Finance (No.2) Bill

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Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 11 — Insurance companies
287

Schedule 11
Section 86

Insurance companies
Continuing the effect of orders under section 431A(3) of ICTA
1     (1)
The amendments made by orders under section 431A(3) of ICTA (power to
amend provisions in relation to periods of account ending before 1st October
5
2006) are to continue to have effect in relation to periods of account ending
on or after 1st October 2006 as if those amendments were made by this Act.
      (2)
Accordingly—
(a)
in section 431A of ICTA omit subsection (5) (power to extend orders
under subsection (3) in relation to periods of account ending before
10
1st October 2007), and
(b)
in section 432B of ICTA (apportionment of receipts brought into
account), as it has effect in relation to periods of account ending on
or after 1st October 2006 as a result of sub-paragraph (1), in
subsection (4)(b) (application confined to period of accounts ending
15
before 1st October 2006), omit “and ending before 1st October 2006”.
Section 432B apportionment: participating funds
2     (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
20
1989 by virtue of subsection (2B) of that section etc) in the opening words,
after “section 444ACA(2)” insert “, 444AF(2) or 444AK(2)”.
      (3)
In that subsection, in the definition of “RP”, after paragraph (b) insert—
“(c)
subsection (2) of section 444AF of this Act (and see
subsections (5) and (6) of that section);
25
(d)
subsection (2) of section 444AK of this Act (but only
for the purposes mentioned in subsection (3) of that
section).”.
      (4)
The amendments made by this paragraph have effect in relation to periods
of account ending on or after 29th September 2005.
30
Transfers of business: excess of assets or liabilities
3     (1)
Section 444AC is amended as follows.
      (2)
In subsection (2B) (excess of liabilities transferred over transferee’s line 31
figure)—
(a)
in paragraph (a) (excess to be taken into account as receipt of the
35
transferee’s life assurance business) for “the excess” substitute “the
life assurance part of the excess”, and
(b)
in the words after paragraph (b) after “for this purpose,” insert ““the
life assurance part of the excess” means the proportion of the excess
that the liabilities of the transferee’s life assurance business that are
40
transferred bear to the total liabilities transferred and”.

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      (3)
In subsection (2C) (case in which subsection (2B) does not require excess to
be taken into account as a receipt of the transferee) for “the excess”, in both
places, substitute “the life assurance part of the excess”.
      (4)
In subsection (5) (reduction of amount of relevant debts), in paragraph (a)
(fair value of assets becoming assets of transferee’s long-term insurance
5
fund) at the beginning insert “the aggregate amount of any relevant
reinsurance amounts and of”.
      (5)
After that subsection insert—
“(5A)
In subsection (5)(a) above “relevant reinsurance amounts” means—
(a)
amounts which are comprised in line 16 of Form 14 in the
10
periodical return of the transferor covering the period ending
immediately before the transfer (or would be so comprised if
the transferor drew up a periodical return covering that
period), or
(b)
other amounts which arise under contracts of reinsurance in
15
relation to which the reinsurer is the transferee and which, as
at the date of the transfer, have fallen due to the transferor,

and which (in either case) do not become assets of the transferee’s
long-term insurance fund as a result of the transfer because (and only
because) they arise under contracts of reinsurance in relation to
20
which the reinsurer is the transferee.”.
      (6)
The amendments made by sub-paragraphs (2) and (3) have effect in relation
to transfers taking place on or after 22nd March 2006.
      (7)
The amendments made by sub-paragraphs (4) and (5) have effect (and are
deemed always to have had effect) in relation to transfers taking place on or
25
after 2nd December 2004.
Transfers of business: modification of s. 83(2B) of FA 1989
4     (1)
Section 444AD is amended as follows.
      (2)
At the end insert—
“(6)
For the purposes of this section “insurance business transfer scheme”
30
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).”.
      (3)
The amendment made by this paragraph has effect in relation to schemes
taking place on or after 22nd March 2006.
35
Surpluses of mutual and former mutual businesses
5     (1)
After section 444AE of ICTA insert—
“Surpluses of mutual and former mutual businesses
444AF
  Demutualisation surplus: life assurance business
(1)
This section applies in relation to a period of account of an insurance
40
company (“the relevant period”) if—

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(a)
at any time in the relevant period the company carries on life
assurance business that is not mutual business,
(b)
the company has an amount of undistributed
demutualisation surplus for the relevant period (see
subsection (7)), and
5
(c)
there is a reduction in the amount of the company’s
unappropriated surplus over the relevant period (see section
444AI).
(2)
Where this section applies in relation to the relevant period, there
shall be deemed for the purposes of section 83(2) of the Finance Act
10
1989 to be brought into account for the relevant period as an increase
in the value of the assets of the company’s long-term insurance fund
whichever of the following amounts is the smallest—
(a)
the amount of the reduction mentioned in subsection (1)(c)
above;
15
(b)
the amount of the company’s undistributed demutualisation
surplus for the relevant period;
(c)
the amount of the company’s relevant receipts reduction for
the relevant period (see section 444AJ).
(3)
If the company prepares for the relevant period one or more such
20
separate revenue accounts as are mentioned in section 83A(2)(b) of
the Finance Act 1989—
(a)
subsection (2) above shall apply separately in relation to each
separate revenue account which is recognised for the
purposes of section 83 of that Act; and
25
(b)
for that purpose, any amount that falls to be determined in
order to determine—
(i)
whether that subsection applies in relation to any
such separate revenue account, and
(ii)
if so, the amount to be brought into account under
30
that subsection in relation to that account,

shall be determined using only amounts or items which
relate to the separate revenue account concerned.
(4)
In applying subsection (2) above in relation to a revenue account or
separate revenue account which—
35
(a)
is recognised for the purposes of section 83 of that Act, and
(b)
is one in relation to which sections 432C and 432D apply,

that subsection shall have effect as if for “smallest” there were
substituted “smaller” and as if paragraph (c) were omitted.
(5)
This section shall have effect—
40
(a)
for the purposes of computing in accordance with the
provisions of this Act applicable to Case I of Schedule D the
profits of the company’s life assurance business, and
(b)
for the purposes of so computing the profits of any category
of the company’s life assurance business chargeable to tax
45
under Case VI of Schedule D.
(6)
But for the purposes mentioned in subsection (5)(b) above, this
section and section 444AG have effect subject to the modification in

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section 444AH; and the Corporation Tax Acts have effect accordingly
(so that there may, in particular, be a difference between—
(a)
the amount deemed to be brought into account by virtue of
subsection (2) above for a period of account for those
purposes, and
5
(b)
the amount so deemed to be brought into account for that
period of account for the purposes mentioned in subsection
(5)(a) above).
(7)
For the purposes of this section, the undistributed demutualisation
surplus of an insurance company for the relevant period is—
10
(a)
an amount equal to (UDSP - AD + DTSI - DTSO); or
(b)
if that amount is a negative amount, nil.

For this purpose—
UDSP is the undistributed demutualisation surplus of the
company for the period of account immediately preceding
15
the relevant period,
AD is any amount deemed under this section to be brought into
account for the period of account immediately preceding the
relevant period as an increase in the value of the assets of the
company’s long-term insurance fund,
20
DTSI is the total amount of any demutualisation transfer
surpluses accruing to the company during the relevant
period (see section 444AG),
DTSO is the total amount of any demutualisation transfer
surpluses accruing to any other company (or companies)
25
during the relevant period on a transfer (or transfers) of life
assurance business by the company to that other company (or
companies).
444AG
  Section 444AF: “demutualisation transfer surplus”
(1)
For the purposes of section 444AF and this section, a
30
demutualisation transfer surplus accrues to an insurance company
where—
(a)
life assurance business is transferred to the company by a
person (“the transferor”),
(b)
after the transfer, the company carries on the transferred
35
business otherwise than as mutual business, and
(c)
the condition in subsection (2) below is satisfied in relation to
the transfer.
(2)
The condition is that—
(a)
immediately before the transfer, the transferor carried on the
40
transferred business as mutual business, or
(b)
where paragraph (a) above does not apply, some or all of the
transferred business was carried on by an insurance
company as mutual business at a time on or after 1st January
1990 and before the transfer (“former mutual business”).
45
(3)
The demutualisation transfer surplus accrues to the company on the
date of the transfer.
(4)
The amount of the demutualisation transfer surplus is given by
subsection (5) or (6) below.

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(5)
Where subsection (2)(a) above applies, the amount of the
demutualisation transfer surplus is—
(a)
where the whole of the transferor’s life assurance business
was transferred to the company under the transfer, the
aggregate of—
5
(i)
the unappropriated surplus of the transferor at the
end of the period of account of the transferor ending
immediately before the transfer, and
(ii)
the amount of any added surplus accruing to the
company in connection with the transfer (see
10
subsection (10));
(b)
otherwise, a just and reasonable portion of that aggregate
amount, having regard to how much of the transferor’s life
assurance business was transferred to the company under the
transfer.
15
(6)
Where subsection (2)(b) above applies, the amount of the
demutualisation transfer surplus is—
(a)
where the whole of the transferor’s life assurance business
was transferred to the company under the transfer and all of
the transferred business is former mutual business, the
20
former mutual surplus of the transferor on the transfer date
(see subsection (7));
(b)
otherwise, so much of that former mutual surplus as it is just
and reasonable to attribute to the company, having regard in
particular to—
25
(i)
how much of the transferor’s life assurance business
was transferred to the company under the transfer,
and
(ii)
how much of the transferred business is former
mutual business.
30
(7)
For the purposes of subsection (6) above, the former mutual surplus
of the transferor on the transfer date is—
(a)
the amount given by subsection (8) below, or
(b)
if less, the amount given by subsection (9) below.
(8)
The amount given by this subsection is the total amount of any
35
demutualisation transfer surpluses accruing to the transferor—
(a)
on or after 1st January 1990, and
(b)
on or before the date of the transfer.
(9)
The amount given by this subsection is the lowest amount of
unappropriated surplus of the transferor at the end of any period of
40
account ending—
(a)
on or after the date of the last occasion on which a
demutualisation transfer surplus accrued to it as mentioned
in subsection (8) above, and
(b)
on or before the date of the transfer.
45
(10)
For the purposes of this section, added surplus accrues to the
company in connection with the transfer if—

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(a)
an amount of assets is received by the company in connection
with the transfer, no later than six months after the date of the
transfer,
(b)
the amount is not brought into account by the company,
(c)
the amount is added to the unappropriated surplus of the
5
company, and
(d)
the amount does not derive from any unappropriated
surplus of the transferor;

and the amount of the added surplus is the amount referred to in
paragraphs (a) to (d) above.
10
444AH
  Modification of section 444AG etc for Case VI businesses
(1)
The modification in this section has effect for the purposes
mentioned in section 444AF(5)(b) only.
(2)
In relation to any demutualisation transfer surplus accruing to a
company in a post-2002 period of account—
15
(a)
the references in section 444AG(5) to the unappropriated
surplus of the transferor at the end of the period of account of
the transferor ending immediately before the transfer shall be
taken to be references to—
(i)
the amount of that unappropriated surplus, or
20
(ii)
if less, the unappropriated surplus of the transferor at
the end of the period of account immediately
preceding the first post-2002 period of account of the
transferor; and
(b)
the references in sections 444AF and 444AG to the amount of
25
any demutualisation transfer surplus are to have effect
accordingly.
(3)
In this section “post-2002 period of account”, in relation to an
insurance company, means a period of account of the company
beginning on or after 1st January 2003 and ending on or after 9th
30
April 2003.
444AI
  Section 444AF: “reduction in company’s unappropriated surplus”
(1)
For the purposes of section 444AF—
(a)
there is a reduction in the amount of the company’s
unappropriated surplus over the relevant period if CUS is
35
less than (OUS + TSI - TSO);
(b)
the amount of that reduction is the amount by which CUS is
less than (OUS + TSI - TSO).
(2)
In this section—
CUS is the amount of the company’s unappropriated surplus at
40
the end of the relevant period,
OUS is the amount of the company’s unappropriated surplus at
the end of the period of account immediately preceding the
relevant period,
TSI is the total amount of any transfer surpluses accruing to the
45
company during the relevant period (see subsections (3) to
(7)),

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TSO is the total amount of any transfer surpluses accruing to
any other company (or companies) during the relevant
period on a transfer (or transfers) of life assurance business
by the company to that other company (or companies).
(3)
For the purposes of this section, a transfer surplus accrues to an
5
insurance company where life assurance business is transferred to
the company by a person (“the transferor”).
(4)
The transfer surplus accrues to the company on the date of the
transfer.
(5)
The amount of the transfer surplus is equal to so much of the
10
unappropriated surplus of the transferor at the end of the period of
account of the transferor ending immediately before the transfer as
is transferred to the company under the transfer.
(6)
But if, immediately before the transfer, the transferor carried on the
transferred business as mutual business, the amount of the transfer
15
surplus is the aggregate of—
(a)
the amount given by subsection (5) above, and
(b)
the amount of any added surplus accruing to the company in
connection with the transfer.
(7)
Subsection (10) of section 444AG applies for the purposes of
20
subsection (6) above as it applies for the purposes of that section.
444AJ
  Sections 444AF and 444AK: “relevant receipts reduction”
(1)
For the purposes of sections 444AF and 444AK, the amount of the
company’s relevant receipts reduction for the relevant period is to be
calculated by—
25
(a)
determining, in the case of each with-profits fund of the
company, the amount given by subsection (2) or (6) below for
the relevant period, and
(b)
aggregating each of those amounts.
(2)
The amount, in the case of a fund other than a policy holder
30
participation fund, is—
(a)
where the gross transfer to non-technical account for the fund
for the relevant period (see subsections (3) and (4)) is greater
than the post-policy holder surplus for the fund for the
relevant period (see subsection (5)), the amount of the
35
difference;
(b)
otherwise, nil.
(3)
In this section “the gross transfer to non-technical account” means
the amount shown in line 13 of Form 58 for the fund.
(4)
But if—
40
(a)
there is a transfer from a with-profits fund of the company to
another fund of the company (“the initial transfer”) which is
shown in (or included in an amount shown in) line 14 of Form
58 for the with-profits fund,
(b)
there is a transfer from a fund of the company (whether or not
45
the other fund mentioned in paragraph (a) above) to the non-