Finance Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
128

(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”.
      (4)
In subsection (3)—
5
(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
(ii)
insert at the end “and foreign currency assets”.
10
      (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
assets and foreign currency assets; and
15
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.”
      (6)
In subsection (4A), after “linked assets” insert “or foreign currency assets”.
20
      (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
falls to be applied”, and
25
(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
appropriate fraction of the amount brought into account as a
30
business transfer-in and of any amount taken into account as profits
under section 444ABD(1).
(2)
For the purposes of subsection (1) above “the appropriate fraction”
is—

where—
35
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.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
129

(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
5
transfer-in and of any amount taken into account as profits under
section 444ABD(1).
(5)
For the purposes of subsection (4) above “the relevant fraction” is—

where—
GRBL is the amount of the liabilities transferred that are
10
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
fraction for the purposes of subsection (4) above is such fraction as is
15
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
distribution made by a company resident in the United Kingdom in
20
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
Act 1989 includes the amount of the payment.”
25
      (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)—
(a)
omit “the aggregate of”, and
30
(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
mentioned in sub-paragraphs (i) and (ii) above.”
35
24
Omit section 436 (pension business: separate charge on profits).
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—
40
(a)
are to be treated as income within Schedule D, and
(b)
are chargeable under Case VI of that Schedule.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
130

(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.
(3)
In making that computation, sections 82 and 82B to 83AB of the
5
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—
(a)
the loss must be set off against the amount of any profits
10
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
the amount of the loss or so much of that amount as cannot
15
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.
(6)
No loss to which section 396 applies may be set off under subsection
20
(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
accounting period are charged to tax under Case I of Schedule D.
25
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—
(a)
accrue to an insurance company on the disposal by it of assets
30
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.
      (2)
In subsection (1), for the words after “income” substitute “from assets solely
35
linked to pension business.”
      (3)
Omit subsections (2) and (4).
27
Omit section 438B (income or gains arising from property investment LLP).
28
Omit section 438C (determination of policy holders’ share for purposes of
s.438B).
40
29
Omit section 439 (restricted government securities).
30
Omit section 439B (life reinsurance business: separate charge on profits).
31    (1)
Section 440 (transfers of assets etc) is amended as follows.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
131

      (2)
In subsection (3), for “(a) to (e)” substitute “(a), (d) and (e)”.
      (3)
In subsection (4), for paragraphs (a) to (c) substitute—
“(a)
assets which are linked solely to gross roll-up business or are
foreign currency assets;”,

and, in paragraph (e), for “any” substitute “either”.
5
32
In section 440A(2) (securities)—
(a)
in paragraph (a), for sub-paragraphs (i) to (iii) substitute—
“(i)
basic life assurance and general annuity
business, or
(ii)
gross roll-up business,”,
10
(b)
omit paragraph (c), and
(c)
in paragraph (d)—
(i)
for “any of the preceding paragraphs” substitute “paragraph
(a)”, and
(ii)
for “any of the descriptions mentioned in those paragraphs”
15
substitute “the description mentioned in that paragraph”.
33
In section 440B(4) (modifications where tax charged under Case I of
Schedule D)—
(a)
for “(a) to (e)” substitute “(a), (d) and (e)”, and
(b)
for the notionally substituted paragraph (a) substitute—
20
“(a)
so many of the securities as are included in the
company’s long-term insurance fund shall be treated
for the purposes of corporation tax as a separate
holding which is an asset of that fund, and”.
34
Omit section 441 (overseas life assurance business).
25
35
In section 444A(3) (transfers of business)—
(a)
for “436(3)(c) or 439B(3)(c)” substitute “436A(4)”,
(b)
omit paragraph (b) and the word “or” before it, and
(c)
for “the same category of business as that in which it arose)”
substitute “gross roll-up business)”.
30
36    (1)
Section 444AC (transfers of business: excess of assets or liabilities) is
amended as follows.
      (2)
In subsection (2B)—
(a)
for “each category of its life assurance business” substitute “its gross
roll-up business”,
35
(b)
for “a category of the transferee’s life assurance business” substitute
“the transferee’s gross roll-up business”, and
(c)
for “that category” substitute “gross roll-up business”.
      (3)
In subsection (2D), for “a category of its life assurance business” substitute
“its gross roll-up business”.
40
      (4)
In subsection (10), in the definition of “the transferor’s business”, for
paragraph (b) substitute—
“(b)
its gross roll-up business.”
37    (1)
Section 444AF (demutualisation surplus: life assurance business) is
amended as follows.
45

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
132

      (2)
In subsection (4)(b), for “sections 432C and 432D apply” substitute “section
432C applies”.
      (3)
In subsection (5)(b), for “the profits of any category of the company’s life
assurance business chargeable to tax under Case VI of Schedule D”
substitute “profits of the company chargeable under Case VI of Schedule D
5
under section 436A (gross roll-up business)”.
38    (1)
Section 444AK (mutual surplus: Case VI categories of life assurance
business) is amended as follows.
      (2)
In subsection (1), for paragraph (b) substitute—
“(b)
the company carries on gross roll-up business.”
10
      (3)
In subsection (3), for “any category of the company’s life assurance business
chargeable to tax under Case VI of Schedule D” substitute “the company’s
gross roll-up business”.
      (4)
In subsection (5)(b), for “sections 432C and 432D apply” substitute “section
432C applies”.
15
      (5)
The heading accordingly becomes “Mutual surplus: gross roll-up
business”.
39
Omit sections 458 and 458A (capital redemption business).
40
In section 460(2) (registered friendly societies: exemption from tax in respect
of life or endowment business)—
20
(a)
for “pension business” substitute “gross roll-up business”,
(b)
at the end of paragraph (ca), insert “and”, and
(c)
omit paragraph (cb).
41
In section 461 (registered friendly societies: other business), omit subsection
(3A).
25
42
In section 461B (incorporated friendly societies), omit subsection (2A).
43    (1)
Section 466 (interpretation of Chapter 2 of Part 12) is amended as follows.
      (2)
For subsection (1) substitute—
“(1)
In this Chapter “life or endowment business” means, subject to
subsections (1A) and (1B) below—
30
(a)
any life assurance business, and
(b)
any PHI business.”
      (3)
In subsection (2)—
(a)
omit the definition of “life assurance business”, and
(b)
insert the following definition at the appropriate place—
35
““gross roll-up business” shall be construed in accordance with
section 431;”.
      (4)
Omit subsections (2ZA), (2A) and (2B).
44
In section 502H(2)(a)(ii) and (4)(b) (insurance company as lessor), for “long-
term business which is not life assurance” substitute “PHI”.
40

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
133

45
In section 539(3) (life policies, life annuities and capital redemption policies),
in the definition of “capital redemption policy”, for “as defined in section
458(3)” substitute “, within the meaning of Chapter 1 of Part 12”.
46    (1)
Section 553B (overseas life assurance business: capital redemption policies)
is amended as follows.
5
      (2)
In subsection (2), in the definition of “overseas policy”, for “431D(1)(a)”
substitute “431D(1)”.
      (3)
In subsection (3), for the words from “after” to the end substitute “on or after
23rd March 1999”.
47    (1)
Section 755A (treatment of chargeable profits and creditable tax apportioned
10
to company carrying on life assurance business) is amended as follows.
      (2)
In subsection (4), for the words after “referable to” substitute “gross roll-up
business carried on by the UK company”.
      (3)
In subsection (6)(c), for “a category of business specified in paragraphs (a) to
(c) of subsection (4) above” substitute “gross roll-up business”.
15
      (4)
In subsection (13), for paragraphs (a) to (d) substitute—
“(a)
basic life assurance and general annuity business, or
(ba)
gross roll-up business,”.
48
In section 804A(1) (life assurance companies with overseas branches etc:
restriction of credit), for “any category of life assurance business” substitute
20
“gross roll-up business”.
49    (1)
Section 804B (insurance companies carrying on more than one category of
business: restriction of credit) is amended as follows.
      (2)
In subsection (1)(a), after “category of” insert “long-term”.
      (3)
In subsection (2), omit “or section 438B”.
25
      (4)
For subsection (3) substitute—
“(3)
Where the relevant income arises from an asset which is linked solely
to a category of business, the whole of the foreign tax is attributable
to that category of business, unless the case is one where subsection
(7) below applies.
30
(3A)
Where the relevant income arises from foreign currency assets, the
whole of the foreign tax is attributable to gross roll-up business,
unless the case is one where subsection (7) below applies.”
      (5)
In subsection (4)—
(a)
for “long-term business which is not life assurance” substitute “PHI”,
35
and
(b)
omit “or 438B”.
      (6)
In subsection (5), for the words following “is” substitute “gross roll-up
business.”
      (7)
In subsection (6)—
40
(a)
omit “or 432D” (in both places), and
(b)
for “the category of business in question” and “that category”
substitute “gross roll-up business”.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
134

      (8)
In subsection (7), for—
(a)
“the category of business in question”, and
(b)
“that category”,

substitute “gross roll-up business”.
      (9)
For subsection (9) substitute—
5
“(9)
Where for the purposes of this section an amount of foreign tax is
attributable to gross roll-up business, credit in respect of the foreign
tax so attributable shall be allowed only against corporation tax in
respect of profits chargeable under section 436A.”
50
In section 804C(14) (insurance companies: allocation of expenses etc in
10
computations under Case I of Schedule D), for—
(a)
“a category of life assurance business”, and
(b)
“any category of life assurance business”,

substitute “gross roll-up business”.
51    (1)
Section 804D (interpretation of section 804C in relation to life assurance
15
business etc) is amended as follows.
      (2)
In subsection (1), for “a category of life assurance business” substitute “gross
roll-up business”.
      (3)
In subsection (3), for “432F” substitute “432G”.
52
In section 804E (interpretation of section 804C in relation to other insurance
20
business), for “any category of life assurance business” substitute “gross roll-
up business”.
53
In section 806L(5) (carry forward or carry back of unrelieved foreign tax), for
paragraph (b) substitute—
“(b)
included in the profits of gross roll-up business chargeable
25
under Case VI of Schedule D by virtue of section 436A.”
54
In section 808 (restriction on deduction of interest or dividends from trading
income), for “436” substitute “436A”.
55
Omit Schedule 19AA (overseas life assurance fund).
56
In paragraph 2(1A)(a) of Schedule 25 (cases where section 747(3) does not
30
apply), for “436, 439B or 441” substitute “436A”.
Finance Act 1989 (c. 26)
57
FA 1989 is amended as follows.
58
In section 88(3A) (corporation tax: policy holders’ fraction of profits), for
paragraph (b) substitute—
35
“(b)
profits of the company chargeable under Case VI of Schedule
D under section 436A of the Taxes Act 1988 (gross roll-up
business).”
59
In section 89(1A) (policy holders’ share of profits), for paragraph (a)
substitute—
40
“(a)
deducting from any profits of the company for the period
chargeable under Case VI of Schedule D under section 436A
of the Taxes Act 1988 so much of the Case I profits of the