Finance Bill

House of Commons

Session 2002 - 03
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
423

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
apportionment between the shares under paragraph (a) above
shall be in accordance with their market values at the time they
5
were acquired by the member.
      (4)
In this paragraph “the amount of the rolled-over gain” means the
lesser of—
(a)
the amount of the syndicate capacity gain, and
(b)
the aggregate amount of any sums which would be
10
allowable as a deduction under section 38(1)(a) of the
Gains Tax Act if the issued shares were disposed of as a
whole by the member in circumstances giving rise to a
chargeable gain.
      (5)
In this paragraph the “issued shares” means the shares in the
15
successor company issued to the member in consideration for the
syndicate capacity disposal.
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,
20
assets forming some or all of the member’s ancillary trust
fund are—
(i)
withdrawn from the fund, and
(ii)
without unreasonable delay, disposed of by him to
the successor company (the “ATF disposal”),
25
(b)
the aggregate of any chargeable gains accruing to the
member on the ATF disposal exceeds the aggregate of any
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
30
the ATF disposal,—
(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,
35
(d)
the ATF disposal is made in consideration solely of the
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.
40
      (2)
But this paragraph does not apply if—
(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
45
been made by him.
      (3)
The amount of the excess mentioned in sub-paragraph (1)(b)
above (“the amount of the ATF assets gain”) shall for the purposes

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
424

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
member on a disposal by him of any issued share or any asset
directly or indirectly derived from any issued share—
5
(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
the Gains Tax Act shall be reduced by the amount
apportioned to the issued share under paragraph (a)
10
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
apportionment between the shares under paragraph (a) above
shall be in accordance with their market values at the time they
15
were acquired by the member.
      (5)
In this paragraph “the amount of the rolled-over gain” means the
lesser of—
(a)
subject to sub-paragraph (6) below, the amount of the ATF
assets gain, and
20
(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
whole by the member in circumstances giving rise to a
chargeable gain.
25
      (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
the purposes of sub-paragraph (5)(a) above be reduced by
multiplying it by—
30

where—
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
35
required” means the lesser of—
(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
40
successor company in respect of its underwriting business
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
45
revoked, this paragraph shall apply as if the claim had never been
made.

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
425

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;
“ordinary share capital” has the meaning given by section
5
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;
“the member’s last underwriting year” has the meaning
10
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
paragraph 1(3) above;
15
“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
any letter of allotment or similar instrument shall be treated as
20
issued unless—
(a)
the right to the shares conferred by it remains provisional
until accepted, and
(b)
there has been no acceptance.
      (3)
Paragraphs 3 and 4 above (and paragraph 1 above so far as
25
relating to those paragraphs) are to be construed as one with the
Gains Tax Act.
Part 2
Conversion to underwriting through successor partnerships
Introduction
30
6     (1)
This Part of this Schedule applies if the following conditions are
satisfied.
      (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
35
Lloyd’s,
(b)
in accordance with such rules or practice, the member does
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.
40
      (3)
Condition 2 is that all of the member’s outstanding syndicate
capacity is disposed of by the member under a conversion
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.
45

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
426

      (4)
Condition 3 is that the member is the only person who disposes of
syndicate capacity under a conversion arrangement to the
successor partnership.
      (5)
Condition 4 is that the successor partnership starts to carry on its
underwriting business in the underwriting year next following the
5
member’s last underwriting year.
      (6)
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
which, or at the end of which, he ceases to be an underwriting
10
member and becomes a non-underwriting member in accordance
with the rules or practice of Lloyd’s.
      (7)
In this paragraph “outstanding syndicate capacity”, in relation to
a member, means the syndicate capacity of the member other than
any which—
15
(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.
Income tax: carry forward of loss relief following conversion
20
7     (1)
This paragraph applies if—
(a)
the member’s total income for a year of assessment
includes profits of the successor partnership’s
underwriting business, and
(b)
throughout the period beginning with the time of the
25
syndicate capacity disposal and ending with the end of
that year of assessment, the member is beneficially entitled
to more than 50% of the profits of that business.
      (2)
Section 385 of the Taxes Act 1988 (carry-forward of trading losses
against subsequent profits) shall have effect, in its application in
30
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
on which the member was assessed under Schedule D in respect
of the old underwriting business for that year.
35
      (3)
In sub-paragraph (2) above “the old underwriting business”
means the member’s underwriting business carried on otherwise
than through the successor partnership.
Interpretation of this Part of this Schedule
8
In this Part of this Schedule—
40

“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
paragraph 6(3) above.

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
427

Part 3
Supplementary provisions
Withdrawal of resignation notice
9     (1)
This paragraph applies if a member—
(a)
makes a claim for relief under or by virtue of this Schedule,
5
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
officer of the Board.
10
      (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
required as a result of the withdrawal of the notice of resignation
15
(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
Act 1970 shall apply to him as if he had fraudulently or negligently
20
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
inheritance tax.
25
Interpretation of this Schedule
10
In this Schedule—

“conversion arrangement” means a conversion arrangement
made under the rules or practice of Lloyd’s;

“successor member” has the meaning given by the rules or
30
practice of Lloyd’s;

“syndicate capacity”, in relation to a member, means an asset
comprising the rights of the member under a syndicate in
which he participates.
Application of this Schedule
35
11    (1)
Paragraphs 2 and 3 above (and the other provisions of this
Schedule so far as relating to those paragraphs) have effect in
relation to syndicate capacity disposals (within the meaning of
Part 1 of this Schedule) made on or after 6th April 2004.
      (2)
Paragraph 4 above (and the other provisions of this Schedule so
40
far as relating to that paragraph) have effect in relation to ATF
disposals (within the meaning of that paragraph) made on or after
6th April 2004 (even if the syndicate capacity disposal mentioned
in that paragraph was made before that date).

Finance Bill
Schedule 26 — Offshore funds
428

      (3)
Paragraph 7 above (and the other provisions of this Schedule so
far as relating to that paragraph) have effect in relation to
syndicate capacity disposals (within the meaning of Part 2 of this
Schedule) made on or after 6th April 2004.”.
Schedule 26
5
Section 142

Offshore funds
Computation of UK equivalent profits: creditor relationships
1     (1)
In paragraph 5(3) of Schedule 27 to the Taxes Act 1988 (offshore funds:
assumptions to be made in computing UK equivalent profits), after
paragraph (c) insert—
10

“; and
(d)
that the provisions of the Corporation Tax Acts relating to
profits, gains or losses arising from a creditor relationship
(within the meaning of Chapter 2 of Part 4 of the Finance
Act 1996) apply as if the offshore fund were an authorised
15
unit trust;”.
      (2)
Paragraph 3 of Schedule 10 to the Finance Act 1996 (c. 8) (assumptions to be
made in relation to creditor relationships) shall cease to have effect.
      (3)
In relation to a fund established on or before the day on which this Act is
passed, this paragraph only has effect if an election that it should have effect
20
has been made by or on behalf of the fund.
      (4)
Any such election—
(a)
must be made by notice to an officer of the Board, in such form and
within such time as the Board may determine, and
(b)
is irrevocable.
25
      (5)
For the purpose of determining the United Kingdom equivalent profits of an
offshore fund for the first account period of the fund in relation to which this
paragraph has effect—
(a)
any profits, gains or losses arising from a creditor relationship that
were taken into account in determining the United Kingdom
30
equivalent profits of the fund for the preceding account period shall
be disregarded, and
(b)
any profits, gains or losses arising from a creditor relationship that—
(i)
arose in, or in respect of, the preceding account period, but
(ii)
were not taken into account in determining the United
35
Kingdom equivalent profits of the fund for that period,

shall be taken into account.
      (6)
In this paragraph—
“creditor relationship” has the same meaning as in Chapter 2 of Part 4
of the Finance Act 1996; and
40
“United Kingdom equivalent profits” has the meaning given in
paragraph 5 of Schedule 27 to the Taxes Act 1988.

Finance Bill
Schedule 26 — Offshore funds
429

Computation of UK equivalent profits: derivative contracts
2     (1)
In paragraph 5(3) of Schedule 27 to the Taxes Act 1988 (offshore funds:
assumptions to be made in computing UK equivalent profits), after
paragraph (d) (inserted by paragraph 1 above) insert—

“and
5
(e)
that the provisions of the Corporation Tax Acts relating to
profits or losses arising from a derivative contract (within
the meaning of Schedule 26 to the Finance Act 2002) apply
as if the offshore fund were an authorised unit trust.”
      (2)
Paragraph 35 of Schedule 26 to the Finance Act 2002 (c. 23) (assumptions to
10
be made in relation to derivative contracts) shall cease to have effect.
      (3)
In relation to a fund established on or before the day on which this Act is
passed, this paragraph only has effect if an election that it should have effect
has been made by or on behalf of the fund.
      (4)
Any such election—
15
(a)
must be made by notice to an officer of the Board, in such form and
within such time as the Board may determine, and
(b)
is irrevocable.
      (5)
For the purpose of determining the United Kingdom equivalent profits of an
offshore fund for the first account period of the fund in relation to which this
20
paragraph has effect—
(a)
any profits or losses arising from a derivative contract that were
taken into account in determining the United Kingdom equivalent
profits of the fund for the preceding account period shall be
disregarded, and
25
(b)
any profits or losses arising from a derivative contract that—
(i)
arose in, or in respect of, the preceding account period, but
(ii)
were not taken into account in determining the United
Kingdom equivalent profits of the fund for that period,

shall be taken into account.
30
      (6)
In this paragraph—
“derivative contract” has the same meaning as in Schedule 26 to the
Finance Act 2002;
“United Kingdom equivalent profits” has the meaning given in
paragraph 5 of Schedule 27 to the Taxes Act 1988.
35
Treatment of umbrella funds and funds comprising more than one class of interest
3
At the beginning of Chapter 5 of Part 17 of that Act (offshore funds) insert—
“Meaning of offshore fund
756A   General definition of offshore fund
(1)
In this Chapter references to an offshore fund are to a collective
40
investment scheme constituted by—
(a)
a company that is resident outside the United Kingdom, or
(b)
a unit trust scheme the trustees of which are not resident in
the United Kingdom, or
(c)
arrangements not falling within paragraph (a) or (b) taking
45
effect by virtue of the law of a territory outside the United