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

      (2)
In subsection (2), insert at the appropriate places—
““child trust fund business” has the meaning given by section
431BA;”,
““foreign currency assets”, in relation to an insurance company
and any time during a period of account, means assets, other
5
than assets linked to gross roll-up business, which—
(a)
are at that time managed under the control of a
person whose normal place of work is at a permanent
establishment outside the United Kingdom at or
through which the company carries on gross roll-up
10
business; or
(b)
are denominated in a foreign currency and specified
in a certificate given by a director of the company no
later than three months after the end of the period of
account as being all of the assets of the company’s
15
long-term insurance fund which are held at that time
during the period of account to enable the company
to meet liabilities of its gross roll-up business which
are denominated in that currency;”,
““gross roll-up business” has the meaning given by section
20
431EA;”,
““immediate needs annuities business” means business which
consists of the effecting or carrying out of immediate needs
annuities (within the meaning of section 725 of ITTOIA
2005);”,
25
““individual savings account business” has the meaning given
by section 431BB;”, and
““PHI business” means long-term business other than life
assurance business (including the reinsurance of such long-
term business);”.
30
      (3)
In subsection (2), omit the definitions of—
(a)
“annuity business”, and
(b)
“overseas life assurance fund”.
      (4)
In subsection (2), for the definition of “life assurance business” substitute—
““life assurance business” means business which—
35
(a)
consists of the effecting or carrying out of contracts of
insurance which fall within paragraph I, II, III or
VII(b) of Schedule 1 to the Financial Services and
Markets Act 2000 (Regulated Activities) Order 2001,
or
40
(b)
is capital redemption business,
other than immediate needs annuities business;”.
      (5)
In subsection (2), for the definition of “reinsurance business” substitute—
““reinsurance” includes retrocession;”.
      (6)
After subsection (2ZE) insert—
45
“(2ZF)
In this Chapter “capital redemption business” means any business of
a company carrying on insurance business in so far as it consists of
the effecting on the basis of actuarial calculations, and the carrying
out, of contracts under which, in return for one or more fixed

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

payments, a sum or series of sums of a specified amount become
payable at a future time or over a period.”
7
In section 431A(3)(a) (power to amend), omit “and Schedule 19AA”.
8
After section 431B insert—
“431BA
  Meaning of “child trust fund business”
5
(1)
In this Chapter “child trust fund business” means so much of a
company’s life assurance business as is referable to child trust fund
policies (but not including the reinsurance of such business).
(2)
In this section “child trust fund policy” means a policy of life
insurance which is an investment under a child trust fund (within
10
the meaning of the Child Trust Funds Act 2004).
431BB
  Meaning of “individual savings account business”
(1)
In this Chapter “individual savings account business” means so
much of a company’s life assurance business as is referable to
individual savings account policies (but not including the
15
reinsurance of such business).
(2)
In this section “individual savings account policy” means a policy of
life insurance which is an investment of a kind specified in
regulations made by virtue of section 695(1) of ITTOIA 2005.”
9     (1)
Section 431D (meaning of “overseas life assurance business”) is amended as
20
follows.
      (2)
For subsection (1) substitute—
“(1)
In this Chapter “overseas life assurance business” means so much of
a company’s relevant life assurance business as is with a policy
holder or annuitant not residing in the United Kingdom (but not
25
including the reinsurance of such business).
(1A)
In subsection (1) above “relevant life assurance business” means life
assurance business other than—
(a)
pension business
(b)
individual savings account business,
30
(c)
child trust fund business, and
(d)
business of any description prescribed by regulations made
by the Commissioners for Her Majesty’s Revenue and
Customs.”
      (3)
In subsections (2) and (4), for “(1)” substitute “(1A)”.
35
      (4)
In subsection (4), insert at the end “(including provision amending any
enactment or any instrument made under an enactment)”.
10
After section 431E insert—
“431EA
  Meaning of “gross roll-up business”
In this Chapter “gross roll-up business” means business of any of the
40
following kinds—
(a)
pension business;
(b)
child trust fund business;

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

(c)
individual savings account business;
(d)
life reinsurance business; and
(e)
overseas life assurance business.”
11
In section 431F (meaning of “basic life assurance and general annuity
business”), for the words from “(including” to the end substitute “other than
5
gross roll-up business”.
12
In section 432ZA(7) (linked assets), for “long-term business other than life
assurance” (in both places) substitute “PHI”.
13    (1)
Section 432A (apportionment of income and gains) is amended as follows.
      (2)
In subsection (1A), for “shall be” substitute “is”.
10
      (3)
In subsection (2), for paragraphs (a) to (f) substitute—
“(a)
basic life assurance and general annuity business,
(b)
gross roll-up business, and
(c)
PHI business.”
      (4)
In subsection (3), for “(apart from overseas life assurance business) shall be”
15
substitute “is”.
      (5)
Omit subsection (4).
      (6)
Before subsection (5) insert—
“(4A)
Income arising from, and gains or losses accruing on the disposal of,
foreign currency assets is referable to gross roll-up business.”
20
      (7)
In subsection (5)—
(a)
for “shall be” substitute “is”, and
(b)
omit “(apart from overseas life assurance business)”.
      (8)
For subsections (6) to (6AA) substitute—
“(6)
For the purposes of subsection (5) above “the relevant fraction”, in
25
relation to basic life assurance and general annuity business, is—

where—
A is the aggregate of—
(a)
the mean of the opening and closing liabilities of the
basic life assurance and general annuity business (but
30
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,
(b)
if there has been a relevant reattribution, the mean of
35
the opening and closing amounts of the shareholders’
excess assets, and
(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;
40
B is the aggregate of—

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

(a)
the mean of the opening and closing liabilities of the
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
5
of business, and
(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—
10
(a)
the mean of the opening and closing liabilities of the
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
15
of business, and
(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
20
relation to gross roll-up business, is—

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.
25
(6C)
But if the denominator found in accordance with subsection (6), (6A)
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)—
30
(a)
for “and (6A)” substitute “, (6A) and (6B)”,
(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)”.
35
     (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
40
amended as follows.
      (2)
Omit subsection (3).

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

      (3)
In subsection (4), for paragraphs (a) to (d) substitute—
“(a)
basic life assurance and general annuity business;
(b)
gross roll-up business; and
(c)
PHI business.”
      (4)
In subsection (5), omit “(3) or”.
5
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
as follows.
      (2)
In subsection (1)—
10
(a)
for “432F” substitute “432G”, and
(b)
for “any category of life assurance business” substitute “gross roll-up
business”.
      (3)
In subsection (2), for “432F” substitute “432G”.
      (4)
In subsection (3)—
15
(a)
for “Sections 432C and 432D apply” substitute “Section 432C
applies”, and
(b)
insert at the end “(and section 432G applies in either case)”.
      (5)
In subsection (4)—
(a)
for “sections 432C and 432D” substitute “section 432C”,
20
(b)
in paragraph (a), for “apply” substitute “applies”, and
(c)
omit paragraph (b) and the word “and” before it.
      (6)
In subsection (5)—
(a)
for the words from “any category” to the end of paragraph (b)
substitute “gross roll-up business”, and
25
(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”.
      (8)
In subsection (7), omit “the relevant fraction of” (in both places).
      (9)
In subsection (8A), omit “the relevant fraction of”.
30
     (10)
In subsection (8C), omit “the relevant fraction of”.
     (11)
In subsection (9), omit the definitions of—
(a)
“the relevant fraction”, and
(b)
“the section 83 net amount”.
     (12)
In subsection (10)—
35
(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—
“B is the amount that would be given by A if A
40
applied in relation to gross roll-up business;
and

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

C is the amount that would be given by A if A
applied in relation to PHI business.”.”
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
5
to life assurance business or to gross roll-up business.
(2)
In this section “the net amount” means the aggregate of the amounts
brought into account—
(a)
as investment income,
(b)
as an increase in the value of assets, or
10
(c)
as other income,

less the aggregate of the amounts brought into account as a decrease
in the value of assets.
(3)
To the extent that the net amount is attributable to—
(a)
assets linked to life assurance business, or
15
(b)
foreign currency assets,

it is referable to life assurance business.
(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.
20
(5)
For the purposes of subsection (4) above “the appropriate fraction”
is—

where—
A is the mean of the opening and closing liabilities of the
relevant business so far as referable to life assurance business
25
(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 assets linked to the
relevant business so far as so referable and foreign currency
assets; and
30
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
net values of any assets linked to PHI business.
(6)
But if the denominator found in accordance with subsection (5)
35
above is nil, the appropriate fraction for the purposes of subsection
(4) above is such fraction as is just and reasonable.
(7)
To the extent that the net amount is attributable to—
(a)
assets linked to gross roll-up business, or
(b)
foreign currency assets,
40

it is referable to gross roll-up business.
(8)
There is also referable to gross roll-up business the relevant fraction
of so much of the net amount as is not attributable to linked assets or
foreign currency assets.

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

(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
relevant business so far as referable to gross roll-up business
(but taking that mean to be nil if it would otherwise be below
5
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
D is the mean of the opening and closing liabilities of the
relevant business so far as referable to basic life assurance
10
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
net values of any assets linked to either of those categories of
business.
15
(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.
(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
20
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
as income attributable to an asset of the fund would, by virtue of
section 432ZA, be referable to that category of business.”
25
18
Omit section 432D (section 432B apportionment: value of non-participating
funds).
19    (1)
Section 432E (section 432B apportionment: participating funds) is amended
as follows.
      (2)
For subsection (1) substitute—
30
“(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)
and (2A) below, or
(b)
if greater, the amount determined in accordance with
35
subsection (3) below.
(1A)
In this section “the net amount” means the aggregate of the amounts
brought into account—
(a)
as investment income,
(b)
as an increase in the value of assets, or
40
(c)
as other income,

less the aggregate of the amounts brought into account as a decrease
in the value of assets.”
      (3)
In subsection (2)—