Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 10 — Insurance companies: miscellaneous
168

      (3)
Omit subsection (7).
14
In section 83A(1) of FA 1989 (“brought into account”)—
(a)
omit “In sections 82A to 83B”, and
(b)
for “those sections” substitute “sections 82A to 83ZC”.
15    (1)
Omit the following provisions.
5
      (2)
In ICTA—
(a)
in section 12(7B), the words from the beginning to the end of the
definition of “contracts of long-term insurance”,
(b)
in section 76(15), “and other expressions have the same meaning as
in Chapter 1 of Part 12”,
10
(c)
in section 587B(9), ““life assurance business” and related expressions
have the same meaning as Chapter 1 of Part 12;”,
(d)
in section 755A(12), the definition of “long-term insurance fund”,
(e)
section 804F, and
(f)
in paragraph 14(1) of Schedule 28AA, the definition of “insurance
15
company”.
      (3)
In FA 1989—
(a)
in section 85(2A), the second sentence,
(b)
in section 89(6), the words from the beginning to “; and”, and
(c)
section 90A.
20
      (4)
In paragraph 16(7) of Schedule 7 to FA 1991, the words from “and, subject to
that,” to the end.
      (5)
In TCGA 1992—
(a)
section 214BA, and
(b)
paragraph 17(5) of Schedule 7AC.
25
      (6)
In FA 1996—
(a)
in section 87A(2), “, within the meaning of Chapter 1 of Part 12 of the
Taxes Act 1988,” and “(see section 431(2) of that Act)”,
(b)
section 88(7),
(c)
in paragraph 12(9) of Schedule 9, the definitions of “contracts of long-
30
term insurance” and “overseas life insurance company”,
(d)
in paragraph 20(3)(b) of that Schedule, “, within the meaning of
Chapter 1 of Part 12 of the Taxes Act 1988,” and “(see section 431(2)
of that Act)”, and
(e)
in Schedule 11, paragraph 6.
35
      (7)
In paragraph 13(3) of Schedule 18 to FA 1998, the words after “1988”.
      (8)
In CAA 2001—
(a)
section 257(3),
(b)
section 544(5), and
(c)
section 560(5)(a) and (c).
40
      (9)
In paragraph 31(1) of Schedule 22 to FA 2001, the definitions of “insurance
company” and “life assurance business”.
     (10)
In FA 2002—

Finance Bill
Schedule 10 — Insurance companies: miscellaneous
169

(a)
in section 66(5), the words from the beginning to the end of the
definition of “long-term insurance fund”,
(b)
in paragraph 19(1) of Schedule 12, the definition of “life assurance
business”,
(c)
in paragraph 10(4) of Schedule 22, the words before the definition of
5
“transfer scheme”,
(d)
in Schedule 26—
(i)
in sub-paragraph (1) of paragraph 12, the references to the
expressions “Integrated Prudential Sourcebook” and “long-
term insurance fund”,
10
(ii)
sub-paragraphs (15) and (16) of that paragraph, and
(iii)
in paragraph 54(1), the definitions of “insurance company”,
“life assurance business”, “long-term insurance business”
and “contract of long-term insurance”, and
(e)
in Schedule 29, in paragraph 89(3), the definition of “contracts of
15
long-term insurance” and paragraph 138(1).
     (11)
In Schedule 23 to FA 2003—
(a)
in paragraph 30, the definitions of “insurance company” and “life
assurance business”, and
(b)
in paragraph 31, the entries relating to those definitions.
20
     (12)
Section 134(4)(c) of FA 2006.
Minor changes
16    (1)
In section 432ZA(5) of ICTA (linked assets), for “432F” substitute “432E”.
      (2)
In section 434A(2A) of that Act (computation of losses and limitation on
relief), for “paragraph 2” substitute “paragraph 2(1)”.
25
      (3)
In the heading of section 88 of FA 1989, for “fraction” substitute “share”.
      (4)
In paragraph 17 of Schedule 7 to FA 1991 (transitional provisions for
chargeable gains and unrelieved general annuity business)—
(a)
in sub-paragraph (4), for the words after “in an accounting period”
substitute “is so much of the chargeable gains arising to the company
30
in the accounting period as are referable to its basic life assurance
and general annuity business.”, and
(b)
omit sub-paragraph (5).
Obsolete etc provisions
17    (1)
Omit the following provisions (which are obsolete or of limited value).
35
      (2)
In the Table in section 98 of TMA 1970, the words “or 441A(3)” in both
columns.
      (3)
In ICTA—
(a)
in section 76(7), in Step 3, the entries relating to section 587B(8)(b)(i)
of ICTA and paragraph 23(2) of Schedule 13 to FA 2002,
40
(b)
section 440(2A) and (2B) (transfer of assets: loan relationships and
derivative contracts),
(c)
section 442(4) (special rule for insurance companies ceasing to be
resident in United Kingdom),

Finance Bill
Schedule 10 — Insurance companies: miscellaneous
170

(d)
section 443 (life policies carrying rights not in money),
(e)
section 444 (life policies issued before 5th August 1965),
(f)
section 587B(8) (gifts to charities etc: modifications for insurance
companies), and
(g)
in section 807A (disposals and acquisitions of company loan
5
relationships with or without interest), subsections (4) and (5)(b)
and, in subsection (6)(a), “or an insurance credit”.
      (4)
In FA 1989—
(a)
section 84(2) to (6) (transitional provisions etc),
(b)
in section 85(3) (commencement of provisions for charge of certain
10
BLAGAB receipts), “(including the 1990 component period)”,
(c)
in section 86 (spreading of relief for acquisition expenses),
subsections (3) and (3A) and, in subsection (10), “(including the 1990
component period)”, and
(d)
section 87 (management expenses).
15
      (5)
In FA 1996—
(a)
paragraph 1(1) and (2) of Schedule 11 (loan relationships: I minus E
basis),
(b)
paragraph 4(6) of that Schedule (non-trading deficits: transitional
provision),
20
(c)
paragraph 5 of that Schedule (elections for accrual basis), and
(d)
paragraph 1(3) of Schedule 15 (apportionment of loan relationship
credits and debits: transitional provision).
      (6)
Paragraph 18 of Schedule 12 to FA 1997 (leasing arrangements: meaning of
“accounting purposes” for insurance companies).
25
      (7)
Paragraph 86 of Schedule 18 to FA 1998 (non-annual actuarial
investigations).
      (8)
Paragraph 4 of Schedule 6 to FA 1999 (reverse premiums etc).
      (9)
Section 87(3) and (4) of FA 2001 (tax credits etc).
     (10)
In Schedule 13 to FA 2002 (vaccine research), paragraphs 22, 23 and 25(3),
30
and, in paragraph 27, the definition of “life assurance business”.
Commencement
18    (1)
The amendments made by paragraphs 1 to 3, 5(2) and (4), 6, 7 and 9 to 16
have effect in relation to periods of account beginning on or after 1st January
2007.
35
      (2)
The amendment made by paragraph 4 has effect in relation to losses
accruing in a period of account beginning on or after 1st January 2007.
      (3)
The amendment made by paragraph 5(3) has effect in relation to periods of
account beginning on or after 1st January 2005.

Finance Bill
Schedule 11 — Technical provisions made by general insurers
171

Schedule 11
Section 41

Technical provisions made by general insurers
Restriction on amount of technical provisions made by general insurers
1     (1)
This paragraph applies if a general insurer makes any technical provisions
for a period of account.
5
      (2)
The amount of the technical provisions stated in the accounts for that period
is to be taken into account in the calculation for tax purposes of the profits of
the general insurer’s trade for that period unless an officer of Revenue and
Customs considers that that amount exceeds the appropriate amount.
      (3)
In that case—
10
(a)
the excess is not to be taken into account in that calculation, and
(b)
the profits of the general insurer’s trade for the next period of
account are to be adjusted accordingly for tax purposes.
      (4)
“The appropriate amount” means such amount as is determined in
accordance with regulations made by the Commissioners for Her Majesty’s
15
Revenue and Customs to be the appropriate amount to be taken into account
in that calculation.
      (5)
Any such determination must be made by reference to the time at which the
technical provisions are made.
Enforcement
20
2     (1)
This paragraph applies if an officer of Revenue and Customs gives a notice
of enquiry under paragraph 24(1) of Schedule 18 to FA 1998 to a general
insurer.
      (2)
The officer may by notice require the general insurer (at the general insurer’s
own expense) to provide the officer with a report as to whether (and, if so,
25
the extent to which) the amount of any technical provisions stated in the
accounts for any period covered by the company tax return into which the
enquiry is made exceeds the appropriate amount.
      (3)
The report must cover such matters, and be in such form, as the officer may
reasonably require for the purposes of the enquiry.
30
      (4)
The report must be made by a person who is appointed by the general
insurer unless the officer requires the report to be made instead by another
person.
      (5)
As soon as the general insurer appoints a person to make the report, the
general insurer must give a notice to the officer specifying that person.
35
      (6)
A notice under sub-paragraph (2) must specify the time (which must not be
less than 30 days) within which the general insurer is to comply with it.
      (7)
The following provisions of Schedule 18 to FA 1998—
(a)
paragraph 28 (appeal against requirements imposed by notice under
paragraph 27), and
40
(b)
paragraph 29 (penalty for failure to comply with such a notice),

apply in relation to any notice under sub-paragraph (2) as they apply in
relation to a notice under paragraph 27 of that Schedule.

Finance Bill
Schedule 11 — Technical provisions made by general insurers
172

      (8)
But the references in paragraph 28 of that Schedule to the provision of
information are to be construed as references to the provision of a report
under this paragraph.
Supplementary
3     (1)
In paragraph 1 “general insurer” means—
5
(a)
a company within the charge to corporation tax which carries on
general business,
(b)
a controlled foreign company (within the meaning of Chapter 4 of
Part 17 of ICTA) which carries on general business, or
(c)
members of a Lloyd’s syndicate who carry on general business.
10
      (2)
In paragraph 2 “general insurer” means—
(a)
a company within the charge to corporation tax which carries on
general business, or
(b)
a company which for the purposes of Chapter 4 of Part 17 of ICTA
has an interest in a controlled foreign company (within the meaning
15
of that Chapter) which carries on general business.
      (3)
For the purposes of sub-paragraphs (1) and (2) “general business” means
business which consists of the effecting or carrying out of contracts that fall
within Part 1 of Schedule 1 to the Financial Services and Markets Act 2000
(Regulated Activities) Order 2001 (S.I. 2001/544).
20
      (4)
In the case of members of a Lloyd’s syndicate, references in paragraph 1 to
any accounts for a period are to the return of the syndicate’s profits or loss
for that period under paragraph 4 of the Lloyd’s Underwriters (Tax)
Regulations 2005 (S.I. 2005/3338).
      (5)
In paragraph 1 “period of account”—
25
(a)
except in the case of members of a Lloyd’s syndicate, means a period
of account for which an account is made up, and
(b)
in the case of members of a Lloyd’s syndicate, means an
underwriting year in which profits or losses are declared for an
earlier underwriting year.
30
      (6)
In paragraphs 1 and 2 “technical provisions”, except in the case of members
of a Lloyd’s syndicate, means any of the following—
(a)
provisions for claims outstanding,
(b)
provisions for unearned premiums, and
(c)
provisions for unexpired risks.
35
      (7)
In paragraphs 1 and 2 “technical provisions”, in the case of members of a
Lloyd’s syndicate (“the syndicate”), means—
(a)
so much of the premiums paid, or treated (in accordance with the
rules or practice of Lloyd’s) as paid, by the members under
reinsurance to close contracts, and
40
(b)
so much of the provisions made by an open Lloyd’s syndicate of
which any member of the syndicate is a member for claims
outstanding, unearned premiums and unexpired risks,

as may be determined by or under regulations made by the Commissioners
for Her Majesty’s Revenue and Customs.
45
      (8)
For this purpose—

Finance Bill
Schedule 11 — Technical provisions made by general insurers
173

(a)
“reinsurance to close contract” means a contract where, in
accordance with the rules or practice of Lloyd’s and in consideration
of the payment of a premium, one underwriting member of Lloyd’s
agrees with another to meet liabilities arising from the latter’s
underwriting business in an underwriting year so that the accounts
5
of the business for that year may be closed, and
(b)
a Lloyd’s syndicate is an “open” Lloyd’s syndicate at any time after
the end of its closing year if, at that time, the accounts of its business
for the underwriting year for which it was formed have not been
closed,
10

and in paragraph (b) “closing year” has the same meaning as in Chapter 3 of
Part 2 of FA 1993 or Chapter 5 of Part 4 of FA 1994.
      (9)
In this paragraph—
“Lloyd’s syndicate” means a syndicate of underwriting members of
Lloyd’s formed for an underwriting year, and
15
“underwriting year” means the calendar year.
     (10)
In this paragraph references to provisions for claims outstanding, unearned
premiums and unexpired risks have the same meaning as in Schedule 9A to
the Companies Act 1985 (c. 6).
     (11)
The Treasury may by regulations amend sub-paragraphs (1) to (3)
20
(definition of “general insurer”).
     (12)
In the event of any changes in the rules or practice of Lloyd’s, the
Commissioners for Her Majesty’s Revenue and Customs may by regulations
make such amendments of paragraph 1 and this paragraph as appear to the
Commissioners to be expedient having regard to those changes.
25
     (13)
Regulations under section 182(1)(a) of FA 1993 or section 229(1)(a) of FA
1994 (assessment and collection of tax charged in case of Lloyd’s
underwriters) may, in particular, include provision applying paragraph 2
with modifications in the case of members of a Lloyd’s syndicate.
     (14)
Regulations under paragraph 1 or this paragraph may—
30
(a)
make different provision for different purposes, and
(b)
make supplementary, incidental, consequential and transitional
provision.
Repeal of section 107 of FA 2000
4
In FA 2000, omit section 107 (general insurance reserves).
35
Commencement
5     (1)
Paragraphs 1 to 3 have effect in relation to periods of account ending on or
after the day on which this Act is passed.
      (2)
The repeal of section 107 of FA 2000 made by paragraph 4 has effect as
follows.
40
      (3)
The repeal of—
(a)
subsections (1) to (3) of that section (technical provisions made by a
general insurer proving to be excessive or insufficient),

Finance Bill
Schedule 12 — Friendly societies: transfers to insurance companies etc
174

(b)
subsections (5) to (8) and (10) of that section so far as relating to those
subsections, and
(c)
subsections (9) and (12)(a) of that section (which relate to those
subsections),

has effect in relation to any amount that would otherwise have been treated
5
as a receipt or an expense of a trade in computing for tax purposes the profits
of the trade for any period of account ending on or after the day on which
this Act is passed.
      (4)
The repeal of—
(a)
subsection (4) of that section (election for any part of technical
10
provisions not to be taken into account in a period of account),
(b)
subsections (5) to (8) and (10) of that section so far as relating to that
subsection, and
(c)
subsection (12)(b) of that section (which relates to that subsection),

has effect so that no election may be made under that subsection in respect
15
of technical provisions made by a general insurer for any period of account
which begins on or after that day.
      (5)
There is a restriction in relation to any election made by a general insurer
under that subsection in respect of technical provisions made by the general
insurer for the final election period.
20
      (6)
The restriction is that the amount of the part of those provisions which the
general insurer elects not to be taken into account in computing for tax
purposes the profits of the general insurer’s trade for that period must not
exceed 10% of the total amount of those provisions.
      (7)
In sub-paragraph (5) “the final election period”, in relation to any general
25
insurer, means the general insurer’s first period of account ending on or
after the day on which this Act is passed.
Schedule 12
Section 43

Friendly societies: transfers to insurance companies etc
Exempt life or endowment business
30
1     (1)
Section 460 of ICTA (exemption from tax in respect of life or endowment
business) is amended as follows.
      (2)
In subsection (10A), after “the transfer” insert “, other than any to which
subsection (11) or (12) below applied immediately before the transfer had
effect,”.
35
      (3)
In subsection (11), for “thereafter continue to be tax exempt life or
endowment business for the purposes of this Chapter.” substitute “continue
to be exempt from corporation tax (whether on income or chargeable gains)
on profits arising from it.”
      (4)
For subsection (12) substitute—
40
“(12)
Where at any time an insurance company acquires by way of transfer
of engagements from a friendly society any life or endowment
business consisting of business which—