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 2 — Transitional provisions
135

79
In Schedule 2 (transitionals and savings etc), in paragraph 118(2), for “from
“other than” onwards in the definition of “annuity business”” substitute
“following paragraph (b) in the definition of “life assurance business””.
Part 2
Transitional provisions
5
Introduction
80    (1)
A loss incurred by an insurance company in a pre-commencement period
may not be set off against profits of the company chargeable under section
436A of ICTA in a post-commencement period, except in accordance with
this Part.
10
      (2)
In this Part of this Schedule—
“the commencement period”, in relation to an insurance company,
means the first period of account of the company to begin on or after
1st January 2007,
“pre-commencement period”, in relation to an insurance company,
15
means a period of account of the company beginning before 1st
January 2007, and
“post-commencement period”, in relation to an insurance company,
means a period of account of the company beginning on or after 1st
January 2007.
20
      (3)
Expressions which are—
(a)
used in this Part of this Schedule in relation to a period of account,
and
(b)
used in Chapter 1 of Part 12 of ICTA,

have the same meaning in this Part of this Schedule in relation to that
25
accounting period as they have in that Chapter (as that Chapter has effect in
relation to that period of account).
Carry forward of unused pension business losses
81    (1)
An unused pension business loss of an insurance company (see sub-
paragraph (4)) is to be treated as if it were a loss incurred by the company on
30
its gross roll-up business in the period of account immediately preceding the
commencement period.
      (2)
Subsections (4) and (5) of section 436A of ICTA accordingly apply to the loss,
but subject to sub-paragraph (3) (and to subsection (7) of that section).
      (3)
The amount by which the company’s profits charged under that section in a
35
period of account is to be treated as reduced under subsection (4)(b) of that
section by virtue of this paragraph must not exceed—

where—
“CP” is the amount of the company’s profits chargeable under that
section in the period of account,
40
“PBL” is the mean of the opening and closing liabilities of the
company’s pension business for the period of account, and

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 2 — Transitional provisions
136

“GRBL” is the mean of the opening and closing liabilities of the
company’s gross roll-up business for the period of account.
      (4)
In this paragraph “unused pension business loss”, in relation to an insurance
company, means so much of any losses incurred by the company on its
pension business in any pre-commencement period as were not set off under
5
section 436(3)(c) of ICTA against profits in any such period.
Carry forward of unused non-pension business losses
82    (1)
An unused non-pension business loss of an insurance company (see
paragraph 83) is to be treated as if it were a loss incurred by the company on
its gross roll-up business in the period of account immediately preceding the
10
commencement period.
      (2)
Subsections (4) and (5) of section 436A of ICTA accordingly apply to the loss,
but subject to sub-paragraph (3) (and to subsection (7) of that section).
      (3)
The amount by which an insurance company’s profits charged under that
section in a period of account are to be treated as reduced under subsection
15
(4)(b) of that section is to be determined—
(a)
first by giving effect to subsection (4)(b) in respect of a loss treated as
incurred by the company on its gross roll-up business by virtue of
paragraph 81, and
(b)
then by giving effect to subsection (4)(b) in respect of a loss treated as
20
incurred by the company on its gross roll-up business by virtue of
this paragraph,

(before giving effect to subsection (4)(b) in respect of losses incurred by the
company on its gross roll-up business in post-commencement periods).
83    (1)
In paragraph 82 “unused non-pension business loss”, in relation to an
25
insurance company, means the aggregate of the following amounts—
(a)
any unexhausted individual savings account business loss (see sub-
paragraph (2)),
(b)
any unexhausted child trust fund business loss (see sub-paragraph
(3)),
30
(c)
any unexhausted life reinsurance business loss (see sub-paragraph
(4)), and
(d)
any unexhausted overseas life assurance business loss (see sub-
paragraph (5)).
      (2)
In this paragraph “unexhausted individual savings account business loss”,
35
in relation to an insurance company, means so much of any losses incurred
by the company on its individual savings account business in any pre-
commencement period as were not set off by virtue of a relevant provision
(see sub-paragraph (6)) against profits in any such period.
      (3)
In this paragraph “unexhausted child trust fund business loss”, in relation to
40
an insurance company, means so much of any losses incurred by the
company on its child trust fund business in any pre-commencement period
as were not set off by virtue of a relevant provision against profits in any
such period.
      (4)
In this paragraph “unexhausted life reinsurance business loss”, in relation to
45
an insurance company, means so much of any losses incurred by the
company on its life reinsurance business in any pre-commencement period

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
137

as were not set off under section 439B(3)(c) of ICTA against profits in any
such period.
      (5)
In this paragraph “unexhausted overseas life assurance business loss”, in
relation to an insurance company, means so much of any losses incurred by
the company on its overseas life assurance business in any pre-
5
commencement period as were not set off under section 441(4)(b) of ICTA
against profits in any such period.
      (6)
In this paragraph “relevant provision” means—
(a)
regulation 13 of the Individual Savings Account (Insurance
Companies) Regulations 1998 (S.I. 1998/1871), or
10
(b)
regulation 11 of the Child Trust Funds (Insurance Companies)
Regulations 2004 (S.I. 2004/2680).
“Section 432F(2) excesses”
84
Where there is a subsection (2) excess (within the meaning of section 432F of
ICTA) for any category of business of an insurance company in the period of
15
account immediately preceding the commencement period it shall be taken
to be, or form part of, the subsection (2) excess falling to be carried forward
under subsection (3) of that section (as amended by this Schedule) and used
in a post-commencement period.
Schedule 8
20
Section 38

Insurance companies: basis of taxation etc
Part 1
Amendments
Income and Corporation Taxes Act 1988 (c. 1)
1
ICTA is amended as follows.
25
2     (1)
Section 76 (expenses of insurance companies) is amended as follows.
      (2)
In subsection (1)(b), for “not charged to tax in respect of that business under
Case I of Schedule D” substitute “charged to tax in respect of that business
under the I minus E basis”.
      (3)
In subsection (7)—
30
(a)
in Step 8, for “basic” substitute “expenses”, and
(b)
omit Steps 9 and 10.
      (4)
Omit subsections (10) and (11).
      (5)
In subsection (12)—
(a)
for “Step 10” substitute “Step 8”, and
35
(b)
after “next accounting period” insert “for which the company is
charged to tax in respect of its life assurance business under the I
minus E basis”.

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
138

      (6)
For subsection (13) substitute—
“(13)
Where for any accounting period excess adjusted Case I profits are
charged to tax under section 85A of the Finance Act 1989, an amount
equal to the profits is to be carried forward to the next accounting
period for which the company is charged to tax in respect of its life
5
assurance business under the I minus E basis and brought into
account for that period in accordance with Step 7.”
3
In section 431(2) (interpretative provisions relating to insurance companies),
insert at the appropriate place—
““the I minus E basis” means the basis under which a company
10
carrying on life assurance business is charged to tax on the
relevant profits (within the meaning of section 88(3) of the
Finance Act 1989) of that business otherwise than under Case
I of Schedule D;”.
4
For section 432 (and the italic cross-heading before it) substitute—
15
“Basis of taxation etc
431G
Company carrying on life assurance business
(1)
This section applies in relation to an insurance company which
carries on life assurance business (whether or not it also carries on
insurance business of any other kind).
20
(2)
Subject as follows, the profits of the life assurance business for any
accounting period shall be charged to tax under the I minus E basis.
(3)
Where in the case of an insurance company for an accounting period
either—
(a)
all of its life assurance business is reinsurance business and
25
none of that business is of a type excluded from this
subsection by regulations made by the Board, or
(b)
all, or substantially all, of its life assurance business is gross
roll-up business,

the profits of that business for the accounting period shall be charged
30
to tax in accordance with Case I of Schedule D and not otherwise.
(4)
Where—
(a)
the profits of the life assurance business of an insurance
company for any accounting period are charged to tax under
the I minus E basis, and
35
(b)
had those profits been charged to tax in accordance with Case
I of Schedule D, a loss would have arisen to the company
from that business for the period,

the loss (after being reduced in accordance with section 434A(2)(a))
may be set-off under section 393A or section 403(1).
40
(5)
The application, in relation to the life assurance business of an
insurance company, of any provision of Case I of Schedule D is not
to be taken—
(a)
to prevent the application of the I minus E basis in relation to
that business of the company for any accounting period, or
45

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
139

(b)
to affect the operation of the I minus E basis in relation to the
that business of the company for any accounting period
except as specifically provided by the Corporation Tax Acts.
431H
Company carrying on life assurance business and other insurance
business
5
(1)
This section applies in relation to an insurance company which
carries on life assurance business and insurance business of any
other kind.
(2)
For the purposes of the Corporation Tax Acts—
(a)
the life assurance business, and
10
(b)
the other insurance business,

are to be treated as separate businesses.
(3)
The profits of the other insurance business shall be charged to tax
under Case I of Schedule D as the profits of a separate trade.
(4)
But subsection (3) above does not apply where that business is
15
mutual business.
(5)
As to the profits of the life assurance business, see section 431G.”
5
In section 432A(7)(c)(ii) (apportionment of income and gains), for
“85(2C)(c)” substitute “85(2C) or 85A”.
6
In section 437(1A) (annuities), for “, otherwise than in accordance with the
20
provisions applicable to Case I of Schedule D,” substitute “under the I minus
E basis”.
7
Omit section 439A (taxation of pure reinsurance business).
8     (1)
Section 440B (modifications where tax charged under Case I of Schedule D)
is amended as follows.
25
      (2)
In subsection (1), insert at the end “in accordance with section 431G(3)”.
      (3)
In subsection (3), for “Section 440(1) and (2) apply” substitute “Subsection (1)
of section 440 applies”.
      (4)
After subsection (4) insert—
“(4A)
Section 440(2) does not apply if either the transferor or the company
30
by which the asset is acquired is a company whose profits are
charged to tax in accordance with Case I of Schedule D (or if they
both are).
(4B)
Section 211 of the 1992 Act does not apply if the transferor is a
company whose profits are charged to tax in accordance with Case I
35
of Schedule D.”
      (5)
Omit subsection (5).
9
After that section insert—
“440C
  Modifications for change of tax basis
(1)
Subsection (2) makes provision for a case where—
40

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
140

(a)
subsection (4) of section 431G applies in relation to the profits
of the life assurance business of an insurance company for
any accounting period, but
(b)
the profits of that business for a succeeding accounting
period fall to be charged to tax in accordance with Case I of
5
Schedule D by virtue of subsection (3) of that section.
(2)
The loss referred to in section 431G(4)(b) (less any loss for the same
accounting period set off under section 436A for any intervening
accounting period and any amount deducted for any such period in
respect of the loss by virtue of section 85A(3)(a) of the Finance Act
10
1989) may be set off under section 393 against profits of that
succeeding accounting period (without being reduced in accordance
with section 434A(2)(a)).
(3)
In determining whether any loss has been set off under section 436A
for any intervening accounting period, or whether any amount has
15
been deducted for any such period in respect of the loss by virtue of
section 85A(3)(a) of the Finance Act 1989, losses of earlier accounting
periods are to be assumed to be set off before those of later
accounting periods.
(4)
Subsection (5) makes provision for a case where—
20
(a)
a loss arises to an insurance company for an accounting
period for which the profits of its life assurance business fall
to be charged to tax in accordance with Case I of Schedule D
by virtue of section 431G(3)(b),
(b)
the profits of that business for a subsequent accounting
25
period are charged to tax under the I minus E basis, and
(c)
had those profits (instead) been charged to tax in accordance
with Case I of Schedule D, any of that loss would have been
available to be set off against them under section 393.
(5)
The loss is to be treated for the purposes of the operation of section
30
436A in relation to the subsequent accounting period as if it were a
loss arising from its gross roll-up business in the accounting period
in which it arose.
(6)
Subsections (7) and (8) make provision for a case where—
(a)
the profits of the life assurance business of an insurance
35
company for an accounting period are charged to tax under
the I minus E basis,
(b)
the profits of that business for its next accounting period fall
to be charged to tax in accordance with Case I of Schedule D
by virtue of section 431G(3), and
40
(c)
that prevents the giving of relief in accordance with section
86(8) of the Finance Act 1989 (acquisition expenses relieved in
fractions under section 76).
(7)
Any relief which would have been so given in—
(a)
the next accounting period, or
45
(b)
any subsequent accounting period for which the profits of the
company’s life assurance business continue to be charged to
tax in accordance with Case I of Schedule D,

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
141


may be given by set-off against any gains treated as accruing under
section 213(1) of the 1992 Act at the end of the accounting period.
(8)
But if the profits of the company’s life assurance business for a
subsequent accounting period are charged to tax under the I minus E
basis, any relief not previously given under subsection (7) is to be
5
treated for the purposes of the operation of section 76 in relation to
the first subsequent accounting period for which profits are so
charged as if it were an amount which is to be relieved under that
section by virtue of section 86(8) and (9) of the Finance Act 1989.”
10
In section 755A(2) and (6)(a) (controlled foreign companies: apportionments
10
to companies carrying on life assurance business), for “not charged to tax
under Case I of Schedule D in respect of its profits from” substitute “charged
to tax under the I minus E basis in respect of”.
Finance Act 1989 (c. 26)
11
FA 1989 is amended as follows.
15
12
In section 83(6)(c) (receipts to be taken into account), for the words from “the
reinsurer” to the end substitute “section 431G(3)(a) of the Taxes Act 1988
(pure reinsurance) applies to the reinsurer under the contract for the
accounting period of the reinsurer during which the transfer of business
occurs”.
20
13
In subsection (1) of section 85 (charge of certain receipts of BLAGAB)—
(a)
for “the profits of an insurance company in respect of its life
assurance business are not charged under Case I of Schedule D”
substitute “an insurance company is charged to tax under the I minus
E basis in respect of its life assurance business”, and
25
(b)
for “those profits” substitute “the profits of the life assurance
business”.
14
After that section insert—
“85A
Excess adjusted Case I profits
(1)
Where for any accounting period an insurance company is charged
30
to tax under the I minus E basis in respect of its life assurance
business, the company shall be chargeable on any excess adjusted
Case I profits under Case VI of that Schedule.
(2)
“Excess adjusted Case I profits” means any amount by which—
(a)
the adjusted Case I profits (see subsection (3)), exceeds
35
(b)
the relevant amount (see subsection (5)).
(3)
“The adjusted Case I profits” means the amount that would be the
profits of the company’s life assurance business for the accounting
period if—
(a)
computed in accordance with the provisions applicable to
40
Case I of Schedule D, and
(b)
adjusted in respect of losses (see subsection (4)).
(4)
The adjustment in respect of losses is a deduction of the amount
which, disregarding section 434A(2)(a) of the Taxes Act 1988, would
fall to be set off under section 393 of that Act against the company’s
45