Finance Bill

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Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
142

income for the accounting period if the company had always been
charged to tax under Case I of Schedule D.
(5)
The relevant amount (which may be a negative amount) is found
by—
(a)
taking the relevant income (see subsection (6)), and
5
(b)
deducting from it the relevant aggregate (see subsection (8)).
(6)
“The relevant income” means—
(a)
any income (including distributions received from
companies resident in the United Kingdom) referable (in
accordance with section 432A of the Taxes Act 1988) to the
10
company’s basic life assurance and general annuity business
for the accounting period,
(b)
any chargeable gains referable (in accordance with section
432A of that Act) to the company’s basic life assurance and
general annuity business for the accounting period (see
15
subsection (7)), and
(c)
any profits of the company chargeable for the accounting
period under Case VI of Schedule D under section 436A of
that Act.
(7)
“Chargeable gains referable (in accordance with section 432A of the
20
Taxes Act 1988) to the company’s basic life assurance and general
annuity business” has the same meaning as in subsection (3A)(a) of
section 88 below (see subsection (3B) of that section).
(8)
“The relevant aggregate” means the sum of—
(a)
the expenses deduction (see Step 8 in section 76(7) of the
25
Taxes Act 1988) in the case of the company for the accounting
period,
(b)
any non-trading deficit on the company’s loan relationships
which is produced for the accounting period in relation to the
company’s basic life assurance and general annuity business
30
by a separate computation under paragraph 2(1) of Schedule
11 to the Finance Act 1996, and
(c)
any amount which in pursuance of a claim under paragraph
4(3) of that Schedule is carried back to the accounting period
and (in accordance with paragraph 4(5) of that Schedule)
35
applied in reducing profits of the company for the accounting
period.
(9)
The Treasury may by regulations provide—
(a)
that, in circumstances prescribed by the regulations, the
charge imposed by this section for an accounting period may
40
be reduced or eliminated, and
(b)
that the amount by which the charge is reduced, or (where
the charge is eliminated) the amount of the charge, is instead
imposed for a subsequent accounting period (or part of the
amount is instead imposed for more than one subsequent
45
accounting period).
(10)
Regulations under subsection (9) may include provision having
effect in relation to times before they are made.”
15    (1)
Section 88 (policy holders’ fraction of profits) is amended as follows.

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
143

      (2)
Omit subsection (2).
      (3)
In subsection (3)(a), for “basic” substitute “expenses”.
16    (1)
Section 89 (policy holders’ share of profits) is amended as follows.
      (2)
In subsection (1B)(b), for “basic” substitute “expenses”.
      (3)
In subsection (7), for the words after “Schedule D” substitute “; but for the
5
purposes of subsections (1), (1A) and (2) they are to be adjusted in respect of
losses in accordance with section 85A(4).”
Finance Act 1991 (c. 31)
17
In paragraph 16(1) of Schedule 7 to FA 1991 (transitional relief for old
general annuity contracts), for “, otherwise than in accordance with the
10
provisions applicable to Case I of Schedule D,” substitute “under the I minus
E basis”.
Taxation of Chargeable Gains Act 1992 (c. 12)
18
In section 212 of TCGA 1992 (annual deemed disposal of holdings of unit
trusts etc), omit subsection (7A) (which applies section 440B(5) of ICTA).
15
Finance (No. 2) Act 1992 (c. 48)
19
In F(No.2)A 1992, omit section 65 (life assurance business: I minus E basis).
Finance Act 1996 (c. 8)
20
In paragraph 4 of Schedule 11 to FA 1996 (loan relationships: special
provisions for insurers: treatment of deficit), omit sub-paragraphs (12) to
20
(14).
Finance Act 1998 (c. 36)
21
In paragraph 84 of Schedule 18 to FA 1998 (company tax returns,
assessments and related matters), for sub-paragraphs (1) to (3) substitute—
    “(1)
This paragraph applies where amounts may be brought into
25
charge to tax either—
(a)
in computing profits chargeable to tax under Case I of
Schedule D, or
(b)
as amounts within Case III or V of that Schedule.”;

and the italic heading before that paragraph accordingly becomes “Choice
30
between Case I and Case III or V of Schedule D”.
Capital Allowances Act 2001 (c. 2)
22
CAA 2001 is amended as follows.
23
In section 256(1), for paragraph (b) substitute—
“(b)
is charged to tax under the I minus E basis in respect of its life
35
assurance business.”
24
In section 257(2) (life assurance: supplementary), for paragraphs (a) and (b)

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 2 — Transitional provisions
144

substitute—
“(a)
section 85A(3) of the Finance Act 1989 (excess adjusted Case
I profits), or
(b)
section 89 of that Act (policy holders’ share of profits).”
Finance Act 2002 (c. 23)
5
25
FA 2002 is amended as follows.
26
In paragraph 13(1) of Schedule 12 (tax relief on R&D: special provisions for
insurance companies), for “the profits arising to a company from its life
assurance business are not charged to corporation tax under Case I of
Schedule D” substitute “an insurance company is charged to tax under the I
10
minus E basis in respect of its life assurance business”.
27
In Schedule 29 (gains and losses of a company from intangible fixed assets),
omit paragraph 36(6) (meaning of I minus E basis).
Part 2
Transitional provisions
15
Unused pre-commencement section 76(12) etc excesses
28
Step 7 in subsection (7) of section 76 of ICTA applies in relation to an
insurance company for the first accounting period beginning on or after 1st
January 2007 for which the profits of the life assurance business are charged
to tax under the I minus E basis as if the amounts carried forward to the
20
accounting period under subsection (12) of that section included—
(a)
any excess such as is mentioned in that subsection relating to the
company for an accounting period beginning on or after 1st April
2004 but not later than 1st January 2007 which was not brought into
account for the next accounting period in accordance with Step 7 in
25
subsection (7) of that section, and
(b)
any excess such as was mentioned in subsection (3) of section 75 of
ICTA relating to the company for an accounting period beginning
before 1st April 2004 which was not deducted for the succeeding
accounting period in accordance with that section (as applied by
30
section 76 of that Act).
Shifts in basis of taxation at first post-commencement accounting period
29    (1)
This paragraph applies where—
(a)
the profits of the life assurance business of an insurance company for
the first accounting period of the company beginning on or after 1st
35
January 2007 (“the first accounting period”) are charged to tax in
accordance with Case I of Schedule D by virtue of subsection (3)(b)
of section 431G of ICTA, but
(b)
had that section applied in relation to the preceding accounting
period of the company the profits of the life assurance business of the
40
company for that accounting period would have been charged to tax
under the I minus E basis.
      (2)
The amount of the losses available to be set off under section 393 of ICTA
against the profits of the first accounting period is the amount of any loss

Finance Bill
Schedule 9 — Insurance companies: transfers etc
145

under section 436, 439B or 441 of ICTA carried forward to that period by
virtue of Part 2 of Schedule 7 to this Act.
Schedule 9
Section 39

Insurance companies: transfers etc
Definition of “insurance business transfer scheme”
5
1     (1)
In section 431(2) of ICTA (interpretative provisions for purposes of
Corporation Tax Acts), for the definition of “insurance business transfer
scheme” substitute—
““insurance business transfer scheme” means—
(a)
a scheme falling within section 105 of the Financial
10
Services and Markets Act 2000, including an excluded
scheme falling within Case 2, 3 or 4 of subsection (3)
of that section, or
(b)
a scheme which would fall within that section but for
subsection (1)(b) of that section;”.
15
      (2)
In consequence of sub-paragraph (1), omit—
(a)
the definition of “insurance business transfer scheme” in section
12(7B) of ICTA,
(b)
section 444AB(11) of that Act (as originally enacted),
(c)
in section 444AC(11) of that Act (as originally enacted), the definition
20
of “insurance business transfer scheme”,
(d)
section 460(10B) of that Act,
(e)
the definition of “insurance business transfer scheme” in paragraph
12(9) of Schedule 9 to FA 1996,
(f)
section 560(5)(b) of CAA 2001,
25
(g)
paragraph 28(5) of Schedule 26 to FA 2002, and
(h)
the definition of “insurance business transfer scheme” in paragraph
89(3) of Schedule 29 to that Act.
      (3)
In section 66 of FA 2002 (election to continue postponement of mark to
market)—
30
(a)
in subsection (4)(a), for “a transfer” substitute “an insurance business
transfer”,
(b)
in subsection (5), omit the definition of “transfer scheme”, and
(c)
omit subsections (6) and (7).
      (4)
In paragraph 10 of Schedule 22 to that Act—
35
(a)
in sub-paragraph (1)(a), for “a transfer” substitute “an insurance
business transfer”,
(b)
in sub-paragraph (4), omit the definition of “transfer scheme”, and
(c)
omit sub-paragraphs (5) and (6).
Transfer schemes: expenses, losses etc
40
2     (1)
Section 444A of ICTA (transfers of business: expenses, losses and section
432F(2) excesses) is amended as follows.

Finance Bill
Schedule 9 — Insurance companies: transfers etc
146

      (2)
In subsection (1), omit “Subject to subsection (7) below,”.
      (3)
Omit—
(a)
subsection (7) (section not to apply if transfer is not for bona fide
commercial reasons or forms part of avoidance scheme), and
(b)
subsection (8) (clearance procedure as to non-application of
5
subsection (7)).
Transfer schemes: deemed periodical returns
3     (1)
In ICTA, for section 444AA substitute—
“444AA
Transfers of business: deemed periodical return
(1)
This section applies where the whole, or substantially the whole, of
10
the long-term business of a person (“the transferor”) is transferred
from that person—
(a)
by one insurance business transfer scheme, or
(b)
by two or more insurance business transfer schemes which
are associated.
15
(2)
For the purposes of subsection (1) above two or more insurance
business transfer schemes are associated if they form part of an
arrangement for the transfer of the whole, or substantially the whole,
of the transferor’s long-term business.
(3)
Where (apart from this subsection) there would not be a periodical
20
return of the transferor covering a period ending immediately before
a relevant transfer date, there is to be deemed for the purposes of
corporation tax to be a periodical return of the transferor covering
the period—
(a)
beginning immediately after the last period ending before the
25
relevant transfer date which is covered by a periodical return
of the transferor, and
(b)
ending immediately before the relevant transfer date,

containing such entries as would be included in an actual periodical
return of the transferor covering that period (and so making that
30
period a period of account of the transferor).
(4)
There is to be deemed for the purposes of corporation tax to be a
periodical return of the transferor—
(a)
covering a relevant transfer date, and
(b)
containing such entries as would be included in an actual
35
periodical return covering the relevant transfer date,

(and so making the relevant transfer date a period of account of the
transferor).
(5)
Any actual periodical return covering a period which includes a
relevant transfer date is to be ignored for the purposes of corporation
40
tax.
(6)
Where the transferor continues to carry on long-term business after
a relevant transfer date, there is to be deemed for the purposes of
corporation tax to be a periodical return of the transferor covering
the immediate post-RTD period containing such entries as would be
45

Finance Bill
Schedule 9 — Insurance companies: transfers etc
147

included in an actual periodical return covering that period (and so
making that period a period of account of the transferor).
(7)
In this section “relevant transfer date” means—
(a)
in relation to a case within paragraph (a) of subsection (1)
above, the date that is the transfer date in relation to the
5
insurance business transfer scheme, and
(b)
in relation to a case within paragraph (b) of that subsection—
(i)
the earliest date that is the transfer date in relation to
any of the insurance business transfer schemes, other
than one that is a preliminary non-EEA transfer
10
scheme, and
(ii)
(where there are two or more insurance business
transfer schemes that are not preliminary non-EEA
transfer schemes) the latest date that is the transfer
date in relation to any of them.
15
(8)
In subsection (6) above “the immediate post-RTD period” means the
period beginning immediately after the relevant transfer date
mentioned in that subsection and (subject to subsection (9) below)
ending with—
(a)
the end of the period covered by the periodical return
20
covering a period which includes a relevant transfer date (if
there is one), or
(b)
(if there is not) the period covered by the accounts of the
company prepared in accordance with generally accepted
accounting practice which includes the relevant transfer date.
25
(9)
If the case is within subsection (1)(b) above and two or more of the
insurance business transfer schemes are not preliminary non-EEA
transfer schemes, the period ends with the latest date that is the
transfer date in relation to any of them if that is before the end of the
period mentioned in paragraph (a) or (b) of subsection (8) above.
30
(10)
In this section and sections 444AB to 444AEC “the transfer date”, in
relation to an insurance business transfer scheme, means the date on
which it takes effect.
(11)
For the purposes of this section an insurance business transfer
scheme is a preliminary non-EEA transfer scheme if—
35
(a)
it is an insurance business transfer scheme by virtue of
paragraph (b) of the definition of “insurance business
transfer scheme” in section 431(2), and
(b)
the transfer date in relation to it is earlier than the transfer
date in relation to an associated insurance business transfer
40
scheme which is an insurance business transfer scheme by
virtue of paragraph (a) of that definition.”
      (2)
In section 12 of ICTA (accounting periods), for subsection (7C) substitute—
“(7C)
Where section 444AA applies, an accounting period of the transferor
(within the meaning of that section) shall end for the purposes of
45
corporation tax with the end of any period covered by a periodical
return deemed by that section.”
      (3)
In—

Finance Bill
Schedule 9 — Insurance companies: transfers etc
148

(a)
section 432YA(2A) of ICTA, and
(b)
section 82D(2A) of FA 1989,

for “444AA(3)” substitute “444AA(4)”.
      (4)
In section 213(10) of TCGA 1992, for “before the transfer” substitute “before
the relevant transfer date (within the meaning of that section)”.
5
Transfer schemes: taxing the transferor
4     (1)
In ICTA, for sections 444AB and 444ABA substitute—
“444AB
Transfer schemes transferring whole of business: transferor
(1)
This section applies where an insurance business transfer scheme
has effect to transfer the whole, or substantially the whole, of the
10
long-term business of a person (“the transferor”) to another person
(“the transferee”) and either or both of conditions A and B are met.
(2)
Condition A is met if any of the assets of the transferor’s long-term
insurance fund which are transferred from the transferor to the
transferee by the insurance business transfer scheme are not,
15
immediately after their transfer—
(a)
if the transferee is an insurance company, assets of the
transferee’s long-term insurance fund, or
(b)
if the transferee is not an insurance company, assets of a with-
profits fund of the transferee,
20

(“relevant non-transferred assets”).
(3)
Condition B is met if, immediately after the transfer date, the
transferor—
(a)
does not carry on long-term business, but
(b)
holds any assets which, immediately before the transfer date,
25
were assets of its long-term insurance fund (“retained
assets”).
(4)
If there are relevant non-transferred assets or retained assets (or
both) the relevant amount in relation to them (see subsection (5)
below) is to be taken into account under section 83(2) of the Finance
30
Act 1989 as an increase in value of the assets of the long-term
insurance fund of the transferor for the relevant period of account
(see subsection (6) below).
(5)
Section 444ABA makes provision for the calculation of the relevant
amount in relation to relevant non-transferred assets; and section
35
444ABB makes provision for its calculation in relation to retained
assets.
(6)
In this section and sections 444ABA to 444ACA “the relevant period
of account” means the period of account of the transferor ending (or
treated by section 444AA as ending) immediately before the transfer
40
date.
(7)
See section 444AA for the meaning of “the transfer date” in this
section.