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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).

 

 

 
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