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

(5)
The application, in relation to the life assurance business of an
insurance company, of any provision of Case I of Schedule D is not
to be taken—
(a)
to prevent the application of the I minus E basis in relation to
that business of the company for any accounting period, or
5
(b)
to affect the operation of the I minus E basis in relation to the
that business of the company for any accounting period
except as specifically provided by the Corporation Tax Acts.
431H
Company carrying on life assurance business and other insurance
business
10
(1)
This section applies in relation to an insurance company which
carries on life assurance business and insurance business of any
other kind.
(2)
For the purposes of the Corporation Tax Acts—
(a)
the life assurance business, and
15
(b)
the other insurance business,

are to be treated as separate businesses.
(3)
The profits of the other insurance business shall be charged to tax
under Case I of Schedule D as the profits of a separate trade.
(4)
But subsection (3) above does not apply where that business is
20
mutual business.
(5)
As to the profits of the life assurance business, see section 431G.”
5
In section 432A(7)(c)(ii) (apportionment of income and gains), for
“85(2C)(c)” substitute “85(2C) or 85A”.
6
In section 437(1A) (annuities), for “, otherwise than in accordance with the
25
provisions applicable to Case I of Schedule D,” substitute “under the I minus
E basis”.
7
Omit section 439A (taxation of pure reinsurance business).
8     (1)
Section 440B (modifications where tax charged under Case I of Schedule D)
is amended as follows.
30
      (2)
In subsection (1), insert at the end “in accordance with section 431G(3)”.
      (3)
In subsection (3), for “Section 440(1) and (2) apply” substitute “Subsection (1)
of section 440 applies”.
      (4)
After subsection (4) insert—
“(4A)
Section 440(2) does not apply if either the transferor or the company
35
by which the asset is acquired is a company whose profits are
charged to tax in accordance with Case I of Schedule D (or if they
both are).
(4B)
Section 211 of the 1992 Act does not apply if the transferor is a
company whose profits are charged to tax in accordance with Case I
40
of Schedule D.”
      (5)
Omit subsection (5).

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

9
After that section insert—
“440C
  Modifications for change of tax basis
(1)
Subsection (2) makes provision for a case where—
(a)
subsection (4) of section 431G applies in relation to the profits
of the life assurance business of an insurance company for
5
any accounting period, but
(b)
the profits of that business for a succeeding accounting
period fall to be charged to tax in accordance with Case I of
Schedule D by virtue of subsection (3) of that section.
(2)
The loss referred to in section 431G(4)(b) (less any loss for the same
10
accounting period set off under section 436A for any intervening
accounting period and any amount deducted for any such period in
respect of the loss by virtue of section 85A(3)(b) of the Finance Act
1989) may be set off under section 393 against profits of that
succeeding accounting period (without being reduced in accordance
15
with section 434A(2)(a)).
(3)
In determining whether any loss has been set off under section 436A
for any intervening accounting period, or whether any amount has
been deducted for any such period in respect of the loss by virtue of
section 85A(3)(b) of the Finance Act 1989, losses of earlier accounting
20
periods are to be assumed to be set off before those of later
accounting periods.
(4)
Subsection (5) makes provision for a case where—
(a)
a loss arises to an insurance company for an accounting
period for which the profits of its life assurance business fall
25
to be charged to tax in accordance with Case I of Schedule D
by virtue of section 431G(3)(b),
(b)
the profits of that business for a subsequent accounting
period are charged to tax under the I minus E basis, and
(c)
had those profits (instead) been charged to tax in accordance
30
with Case I of Schedule D, any of that loss would have been
available to be set off against them under section 393.
(5)
The loss is to be treated for the purposes of the operation of section
436A in relation to the subsequent accounting period as if it were a
loss arising from its gross roll-up business in the accounting period
35
in which it arose.
(6)
Subsections (7) and (8) make provision for a case where—
(a)
the profits of the life assurance business of an insurance
company for an accounting period are charged to tax under
the I minus E basis,
40
(b)
the profits of that business for its next accounting period fall
to be charged to tax in accordance with Case I of Schedule D
by virtue of section 431G(3), and
(c)
that prevents the giving of relief in accordance with section
86(8) of the Finance Act 1989 (acquisition expenses relieved in
45
fractions under section 76).
(7)
Any relief which would have been so given in—
(a)
the next accounting period, or

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
144

(b)
any subsequent accounting period for which the profits of the
company’s life assurance business continue to be charged to
tax in accordance with Case I of Schedule D,

may be given by set-off against any gains treated as accruing under
section 213(1) of the 1992 Act at the end of the accounting period.
5
(8)
But if the profits of the company’s life assurance business for a
subsequent accounting period are charged to tax under the I minus E
basis, any relief not previously given under subsection (7) is to be
treated for the purposes of the operation of section 76 in relation to
the first subsequent accounting period for which profits are so
10
charged as if it were an amount which is to be relieved under that
section by virtue of section 86(8) and (9) of the Finance Act 1989.”
10
In section 755A(2) and (6)(a) (controlled foreign companies: apportionments
to companies carrying on life assurance business), for “not charged to tax
under Case I of Schedule D in respect of its profits from” substitute “charged
15
to tax under the I minus E basis in respect of”.
Finance Act 1989 (c. 26)
11
FA 1989 is amended as follows.
12
In section 83(6)(c) (receipts to be taken into account), for the words from “the
reinsurer” to the end substitute “section 431G(3)(a) of the Taxes Act 1988
20
(pure reinsurance) applies to the reinsurer under the contract for the
accounting period of the reinsurer during which the transfer of business
occurs”.
13
In subsection (1) of section 85 (charge of certain receipts of BLAGAB)—
(a)
for “the profits of an insurance company in respect of its life
25
assurance business are not charged under Case I of Schedule D”
substitute “an insurance company is charged to tax under the I minus
E basis in respect of its life assurance business”, and
(b)
for “those profits” substitute “the profits of the life assurance
business”.
30
14
After that section insert—
“85A
Excess adjusted Case I profits
(1)
Where for any accounting period an insurance company is charged
to tax under the I minus E basis in respect of its life assurance
business, the company shall be chargeable on any excess adjusted
35
Case I profits under Case VI of that Schedule.
(2)
“Excess adjusted Case I profits” means any amount by which—
(a)
the adjusted Case I profits (see subsection (3)), exceeds
(b)
the relevant amount (see subsection (5)).
(3)
“The adjusted Case I profits” means the amount that would be the
40
profits of the company’s life assurance business for the accounting
period if—
(a)
computed in accordance with the provisions applicable to
Case I of Schedule D, and
(b)
adjusted in respect of losses (see subsection (4)).
45

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
145

(4)
The adjustment in respect of losses is a deduction of the amount
which, disregarding section 434A(2)(a) of the Taxes Act 1988, would
fall to be set off under section 393 of that Act against the company’s
income for the accounting period if the company had always been
charged to tax under Case I of Schedule D.
5
(5)
The relevant amount (which may be a negative amount) is found
by—
(a)
taking the relevant income (see subsection (6)), and
(b)
deducting from it the relevant aggregate (see subsection (8)).
(6)
“The relevant income” means—
10
(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
company’s basic life assurance and general annuity business
for the accounting period,
15
(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
subsection (7)), and
(c)
any profits of the company chargeable for the accounting
20
period under Case VI of Schedule D under section 436A of
that Act.
(7)
“Chargeable gains referable (in accordance with section 432A of the
Taxes Act 1988) to the company’s basic life assurance and general
annuity business” has the same meaning as in subsection (3A)(a) of
25
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
Taxes Act 1988) in the case of the company for the accounting
period,
30
(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
by a separate computation under paragraph 2(1) of Schedule
11 to the Finance Act 1996, and
35
(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)
applied in reducing profits of the company for the accounting
period.
40
(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
be reduced or eliminated, and
(b)
that the amount by which the charge is reduced, or (where
45
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
accounting period).

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 1 — Amendments
146

(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.
      (2)
Omit subsection (2).
      (3)
In subsection (3)(a), for “basic” substitute “expenses”.
5
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
purposes of subsections (1), (1A) and (2) they are to be adjusted in respect of
losses in accordance with section 85A(4).”
10
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
provisions applicable to Case I of Schedule D,” substitute “under the I minus
E basis”.
15
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).
Finance (No. 2) Act 1992 (c. 48)
19
In F(No.2)A 1992, omit section 65 (life assurance business: I minus E basis).
20
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
(14).
Finance Act 1998 (c. 36)
25
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
charge to tax either—
(a)
in computing profits chargeable to tax under Case I of
30
Schedule D, or
(b)
as amounts within Case III or V of that Schedule.”;

and the italic heading before that paragraph accordingly becomes “Choice
between Case I and Case III or V of Schedule D”.
Capital Allowances Act 2001 (c. 2)
35
22
CAA 2001 is amended as follows.

Finance Bill
Schedule 8 — Insurance companies: basis of taxation etc
Part 2 — Transitional provisions
147

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
assurance business.”
24
In section 257(2) (life assurance: supplementary), for paragraphs (a) and (b)
substitute—
5
“(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)
25
FA 2002 is amended as follows.
10
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
minus E basis in respect of its life assurance business”.
15
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
Unused pre-commencement section 76(12) etc excesses
20
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
accounting period under subsection (12) of that section included—
25
(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
subsection (7) of that section, and
30
(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
section 76 of that Act).
35
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
January 2007 (“the first accounting period”) are charged to tax in
40
accordance with Case I of Schedule D by virtue of subsection (3)(b)
of section 431G of ICTA, but

Finance Bill
Schedule 9 — Insurance companies: transfers etc
148

(b)
the profits of the life assurance business of the company for the
preceding accounting period were 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
5
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”
10
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
15
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;”.
20
      (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
25
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,
30
(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)—
35
(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—
40
(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).