
Condition B is that—
5
(a)
an insurance business transfer scheme has effect to transfer
long-term business to the company,
(b)
there is a deficiency of assets on the transfer,
(c)
the liabilities reinsured under the relevant financial
reinsurance contract are some or all of the liabilities to policy
10
holders and annuitants transferred,
(d)
the reduction of the company’s liabilities resulting from the
reinsurance of those liabilities under the relevant financial
reinsurance contract occurs during the period of account in
which the transfer takes place, and
15
(e)
the whole amount of the liabilities to policy holders and
annuitants transferred is not taken into account as opening
liabilities in calculating the profits of the company for that
period of account.
(5)
For the purposes of subsection (4)(b) above there is a deficiency of
20
assets on the transfer if—
(a)
the aggregate amount of the liabilities to policy holders and
annuitants, and of any debts, which are transferred, exceeds
(b)
the value of the assets transferred and brought into account
in the long-term insurance fund of the company.
25
(6)
The reinsurance offset amount for each period of account of the
company beginning before the termination of the relevant financial
reinsurance contract is to be taken into account as a receipt of the
period of account.
(7)
The reinsurance offset amount for a period of account is the amount
30
of any decrease in the period of account in the difference between the
full liabilities and the reduced liabilities where—
(a)
“the full liabilities” is the amount which would be brought
into account for the period as liabilities but for the relevant
financial reinsurance contract, and
35
(b)
“the reduced liabilities” is the amount of the liabilities
actually so brought into account.
(8)
But, in a case in which condition B is met, the total amount taken into
account by virtue of subsection (6) must not exceed the amount by
which—
40
(a)
the aggregate amount mentioned in paragraph (a) of
subsection (5), exceeds
(b)
the value referred to in paragraph (b) of that subsection.
(9)
For the purposes of this section “insurance business transfer scheme”
includes a scheme which would be such a scheme but for section
45
105(1)(b) of the Financial Services and Markets Act 2000 (which
requires the business transferred to be carried on in an EEA State).”.
      (3)
Sub-paragraphs (1) and (2) have effect in relation to periods of account
ending on or after 17th March 2004 (whether the insurance business transfer