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Finance Bill
Schedule 9 — Insurance companies etc

132

 

Apportionment of income and gains

4     (1)  

Section 432A of ICTA is amended as follows.

      (2)  

In subsection (9A) (meaning of “net value”) for “long-term liabilities”

substitute “liabilities”.

      (3)  

The amendment made by this paragraph has effect in relation to periods of

5

account ending on or after 31st December 2004.

Section 432B apportionment: participating funds

5     (1)  

Section 432E of ICTA is amended as follows.

      (2)  

In subsection (2A) (increase in amount determined under subsection (2)

where amount is taken into account under subsection (2) of section 83 of FA

10

1989 by virtue of subsection (2B) of that section) in the opening words—

(a)   

for “an amount is” substitute “an amount or amounts are”;

(b)   

after “subsection (2B) of that section” insert “or by virtue of section

444ACA(2) of this Act”.

      (3)  

In that subsection, for the definition of “RP” substitute—

15

“RP is the amount or the aggregate of the amounts taken into

account under subsection (2) of section 83 of the Finance Act

1989 by virtue of any of the following provisions—

(a)   

subsection (2B) of that section;

(b)   

section 444ACA(2) of this Act.”.

20

      (4)  

The amendments made by this paragraph have effect in relation to insurance

business transfer schemes (within the meaning given by section 444AC(11)

of ICTA) taking place on or after 2nd December 2004.

Transfers of business: deemed periodical return

6     (1)  

Section 444AA of ICTA is amended as follows.

25

      (2)  

At the end insert—

“(7)   

Where this section applies in relation to a transfer in a case in which

the transferor continues, after the transfer, to carry on insurance

business which is not long-term business—

(a)   

references in this section to the last period covered by a

30

periodical return (or deemed periodical return) of the

transferor shall be taken to be references to the last period

covered by a periodical return (or deemed periodical return)

of the transferor containing entries relating to long-term

business;

35

(b)   

subsection (4) above is to be read as if after “other than” there

were inserted “the purposes of sections 444BA to 444BD

and”.”.

      (3)  

The amendment made by this paragraph has effect in relation to insurance

business transfer schemes (within the meaning given by section 444AA(6) of

40

ICTA) taking place on or after 30th June 2005.

 

 

Finance Bill
Schedule 9 — Insurance companies etc

133

 

Transfers of business: modification of section 444AC of ICTA

7     (1)  

Section 444AC of ICTA is amended as follows.

      (2)  

In subsection (2) (excess of element of the transferee’s line 15 (or 31) figure

representing the transferor’s long-term insurance fund over amount

specified in paragraph (b) not to be regarded as other income of transferee)

5

in paragraph (b) (amount of liabilities to policy holders and annuitants

transferred to transferee)—

(a)   

for “the amount” substitute “the aggregate amount”;

(b)   

at the end insert “and of any relevant debts”.

      (3)  

After that subsection insert—

10

“(2A)   

Subject to subsections (2C) and (2D) below, subsection (2B) below

applies if—

(a)   

the aggregate amount of the liabilities to policy holders and

annuitants transferred to the transferee and of any relevant

debts, exceeds

15

(b)   

the element of the transferee’s line 31 figure representing the

transferor’s long-term insurance fund.

(2B)   

Where this subsection applies—

(a)   

the excess is to be taken into account as a receipt of the

transferee in computing in accordance with the provisions of

20

this Act applicable to Case I of Schedule D the profits of its

life assurance business for the period of account of the

transferee in which the transfer takes place (“the relevant

period of account”); and

(b)   

the relevant proportion of the excess is to be taken into

25

account as a receipt of the transferee in so computing the

profits of each category of its life assurance business for the

relevant period of account;

   

and, for this purpose, “the relevant proportion”, in relation to a

category of the transferee’s life assurance business, is the proportion

30

that the liabilities of that category that are transferred bear to the total

liabilities transferred.

(2C)   

Subsection (2B) above does not require the excess to be taken into

account as a receipt of the transferee in so computing the profits of

its life assurance business for the relevant period of account if—

35

(a)   

transferred liabilities of an aggregate amount equal to the

excess are not taken into account in so computing those

profits for that period of account, and

(b)   

the amount of the closing liabilities of that period of account

is taken into account as opening liabilities in so computing

40

those profits for the next period of account.

(2D)   

Subsection (2B) above does not require the relevant proportion of the

excess to be taken into account as a receipt of the transferee in so

computing the profits of a category of its life assurance business for

the relevant period of account if—

45

(a)   

transferred liabilities of an aggregate amount equal to the

relevant proportion of the excess are not taken into account in

so computing those profits for that period of account, and

 

 

Finance Bill
Schedule 9 — Insurance companies etc

134

 

(b)   

the amount of the closing liabilities of that period of account

is taken into account as opening liabilities in so computing

those profits for the next period of account.

(2E)   

In subsections (2C)(a) and (2D)(a) above “transferred liabilities”

means—

5

(a)   

liabilities to policy holders or annuitants at the end of the

relevant period of account that were transferred to the

transferee, and

(b)   

payments made to discharge, during that period of account,

liabilities to policy holders or annuitants that were

10

transferred to the transferee.”.

      (4)  

After subsection (3) insert—

“(4)   

In this section “relevant debts” means debts which become debts of

the transferee’s long-term insurance fund as a result of the transfer.

(5)   

But if—

15

(a)   

the fair value, as at the date of the transfer, of the assets which

become assets of the transferee’s long-term insurance fund as

a result of the transfer, exceeds

(b)   

the element of the transferee’s line 31 figure representing the

transferor’s long-term insurance fund,

20

   

the amount of any relevant debts for the purposes of this section is to

be reduced (but not below nil) by the excess.

(6)   

In determining the amount of the liabilities transferred for the

purposes of this section, there is to be disregarded any reduction in

the transferee’s liabilities resulting from reinsurance under a

25

contract of reinsurance which is a relevant financial reinsurance

contract (within the meaning of section 82C of the Finance Act 1989).

(7)   

But where—

(a)   

such a reduction results from reinsurance under a contract

which was entered into by the transferor as cedant before the

30

day on which the transfer takes place, and

(b)   

the transferor’s rights and obligations under the contract are

transferred to the transferee under the transfer,

   

the amount of the reduction that would (apart from this subsection)

be disregarded under subsection (6) above shall be reduced (but not

35

below nil) by the amount given by subsection (8) below or, if less, the

amount given by subsection (9) below.

(8)   

The amount given by this subsection is the amount by which the

liabilities at the end of the closing period which fell to be taken into

account in computing in accordance with the provisions of this Act

40

applicable to Case I of Schedule D the profits of the transferor’s

business for that period were reduced as a result of reinsurance

under the contract.

(9)   

The amount given by this subsection is the amount given by

paragraph (a) below reduced (but not below nil) by the amount

45

given by paragraph (b) below—

(a)   

the amount given by this paragraph is the aggregate of the

relevant amounts for any accounting period, and for this

 

 

Finance Bill
Schedule 9 — Insurance companies etc

135

 

purpose the relevant amount for an accounting period is the

amount in sub-paragraph (i) or (ii) below or, where

applicable, the aggregate of those amounts—

(i)   

the amount by which the profits of the transferor’s

business, computed in accordance with the

5

provisions of this Act applicable to Case I of Schedule

D, were increased for that accounting period as a

result of reinsurance under the contract;

(ii)   

the amount by which the losses of the transferor’s

business, so computed, were reduced for that

10

accounting period as a result of reinsurance under the

contract; and

(b)   

the amount given by this paragraph is the aggregate of the

relevant amounts for any accounting period, and for this

purpose the relevant amount for an accounting period is the

15

amount in sub-paragraph (i) or (ii) below or, where

applicable, the aggregate of those amounts—

(i)   

the amount by which the profits of the transferor’s

business, so computed, were reduced for that

accounting period as a result of a reduction in

20

reinsurance under the contract;

(ii)   

the amount by which the losses of the transferor’s

business, so computed, were increased for that

accounting period as a result of a reduction in

reinsurance under the contract.

25

(10)   

In subsections (8) and (9) above—

“the closing period” means the accounting period of the

transferor ending with the day on which the transfer takes

place;

“the transferor’s business” means—

30

(a)   

the transferor’s life assurance business, and

(b)   

any category of its life assurance business to which

the liabilities relate.

(11)   

For the purposes of this section and section 444ACA—

“fair value” has the meaning given by section 444AB(6);

35

“insurance business transfer scheme” includes a scheme which

would be such a scheme but for section 105(1)(b) of the

Financial Services and Markets Act 2000 (which requires the

business transferred to be carried on in an EEA State).”.

      (5)  

The heading of the section accordingly becomes “Transfers of business:

40

excess of assets or liabilities”.

      (6)  

The amendments made by this paragraph have effect in relation to insurance

business transfer schemes (within the meaning given by section 444AC(11)

of ICTA) taking place on or after 2nd December 2004.

      (7)  

But in relation to a period of account beginning before 1st January 2005,

45

section 444AC(2A)(b) and (5)(b) of ICTA shall have effect as if for “line 31

figure” there were substituted “line 15 figure”.

 

 

Finance Bill
Schedule 9 — Insurance companies etc

136

 

Transfers of business: transferor shares are assets of transferee’s long-term insurance fund etc

8     (1)  

After section 444AC of ICTA insert—

“444ACA 

  Transfers of business: transferor shares are assets of transferee’s

long-term insurance fund etc

(1)   

This section applies where an insurance business transfer scheme

5

(see section 444AC(11)) has effect to transfer long-term business from

one company (“the transferor”) to another (“the transferee”).

(2)   

If—

(a)   

immediately before the transfer, the assets of the long-term

insurance fund of the transferee comprise or include relevant

10

shares or an interest in such shares, and

(b)   

the fair value (see section 444AC(11)) of the relevant shares,

or of that interest, is reduced (whether or not to nil) as a result

of the transfer,

   

an amount equal to that reduction in fair value is to be taken into

15

account under section 83(2) of the Finance Act 1989 as a receipt of the

transferee of the period of account of the transferee in which the

transfer takes place.

(3)   

But if—

(a)   

the assets transferred to the transferee under the transfer

20

comprise or include assets (“the relevant assets”) which,

immediately before the transfer,—

(i)   

were assets of the transferor, but

(ii)   

were not assets of the transferor’s long-term

insurance fund, and

25

(b)   

in respect of the transfer of the relevant assets, an amount is—

(i)   

brought into account by the transferee as other

income of the transferee of the period of account of

the transferee in which the transfer takes place, and

(ii)   

taken into account in computing in accordance with

30

the provisions of this Act applicable to Case I of

Schedule D the profits of the transferee’s life

assurance business and any category of its life

assurance business to which the amount is referable,

   

the amount taken into account under section 83(2) of the Finance Act

35

1989 by virtue of subsection (2) above shall be reduced (but not

below nil) by an amount equal to the amount referred to in

paragraph (b) above.

(4)   

In subsection (2) above “relevant shares” means—

(a)   

some or all of the shares in the transferor, or

40

(b)   

some or all of the shares in a company (whether or not an

insurance company) which owns, directly or indirectly,—

(i)   

some or all of the shares in the transferor, or

(ii)   

an interest in some or all of those shares.

(5)   

In subsection (4) above “shares”, in relation to a company, includes

45

any interests in the company possessed by members of the

company.”.

 

 

Finance Bill
Schedule 9 — Insurance companies etc

137

 

      (2)  

The amendment made by this paragraph has effect in relation to insurance

business transfer schemes (within the meaning given by section 444AC(11)

of ICTA) taking place on or after 2nd December 2004.

Equalisation reserves for general business

9     (1)  

Section 444BA of ICTA is amended as follows.

5

      (2)  

In subsection (11) (meaning of “equalisation reserves rules”) for “Chapter 6

of the Prudential Sourcebook (Insurers)” substitute “chapter 7.5 of the

Integrated Prudential Sourcebook”.

      (3)  

The amendment made by this paragraph has effect in relation to periods of

account ending on or after 31st December 2004.

10

Unappropriated surplus on valuation

10    (1)  

Section 82B of FA 1989 is amended as follows.

      (2)  

In subsection (1) (section to apply where insurance company has

unappropriated surplus on valuation and has not made an election in

accordance with Rule 4.1(6) of the Prudential Sourcebook (Insurers) for the

15

period of account in question) in paragraph (b), for “Rule 4.1(6)” substitute

“Rule 9.10(c)”.

      (3)  

The amendment made by this paragraph has effect in relation to periods of

account ending on or after 31st December 2004.

Relevant financial reinsurance contracts

20

11    (1)  

Section 82C of FA 1989 is amended as follows.

      (2)  

In subsection (1) (cases where section applies) in paragraph (b), for “either

condition A or condition B” substitute “condition A”.

      (3)  

Omit subsections (4), (5), (8) and (9) (provisions relating to condition B).

      (4)  

The amendments made by this paragraph have effect in relation to insurance

25

business transfer schemes (within the meaning given by section 82C(9) of FA

1989) taking place on or after 2nd December 2004.

Receipts to be taken into account

12    (1)  

Section 83 of FA 1989 is amended as follows.

      (2)  

In subsection (2A) (amounts not required to be taken into account by

30

subsection (2)) for paragraph (a) (amounts which are entirely notional)

substitute—

“(a)   

comprises notional income for the period of account (see

subsections (2AA) and (2AB)),

(aa)   

represents an inter-fund transfer (see subsections (2AC) and

35

(2AD)),”.

      (3)  

After that subsection insert—

“(2AA)   

For the purposes of subsection (2A)(a) above, an amount brought

into account as mentioned in paragraphs (a) to (d) of subsection (2)

 

 

Finance Bill
Schedule 9 — Insurance companies etc

138

 

above for a period of account is to be regarded as notional income for

the period of account if—

(a)   

it represents income which has not been received, and is not

receivable, from another person, and

(b)   

a corresponding notional expense of the same amount is

5

brought into account in the period of account;

   

and where particular income falls to be regarded as notional income

under this subsection, the notional expense by virtue of which that

income falls to be so regarded may not be taken into account for

determining whether any other income is to be so regarded.

10

(2AB)   

In subsection (2AA) above “notional expense” means an expense

which has not been paid, and is not payable, to another person and

which—

(a)   

is not deductible in computing the profits of the company in

respect of its life assurance business in accordance with the

15

provisions of the Taxes Act 1988 applicable to Case I of

Schedule D, but

(b)   

had it represented an amount paid or payable to another

person, would have been so deductible.

(2AC)   

For the purposes of subsection (2A)(aa) above, where—

20

(a)   

one or more inter-fund transfers (“transfers-in”) are made

into a fund and one or more inter-fund transfers (“transfers-

out”) are made out of the fund, and

(b)   

the amount brought into account for the period of account as

other income in respect of the transfers-in represents the

25

amount by which—

(i)   

the amount or aggregate amount of the transfers-in,

exceeds

(ii)   

the amount or aggregate amount of the transfers-out,

   

only the amount of that excess shall be taken to represent the

30

transfers-in.

(2AD)   

In this section “inter-fund transfer” means a transfer between two

funds which in the company’s periodical return is shown in, or

included in amounts shown in, line 14 or 33 of the Forms 58 for the

funds.”.

35

      (4)  

In subsection (2B) (assets of long-term insurance fund transferred out of

fund but transfer not brought into account as part of total expenditure) after

paragraph (b) insert—

   

“For the purposes of this subsection “total expenditure”, in relation

to a period of account of an insurance company, includes any

40

expenses brought into account in line 12 of Form 40 (the revenue

account) in the periodical return of the company for the period of

account.”.

      (5)  

The amendments made by sub-paragraphs (2) and (3) have effect in relation

to periods of account ending on or after 2nd December 2004.

45

      (6)  

The amendment made by sub-paragraph (4) has effect in relation to periods

of account beginning on or after 1st January 2005.

 

 

 
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