Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 9 — Insurance companies: transfers etc
160

Transfers and demutualisations: losses where assets added to long-term insurance fund
11    (1)
FA 1989 is amended as follows.
      (2)
Omit—
(a)
in section 83, subsections (3) to (7) and, in subsection (8), the
definitions of “add”, “demutualisation” and “total reinsurance”
5
(which relate to losses where assets added to long-term insurance
fund),
(b)
section 83AA (amounts added to long-term insurance fund in excess
of loss), and
(c)
section 83AB (treatment of surplus where there is subsequent
10
transfer from company etc).
      (3)
In section 83B(3) (changes in recognised accounts: attribution of amounts
carried forward), for “83AB” substitute “83ZA”.
12
In section 436A(3) of ICTA (gross roll-up business), for “83AB” substitute
“83ZA”.
15
Transfer schemes: old annuity contracts
13    (1)
Paragraph 16 of Schedule 7 to FA 1991 (transitional relief for old general
annuity contracts) is amended as follows.
      (2)
In sub-paragraph (7), in the definition of “old annuity contract”, insert at the
end “(including one forming part of the business transferred to another
20
insurance company by an insurance business transfer scheme)”.
      (3)
After that sub-paragraph insert—
    “(8)
Where—
(a)
business is transferred to an insurance company by an
insurance business transfer scheme during an accounting
25
period of the company, and
(b)
the business transferred consists of or includes old annuity
contracts (“the transferred contracts”),

the reference in the definition of R1 in sub-paragraph (2) above to
the company’s opening liabilities for the accounting period is, in
30
relation to the transferred contracts, a reference to the company’s
liabilities in respect of the transferred contracts immediately after
the transfer.”
Transfer schemes: no gain/no loss
14    (1)
TCGA 1992 is amended as follows.
35
      (2)
In section 211 (application of section 139), for subsections (2) and (2A)
substitute—
“(2)
Where this section applies the transferor and the transferee are
treated for the purposes of corporation tax on chargeable gains as if
any assets included in the transfer which—
40
(a)
immediately before they are acquired by the transferee, were
assets of the transferor’s long-term insurance fund, and

Finance Bill
Schedule 9 — Insurance companies: transfers etc
161

(b)
immediately after they are so acquired are assets of the
transferee’s long-term insurance fund,

were acquired for a consideration of such amount as would secure
that neither a gain nor a loss would accrue to the transferor on the
disposal.
5
(3)
Subsection (2) above is subject to section 212.”
      (3)
In section 35(3)(d) (re-basing: exceptions), after “171,” insert “211,”.
Transfer schemes: old reinsurance business
15
In paragraph 57 of Schedule 8 to FA 1995 (application of provisions made by
that Schedule), after sub-paragraph (2) (which disapplies section 442A of
10
ICTA in relation to the reinsurance of policies and contracts made and
reinsured before 29th November 1994) insert—
    “(3)
Where business consisting of or including an arrangement for the
reinsurance of a policy or contract made before 29th November
1994 which was effected before that date has been transferred by
15
an insurance business transfer scheme sub-paragraph (2) has
effect in relation to the transferee.”
Power to amend transfer provisions
16    (1)
The Treasury may by order make provision in relation to insurance business
transfer schemes.
20
      (2)
The power conferred by sub-paragraph (1) includes power to amend or
repeal any provision of the Corporation Tax Acts relating to insurance
business transfer schemes and otherwise to amend the Corporation Tax
Acts.
      (3)
The power conferred by sub-paragraph (1) includes power to make—
25
(a)
different provision for different cases or otherwise for different
purposes, and
(b)
incidental, supplementary, consequential or transitional provisions
and savings.
      (4)
Provision made by an order under this paragraph—
30
(a)
may be made so as to have effect in relation to periods of account
current when it is made, but
(b)
may not be made so as to have effect in relation to any insurance
business transfer scheme taking effect before the day appointed
under paragraph 17(2) of this Schedule.
35
      (5)
No order may be made under this paragraph unless a draft of the statutory
instrument containing it has been laid before the House of Commons before
1st April 2008 and has been approved by a resolution of that House.
Commencement
17    (1)
The amendments made by paragraphs 1 to 3 and 13 to 15 have effect in
40
relation to periods of account beginning on or after 1st January 2007.
      (2)
The amendments made by paragraphs 4, 6 to 9, 10(3) to (5), 11 and 12 have
effect in accordance with provision made by an order made by the Treasury.

Finance Bill
Schedule 10 — Insurance companies: miscellaneous
162

      (3)
But the amendments made by paragraphs 11 and 12 also have effect in
relation to periods of account beginning on or after 1st January 2007 where
the transfer of business or demutualisation concerned took place before 21st
March 2007.
      (4)
The amendment made by paragraph 5 has effect in relation to transfers of
5
business with a transfer date after 21st March 2007.
      (5)
The amendment made by paragraph 10(2) has effect in relation to transfers
taking place on or after 6th December 2006.
Schedule 10
Section 40

Insurance companies: miscellaneous
10
Contingent loans
1
In section 83ZA(4) of FA 1989 (contingent loans), for “the end of the”
substitute “any time during a”.
“Structural” assets
2     (1)
In FA 1989, after section 83 insert—
15
“83XA
Structural assets
(1)
Section 83(2) does not require to be taken into account as receipts or
expenses of a period of account income from, or an increase or a
decrease in the value of, structural assets held by an insurance
company in a non-profit fund.
20
(2)
For the purposes of subsection (1) above—
(a)
an increase in the value of structural assets includes any
amount by which their fair value when they cease to be
structural assets, or come to be held otherwise than in any of
the company’s non-profit funds, exceeds their admissible
25
value at the end of the preceding period of account, and
(b)
a decrease in the value of structural assets includes any
amount by which the admissible value of the assets at the end
of the period of account in which they become structural
assets, or come to be held in any of the company’s non-profit
30
funds, is less than their historic cost.
(3)
In this section “structural assets” means—
(a)
shares, debts and loans the value of which is required to be
entered in lines 21 to 24 of Form 13 in the periodical return
(UK insurance dependants and other insurance dependants),
35
and
(b)
assets of such other descriptions as are specified by
regulations made by the Treasury.
(4)
Regulations under subsection (3) above may be made so as to have
effect in relation to periods of account current when they are made
40
(as well as accounting periods beginning later).

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Schedule 10 — Insurance companies: miscellaneous
163

(5)
Where a structural asset held by an insurance company in a non-
profit fund ceases to be a structural asset or comes to be held
otherwise than in any of the company’s non-profit funds and,
immediately before it came to be a structural asset held in any of the
company’s non-profit funds it (or any part of it) was an asset of the
5
company’s long-term insurance fund, the relevant value difference is
to be taken into account under section 83(2)—
(a)
as a receipt (if it is a positive amount), or
(b)
as an expense (if it is a negative amount),

of the relevant period of account.
10
(6)
For the purposes of subsection (5) above “the relevant value
difference”, in relation to an asset, is—

where—
HC is its historic cost, and
AV is its admissible value at the relevant time.
15
(7)
In subsection (5) above “the relevant period of account” means—
(a)
in a case within paragraph (a) of that subsection, the period
of account in which the asset ceases to be a structural asset or
comes to be held otherwise than in any of the company’s non-
profit funds, and
20
(b)
in a case within paragraph (b) of that subsection, the period
of account in which the asset first comes to be held otherwise
than by the company or (where the company is a member of
a group) otherwise than by a company which is a member of
the group;
25

and section 170 of the Taxation of Chargeable Gains Act 1992
(meaning of “group” etc) has effect for the interpretation of this
subsection.
(8)
In this section “historic cost”, in relation to an asset which is or has
been held in any of the company’s non-profit funds, means—
30
(a)
where the asset came to be held in any of the company’s non-
profit funds on acquisition from another person, the
consideration given by the company for the acquisition of the
asset, and
(b)
otherwise, its fair value when it came to be held in any of the
35
company’s non-profit funds.
(9)
In subsection (6) above “admissible value”, in relation to an asset and
a time, means the value of the asset as shown in column 1 of Form 13
of the periodical return for the period ending with that time (or as
would be so shown if there were a periodical return covering a
40
period ending with that time).
(10)
In subsection (6) above “the relevant time” means—
(a)
in a case where assets become structural assets held in any of
the company’s non-profit funds by virtue of the
commencement of this section, 1st January 2007, and
45
(b)
otherwise, the time when the assets become structural assets
held in any of the company’s non-profit funds.

Finance Bill
Schedule 10 — Insurance companies: miscellaneous
164

(11)
For the purposes of the Taxation of Chargeable Gains Act 1992 an
insurance company is to be treated as acquiring a structural asset for
a consideration equal to its historic cost at the beginning of the first
period of account of the company in which the asset is a structural
asset held by the company in a non-profit fund.
5
(12)
Structural assets held by an insurance company in a non-profit fund
are to be treated as being within paragraph (f) of subsection (4) of
section 440 of the Taxes Act 1988; but no disposal or re-acquisition is
to be deemed to occur by virtue of an asset ceasing to be within any
other paragraph of that subsection and coming within that
10
paragraph on becoming such a structural asset.
(13)
Structural assets held by an insurance company in a non-profit fund
are to be treated as being “remaining” securities within section
440A(2)(e) of the Taxes Act 1988.
(14)
Section 432A of the Taxes Act 1988 does not have effect in relation to
15
income arising from, or gains and losses accruing on the disposal of,
structural assets held by an insurance company in a non-profit
fund.”
      (2)
In ICTA, omit section 444ACA (transfers of business).
      (3)
In section 432E(2A) of that Act, omit “444ACA(2),” and paragraph (b).
20
      (4)
In section 211 of TCGA 1992 (transfers of business: application of section 139
of that Act), as amended by paragraph 14 of Schedule 9 to this Act, after
subsection (2) insert—
“(2A)
The reference in subsection (2) above to assets included in the
transfer does not include structural assets within the meaning of
25
section 83XA of the Finance Act 1989.”
      (5)
In paragraph 17 of Schedule 7AC to TCGA 1992 (substantial shareholdings
exemption: special rules for assets of insurance company’s long-term
insurance fund), after sub-paragraph (4) insert—
   “(4A)
The reference in sub-paragraph (2) to an asset of the investing
30
company’s long-term insurance fund, and the references in sub-
paragraphs (3) and (4) to shares or an interest in shares held as
assets of its long-term insurance fund, do not include a structural
asset, or structural assets, within the meaning of section 83XA of
the Finance Act 1989.”
35
Losses on disposal of authorised investment fund assets to connected manager
3
In TCGA 1992, after section 210B insert—
“210C
  Losses on disposal of authorised investment fund assets to connected
manager
(1)
Section 18(3) does not apply in relation to a loss accruing on the
40
disposal by an insurance company of authorised investment fund
assets to the manager of the authorised investment fund.
(2)
In this section—
“authorised investment fund assets” means assets of the
company’s long-term insurance fund consisting of rights
45

Finance Bill
Schedule 10 — Insurance companies: miscellaneous
165

under an authorised unit trust or shares in an open-ended
investment company,
“the manager of the authorised investment fund” means—
(a)
in the case of an authorised unit trust, the person who
is the manager of the unit trust scheme for the
5
purposes of Chapter 3 of Part 17 of the Financial
Services and Markets Act 2000, and
(b)
in the case of an open-ended investment company, a
director or other person having responsibility for the
management of its scheme property, and
10
“open-ended investment company” means a company
incorporated in the United Kingdom to which section 236 of
the Financial Services and Markets Act 2000 applies.”
Priority of section 83(2) of FA 1989 etc
4     (1)
Section 83 of FA 1989 (receipts to be taken into account) is amended as
15
follows.
      (2)
After subsection (2) insert—
“(2ZA)
Amounts brought into account as mentioned in subsection (2) above
are not to be taken into account in any other way; and this subsection
applies in spite of—
20
(a)
section 80(5) of the Finance Act 1996 (taxation of loan
relationships),
(b)
paragraph 1(2) of Schedule 26 to the Finance Act 2002
(taxation of profits from derivative contracts), and
(c)
paragraph 1(3) of Schedule 29 to that Act (gains and losses in
25
respect of intangible fixed assets).”
      (3)
In subsection (2A), after paragraph (aa) insert—
“(ab)
comprises a business transfer-in that is not brought into
account in a revenue account prepared for the purposes of
Chapter 9 of the Prudential Sourcebook (Insurers) in respect
30
of the whole of the company’s long-term business,”.
      (4)
Omit—
(a)
in section 502H of ICTA, in subsection (2), paragraph (b) and the
word “and” before it and subsections (8) to (10),
(b)
paragraph 2(2) and (3) to (5) of Schedule 11 to FA 1996,
35
(c)
paragraph 19(1) to (3) of Schedule 12 to FA 1997, and
(d)
paragraph 36(4) and (5) of Schedule 29 to FA 2002.
Tidying up of TCGA 1992
5     (1)
TCGA 1992 is amended as follows.
      (2)
In section 210B(6)(a) (disposal and acquisition of section 440A securities), for
40
the words after “are” substitute “assets within section 212(1).”.
      (3)
Omit—
(a)
section 212(2A) (disapplication of section 212(1) to assets treated as
representing rights under a creditor relationship),

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Schedule 10 — Insurance companies: miscellaneous
166

(b)
section 214 (rights under authorised unit trusts etc: transitional
provisions), and
(c)
section 214A (further transitional provisions).
Tidying up of Chapter 2 of Part 4 of FA 1996
6     (1)
Chapter 2 of Part 4 of FA 1996 (loan relationships) is amended as follows.
5
      (2)
In section 103(3) (loan relationships: interpretation), omit “or” at the end of
paragraph (a) and after paragraph (b) insert “or
(c)
any basic life assurance and general annuity business,”.
      (3)
In sub-paragraph (1) of paragraph 1A of Schedule 9 (life assurance policies),
for the words after “relating to” substitute “liabilities of an insurance
10
company within paragraph (a) of the definition of “liabilities” in section
431(2) of the Taxes Act 1988.”; and the italic heading before that paragraph
accordingly becomes “Insurance company liabilities”.
      (4)
In Schedule 11, omit paragraph 1(1A) to (1C).
Correction of erroneous repeal
15
7
The repeals made by Schedule 3 to ITA 2007 in paragraph 11 of Schedule 6
to FA 1990 are deemed never to have had effect; but Schedule 3 to ITA 2007
is deemed to have included the repeal of the words before the paragraphs in
sub-paragraph (1) of that paragraph.
Non-profit companies, non-profit funds and with-profits funds
20
8     (1)
In section 431(2) of ICTA (interpretative provisions relating to insurance
companies) insert at the appropriate place—
““non-profit company”, in relation to a period of account,
means a company carrying on long-term business where, at
the end of the period—
25
(a)
none of the liabilities of that business, or
(b)
none but an insignificant proportion of those
liabilities,
are with-profits liabilities;”,
““non-profit fund” means a fund that is not a with-profits
30
fund;”, and
““with-profits fund” has the meaning given by the Prudential
Sourcebook (Insurers);”.
      (2)
Omit—
(a)
in section 432YA(5) of ICTA, the definitions of “non-profit company”
35
and “non-profit fund”,
(b)
section 82D(5) of FA 1989,
(c)
in section 83YA of that Act, subsection (8) and, in subsection (11), the
definition of “with-profits fund”, and
(d)
in section 83A of that Act, in subsections (2)(b) and (3D)(b) “(see
40
subsection (6))” and subsection (6).