Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
121

the opening and closing net values of any assets
directly referable to that category of business,
(b)
if there has been a relevant reattribution, the mean of
the opening and closing amounts of the shareholders’
excess assets, and
5
(c)
the mean of the appropriate parts (that is, the parts
relating to that category) of the opening and closing
amounts of the free assets amounts;
B is the aggregate of—
(a)
the mean of the opening and closing liabilities of the
10
gross roll-up business (but taking that mean to be nil
if it would otherwise be below nil), reduced (but not
below nil) by the mean of the opening and closing net
values of any assets directly referable to that category
of business, and
15
(b)
the mean of the appropriate parts (that is, the parts
relating to that category) of the opening and closing
amounts of the free assets amounts; and
C is the aggregate of—
(a)
the mean of the opening and closing liabilities of the
20
PHI business (but taking that mean to be nil if it
would otherwise be below nil), reduced (but not
below nil) by the mean of the opening and closing net
values of any assets directly referable to that category
of business, and
25
(b)
the mean of the appropriate parts (that is, the parts
relating to that category) of the opening and closing
amounts of the free assets amounts.
(6A)
For the purposes of subsection (5) above “the relevant fraction”, in
relation to gross roll-up business, is—
30

where A, B and C have the same meaning as in subsection (6) above.
(6B)
For the purposes of subsection (5) above “the relevant fraction”, in
relation to PHI business, is—

where A, B and C have the same meaning as in subsection (6) above.
(6C)
But if the denominator found in accordance with subsection (6), (6A)
35
or (6B) above is nil, the relevant fraction for the purposes of
subsection (5) above in relation to the category of business in
question is such fraction as is just and reasonable.”
      (9)
In subsection (7)—
(a)
for “and (6A)” substitute “, (6A) and (6B)”,
40
(b)
in paragraph (a), for “(4)” substitute “(4A)”,
(c)
in paragraph (b), after “(3)” insert “or (4A)”, and
(d)
in paragraph (c), omit “438B,”.
     (10)
In subsection (8), for “subsections (6) and (6A)” substitute “subsection (6)”.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
122

     (11)
In subsection (8ZA), for “subsections (6) and (6A)” substitute “paragraph (c)
of the definition of A and paragraph (b) of the definitions of B and C in
subsection (6)”.
     (12)
Omit subsection (9).
14    (1)
Section 432AA (Schedule A business or overseas property business) is
5
amended as follows.
      (2)
Omit subsection (3).
      (3)
In subsection (4), for paragraphs (a) to (d) substitute—
“(a)
basic life assurance and general annuity business;
(b)
gross roll-up business; and
10
(c)
PHI business.”
      (4)
In subsection (5), omit “(3) or”.
15
In section 432AB (losses from Schedule A business or overseas property
business), omit subsection (6).
16    (1)
Section 432B (apportionment of receipts brought into account) is amended
15
as follows.
      (2)
In subsection (1)—
(a)
for “432F” substitute “432G”, and
(b)
for “any category of life assurance business” substitute “gross roll-up
business”.
20
      (3)
In subsection (2), for “432F” substitute “432G”.
      (4)
In subsection (3)—
(a)
for “Sections 432C and 432D apply” substitute “Section 432C
applies”, and
(b)
insert at the end “(and section 432G applies in either case)”.
25
      (5)
In subsection (4)—
(a)
for “sections 432C and 432D” substitute “section 432C”,
(b)
in paragraph (a), for “apply” substitute “applies”, and
(c)
omit paragraph (b) and the word “and” before it.
      (6)
In subsection (5)—
30
(a)
for the words from “any category” to the end of paragraph (b)
substitute “gross roll-up business”, and
(b)
omit “the relevant fraction of”.
      (7)
In subsection (6), for the words from “432D” to “annuity business” substitute
“432C to gross roll-up business”.
35
      (8)
In subsection (7), omit “the relevant fraction of” (in both places).
      (9)
In subsection (8A), omit “the relevant fraction of”.
     (10)
In subsection (8C), omit “the relevant fraction of”.
     (11)
In subsection (9), omit the definitions of—
(a)
“the relevant fraction”, and
40
(b)
“the section 83 net amount”.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
123

     (12)
In subsection (10)—
(a)
in paragraphs (a) and (b), for “paragraph (a)(ii)” substitute “the
definition of A, in paragraph (b)”, and
(b)
for paragraph (c) substitute—
“(c)
the substitution for the definitions of B and C of—
5
“B is the amount that would be given by A if A
applied in relation to gross roll-up business;
and
C is the amount that would be given by A if A
applied in relation to PHI business.”.”
10
17
For section 432C substitute—
“432C
  Section 432B apportionment: non-participating funds
(1)
This section specifies the extent to which the net amount is referable
to life assurance business or to gross roll-up business.
(2)
In this section “the net amount” means the aggregate of the amounts
15
brought into account—
(a)
as investment income,
(b)
as an increase in the value of assets, or
(c)
as other income,

less the aggregate of the amounts brought into account as a decrease
20
in the value of assets.
(3)
To the extent that the net amount is attributable to—
(a)
assets linked to life assurance business, or
(b)
foreign currency assets,

it is referable to life assurance business.
25
(4)
There is also referable to life assurance business the appropriate
fraction of so much of the net amount as is not attributable to linked
assets or foreign currency assets.
(5)
For the purposes of subsection (4) above “the appropriate fraction”
is—
30

where—
A is the mean of the opening and closing liabilities of the
relevant business so far as referable to life assurance business
(but taking that mean to be nil if it would otherwise be below
nil), reduced (but not below nil) by the aggregate of the mean
35
of the opening and closing net values of linked assets and
foreign currency assets; and
B is the mean of the opening and closing liabilities of the
relevant business so far as referable to PHI business, reduced
(but not below nil) by the mean of the opening and closing
40
net values of any assets linked to PHI business.
(6)
But if the denominator found in accordance with subsection (5)
above is nil, the appropriate fraction for the purposes of subsection
(4) above is such fraction as is just and reasonable.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
124

(7)
To the extent that the net amount is attributable to—
(a)
assets linked to gross roll-up business, or
(b)
foreign currency assets,

it is referable to gross roll-up business.
(8)
There is also referable to gross roll-up business the relevant fraction
5
of so much of the net amount as is not attributable to linked assets or
foreign currency assets.
(9)
For the purposes of subsection (8) above “the relevant fraction” is—

where—
C is the mean of the opening and closing liabilities of the
10
relevant business so far as referable to gross roll-up business
(but taking that mean to be nil if it would otherwise be below
nil), reduced (but not below nil) by the aggregate of the mean
of the opening and closing net values of any assets linked to
gross roll-up business and foreign currency assets; and
15
D is the mean of the opening and closing liabilities of the
relevant business so far as referable to basic life assurance
and general annuity business or PHI business (but taking that
mean to be nil if it would otherwise be below nil), reduced
(but not below nil) by the mean of the opening and closing
20
net values of any assets linked to either of those categories of
business.
(10)
But if the denominator found in accordance with subsection (9)
above is nil, the relevant fraction for the purposes of subsection (8)
above is such fraction as is just and reasonable.
25
(11)
For the purposes of this section, so much of the net amount—
(a)
as is brought into account as other income in an internal
linked fund of the company, and
(b)
as is not attributable to assets of that fund,

is to be treated as linked to a category of business to the same extent
30
as income attributable to an asset of the fund would, by virtue of
section 432ZA, be referable to that category of business.”
18
Omit section 432D (section 432B apportionment: value of non-participating
funds).
19    (1)
Section 432E (section 432B apportionment: participating funds) is amended
35
as follows.
      (2)
For subsection (1) substitute—
“(1)
The part of the net amount which is referable to life assurance
business or to gross roll-up business is—
(a)
the amount determined in accordance with subsections (2)
40
and (2A) below, or
(b)
if greater, the amount determined in accordance with
subsection (3) below.
(1A)
In this section “the net amount” means the aggregate of the amounts
brought into account—
45

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
125

(a)
as investment income,
(b)
as an increase in the value of assets, or
(c)
as other income,

less the aggregate of the amounts brought into account as a decrease
in the value of assets.”
5
      (3)
In subsection (2)—
(a)
in the definition of CAS, for “the category of business concerned”
substitute “life assurance business or of gross roll-up business”, and
(b)
in the definition of CS, for “business of the category concerned”
substitute “life assurance business or to gross roll-up business”.
10
      (4)
In subsection (3)—
(a)
in paragraph (a), after “that category of business” insert “and foreign
currency assets”, and
(b)
in paragraph (b)—
(i)
omit “mentioned in subsection (1) above”, and
15
(ii)
insert at the end “and foreign currency assets”.
      (5)
In subsection (4), for the words following “case,” substitute “is—

where—
A is so much of the net amount as is brought into account in respect of
the relevant business less such part of it as is attributable to linked
20
assets and foreign currency assets; and
B is the mean of the opening and closing liabilities of the relevant
business reduced by the mean of the opening and closing values of
any assets of the relevant business which are linked assets and
foreign currency assets.”
25
      (6)
In subsection (4A), after “linked assets” insert “or foreign currency assets”.
      (7)
Omit subsections (5) and (6).
20
In section 432F(2) (section 432B apportionment: supplementary
provisions)—
(a)
omit “For each category of business in relation to which section 432E
30
falls to be applied”, and
(b)
omit “, after making any reduction required by section 432E(5),”.
21
For section 432G substitute—
“432G
  Section 432B apportionment: business transfers-in
(1)
There is referable to the life assurance business of the transferee the
35
appropriate fraction of the amount brought into account as a
business transfer-in and of any amount taken into account as profits
under subsection (1) of section 444ABD or as losses under subsection
(2) of that section.
(2)
For the purposes of subsection (1) above “the appropriate fraction”
40
is—

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
126


where—
LABL is the amount of the liabilities transferred that are
referable to the life assurance business (but is nil if it would
otherwise be below nil); and
TL is the whole of the liabilities transferred.
5
(3)
But if the amount of the liabilities transferred is nil, the appropriate
fraction for the purposes of subsection (1) above is such fraction as is
just and reasonable.
(4)
There is referable to the gross roll-up business of the transferee the
relevant fraction of the amount brought into account as a business
10
transfer-in and of any amount taken into account as profits under
subsection (1) of section 444ABD or as losses under subsection (2) of
that section.
(5)
For the purposes of subsection (4) above “the relevant fraction” is—

where—
15
GRBL is the amount of the liabilities transferred that are
referable to the gross roll-up business (but is nil if it would
otherwise be below nil); and
TL has the same meaning as in subsection (2) above.
(6)
But if the amount of the liabilities transferred is nil, the relevant
20
fraction for the purposes of subsection (4) above is such fraction as is
just and reasonable.”
22    (1)
Section 434 (franked investment income etc) is amended as follows.
      (2)
For subsections (1) and (1B) substitute—
“(1)
Where an insurance company makes a payment representative of a
25
distribution made by a company resident in the United Kingdom in
respect of an asset of its long-term insurance fund, the payment is to
be taken into account in computing its profits in accordance with the
provisions applicable to Case I of Schedule D unless the amount
taken into account in accordance with section 83(2)(a) of the Finance
30
Act 1989 includes the amount of the payment.”
      (3)
Omit subsection (6A)(b).
23    (1)
Section 434A (computation of losses and limitation on relief) is amended as
follows.
      (2)
In subsection (2)(a)—
35
(a)
omit “the aggregate of”, and
(b)
omit sub-paragraph (iii).
      (3)
In subsection (2)(b), for the words following sub-paragraph (ii) substitute—

“any loss for that period under section 436A shall be reduced
(but not below nil) by the total of the amounts set off as
40
mentioned in sub-paragraphs (i) and (ii) above.”
24
Omit section 436 (pension business: separate charge on profits).

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
127

25
Before section 437 insert—
“436A
  Gross roll-up business: separate charge on profits
(1)
Profits arising to an insurance company from gross roll-up
business—
(a)
are to be treated as income within Schedule D, and
5
(b)
are chargeable under Case VI of that Schedule.
(2)
For that purpose—
(a)
the gross roll-up business is to be treated separately, and
(b)
the profits from it are to be computed in accordance with the
provisions of this Act applicable to Case I of Schedule D.
10
(3)
In making that computation, sections 82 and 82B to 83AB of the
Finance Act 1989 apply with the necessary modifications.
(4)
If in any accounting period an insurance company incurs a loss, to be
computed on the same basis as the profits, arising from its gross roll-
up business—
15
(a)
the loss must be set off against the amount of any profits
chargeable under this section for any subsequent accounting
period, and
(b)
accordingly, the amount of the company’s profits so charged
in any such accounting period is to be treated as reduced by
20
the amount of the loss or so much of that amount as cannot
be relieved under this section against profits of an earlier
accounting period.
(5)
Section 396 does not apply to a loss incurred by an insurance
company on its gross roll-up business.
25
(6)
No loss to which section 396 applies may be set off under subsection
(4) above against the amount of any profits chargeable under this
section.
(7)
This section does not apply in relation to an insurance company for
an accounting period if the profits of its long-term business for the
30
accounting period are charged to tax under Case I of Schedule D.
436B
  Gains referable to gross roll-up business not to be chargeable gains
(1)
Gains referable to gross roll-up business are not chargeable gains.
(2)
For the purposes of this section “gains referable to gross roll-up
business” means gains which—
35
(a)
accrue to an insurance company on the disposal by it of assets
of its long-term insurance fund, and
(b)
are referable (in accordance with section 432A) to gross roll-
up business.”
26    (1)
Section 438 (pension business: exemption from tax) is amended as follows.
40
      (2)
In subsection (1), for the words after “income” substitute “from assets solely
linked to pension business.”
      (3)
Omit subsections (2) and (4).
27
Omit section 438B (income or gains arising from property investment LLP).