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
135

company for the period in respect of its life assurance
business as does not exceed the amount of any profits of the
company for the period so chargeable, and”.
Taxation of Chargeable Gains Act 1992 (c. 12)
60
TCGA 1992 is amended as follows.
5
61
In section 204(10) (policies of insurance and non-deferred annuities)—
(a)
for “as defined in section 458(3)” substitute “within the meaning of
Chapter 1 of Part 12”, and
(b)
omit “other”.
62
In section 210B—
10
(a)
omit paragraph (b) of subsection (6) and the word “or” before it, and
(b)
in subsection (8) (disposal and acquisition of section 440A securities),
in the definition of “chargeable section 440A holding”, for “(2)(a)(iii)”
substitute “(2)(a)(i)”.
63
In section 212(2) (annual deemed disposal of holdings of certain assets), for
15
the words from “pension business” to the end substitute “gross roll-up
business”.
64
In section 213(1A) (spreading of gains and losses under section 212), omit the
words following “general annuity business”.
Finance Act 1996 (c. 8)
20
65
FA 1996 is amended as follows.
66
In paragraph 12(3) of Schedule 9 (loan relationships: special computational
provisions), for “440(4)(a) to (e)” substitute “440(4)(a), (d) and (e)”.
67    (1)
Schedule 11 (loan relationships: special provisions for insurers) is amended
as follows.
25
      (2)
In paragraph 2, for sub-paragraph (1) substitute—
    “(1)
Where an insurance company carries on basic life assurance and
general annuity business, a separate computation, using only the
non-trading credits and non-trading debits referable to that
business, shall be made for the purposes of this Chapter in relation
30
to that business.”
      (3)
In paragraph 3A(5)—
(a)
after “(6A)” insert “, (6B)”,
(b)
for “subsections (6)(a) and (6A)(a)” substitute “subsection (6)”, and
(c)
omit paragraph (c) and the word “and” before it.
35
      (4)
In paragraph 4—
(a)
in sub-paragraph (1), omit paragraph (b) and the word “or” before it,
(b)
in sub-paragraph (2)(a), for “the relevant category of business”
substitute “basic life assurance and general annuity business”,
(c)
in sub-paragraph (7), for “the relevant category of business”
40
substitute “its basic life assurance and general annuity business”,

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
136

(d)
in sub-paragraph (10), for “the relevant category of business” (in
both places) substitute “basic life assurance and general annuity
business”, and
(e)
omit sub-paragraph (16).
Capital Allowances Act 2001 (c. 2)
5
68
CAA 2001 is amended as follows.
69    (1)
Section 255 (apportionment of allowances and charges) is amended as
follows.
      (2)
For subsections (1) and (1A) substitute—
“(1)
Except where subsection (3) applies, any allowance to which the
10
company is entitled, and any charge to which it is liable, for a
chargeable period in respect of a management asset must be
apportioned between basic life assurance and general annuity
business, gross roll-up business and PHI business in accordance with
subsections (1A) and (1B).
15
(1A)
The allowance or charge is to be apportioned to a category of
business using the formula—

where—
A is the amount of the allowance or charge,
B is the mean of the opening and closing liabilities of that
20
category of business, and
C is the mean of the opening and closing liabilities of all the
categories of business mentioned in subsection (1) which are
carried on by the company.
(1B)
If C is nil or below nil, the allowance or charge to be apportioned to
25
a category of business is such as is just and reasonable.”
      (3)
Omit subsection (2).
      (4)
In subsection (3)—
(a)
in paragraph (a), for “section 441 of ICTA in respect of its overseas
life assurance business” substitute “section 436A of ICTA (gross roll-
30
up business)”, and
(b)
in paragraph (b), for “provided outside the United Kingdom for use
for the management of that business” substitute “held for the
purposes of a permanent establishment outside the United Kingdom
at or through which the company carries on gross roll-up business”.
35
70    (1)
Section 256 (different giving effect rules for different categories of business)
is amended as follows.
      (2)
In subsection (3), for paragraphs (a) to (c) substitute “section 436A of ICTA
(gross roll-up business)”.
      (3)
In subsection (4)—
40
(a)
for “profit” substitute “profits”,

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 1 — Amendments
137

(b)
in paragraph (a), for “any particular category of business” substitute
“gross roll-up business” and for “that category of business”
substitute “its gross roll-up business”, and
(c)
in paragraph (b), for “any particular category of business” substitute
“gross roll-up business” and for “that category of business”
5
substitute “its gross roll-up business”.
71    (1)
Section 545 (investment assets) is amended as follows.
      (2)
In subsection (3), in the second sentence, for “sections 432ZA to 432E, or
section 438B,” substitute “section 432A”.
      (3)
In subsection (5)—
10
(a)
for the words from “under—” to “no allowance” substitute “under
section 436A of ICTA (gross roll-up business), no allowance”, and
(b)
for “the category of life assurance business in question” substitute
“gross roll-up business”.
Finance Act 2001 (c. 9)
15
72
In paragraph 20 of Schedule 22 to FA 2001 (remediation of contaminated
land), for the words from the beginning to “Schedule D,” substitute “In
computing in accordance with the provisions of the Taxes Act 1988
applicable to Case I of Schedule D the profits for any accounting period
arising to an insurance company from its life assurance business, or from its
20
gross roll-up business,”.
Finance Act 2002 (c. 23)
73
FA 2002 is amended as follows.
74    (1)
Schedule 12 (tax relief for expenditure on research and development) is
amended as follows.
25
      (2)
In paragraph 13, for sub-paragraph (3) substitute—
    “(3)
Part 3 of this Schedule has effect in relation to any gross roll-up
business of the company as if the references to the trade carried on
by the company were references to that business (and sub-
paragraph (2) does not apply in relation to that business).”
30
      (3)
In paragraph 15(3)—
(a)
for “(profits of life assurance business chargeable to tax under Case
VI of Schedule D)” substitute “(gross roll-up business)” and for “a
part of the life assurance business” substitute “the gross roll-up
business”, and
35
(b)
for “that part” substitute “the gross roll-up business”.
75    (1)
Schedule 26 (derivative contracts) is amended as follows.
      (2)
In paragraph 12(2), for “section 458” substitute “Chapter 1 of Part 12”.
      (3)
In paragraph 29(1), for “440(4)(a) to (e)” substitute “440(4)(a), (d) and (e)”.
Income Tax (Trading and Other Income) Act 2005 (c. 5)
40
76
ITTOIA 2005 is amended as follows.

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 2 — Transitional provisions
138

77
In section 473(2) (policies and contracts to which Chapter 9 applies), in the
definition of “capital redemption policy”, for “as defined in section 458(3)”
substitute “within the meaning of Chapter 1 of Part 12”.
78
In section 476(3) (special rules: foreign policies), in the definition of “foreign
capital redemption policy”, for “431D(1)(a)” substitute “431D(1)”.
5
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
10
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.
15
      (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,
20
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.
25
      (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
30
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
35
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
40
period of account is to be treated as reduced under subsection (4)(b) of that
section by virtue of this paragraph must not exceed—

Finance Bill
Schedule 7 — Insurance business: gross roll-up business etc
Part 2 — Transitional provisions
139


where—
“CP” is the amount of the company’s profits chargeable under that
section in the period of account,
“PBL” is the mean of the opening and closing liabilities of the
company’s pension business for the period of account, and
5
“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
10
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
15
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
20
(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
25
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
30
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)),
35
(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”,
40
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
45
an insurance company, means so much of any losses incurred by the
company on its child trust fund business in any pre-commencement period

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

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
an insurance company, means so much of any losses incurred by the
company on its life reinsurance business in any pre-commencement period
5
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-
10
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
15
(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
20
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
25
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.
30
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)—
35
(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)—

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

(a)
for “Step 10” substitute “Step 8”, and
(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”.
      (6)
For subsection (13) substitute—
5
“(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
assurance business under the I minus E basis and brought into
10
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
carrying on life assurance business is charged to tax on the
15
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—
“Basis of taxation etc
20
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).
(2)
Subject as follows, the profits of the life assurance business for any
25
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
none of that business is of a type excluded from this
30
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
to tax in accordance with Case I of Schedule D and not otherwise.
35
(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
(b)
had those profits been charged to tax in accordance with Case
40
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).