Finance Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 11 — Technical provisions made by general insurers
174

     (14)
Regulations under section 182(1)(a) of FA 1993 or section 229(1)(a) of FA
1994 (assessment and collection of tax charged in case of Lloyd’s
underwriters) may, in particular, include provision applying paragraph 2
with modifications in the case of members of a Lloyd’s syndicate.
     (15)
Regulations under paragraph 1 or this paragraph may—
5
(a)
make different provision for different purposes, and
(b)
make supplementary, incidental, consequential and transitional
provision.
Repeal of section 107 of FA 2000
4
In FA 2000, omit section 107 (general insurance reserves).
10
Commencement
5     (1)
Paragraphs 1 to 3 have effect in relation to periods of account ending on or
after the day on which this Act is passed.
      (2)
The repeal of section 107 of FA 2000 made by paragraph 4 has effect as
follows.
15
      (3)
The repeal of—
(a)
subsections (1) to (3) of that section (technical provisions made by a
general insurer proving to be excessive or insufficient),
(b)
subsections (5) to (8) and (10) of that section so far as relating to those
subsections, and
20
(c)
subsections (9) and (12)(a) of that section (which relate to those
subsections),

has effect in relation to any amount that would otherwise have been treated
as a receipt or an expense of a trade in computing for tax purposes the profits
of the trade for any period of account ending on or after the day on which
25
this Act is passed.
      (4)
The repeal of—
(a)
subsection (4) of that section (election for any part of technical
provisions not to be taken into account in a period of account),
(b)
subsections (5) to (8) and (10) of that section so far as relating to that
30
subsection, and
(c)
subsection (12)(b) of that section (which relates to that subsection),

has effect so that no election may be made under that subsection in respect
of technical provisions made by a general insurer for any period of account
which begins on or after that day.
35
      (5)
There is a restriction in relation to any election made by a general insurer
under that subsection in respect of technical provisions made by the general
insurer for the final election period.
      (6)
The restriction is that the amount of the part of those provisions which the
general insurer elects not to be taken into account in computing for tax
40
purposes the profits of the general insurer’s trade for that period must not
exceed 10% of the total amount of those provisions.
      (7)
In sub-paragraph (5) “the final election period”, in relation to any general
insurer, means the general insurer’s first period of account ending on or
after the day on which this Act is passed.
45

Finance Bill
Schedule 12 — Friendly societies: transfers to insurance companies etc
175

Schedule 12
Section 43

Friendly societies: transfers to insurance companies etc
Exempt life or endowment business
1     (1)
Section 460 of ICTA (exemption from tax in respect of life or endowment
business) is amended as follows.
5
      (2)
In subsection (10A), after “the transfer” insert “, other than any to which
subsection (11) or (12) below applied immediately before the transfer had
effect,”.
      (3)
In subsection (11), for “thereafter continue to be tax exempt life or
endowment business for the purposes of this Chapter.” substitute “continue
10
to be exempt from corporation tax (whether on income or chargeable gains)
on profits arising from it.”
      (4)
For subsection (12) substitute—
“(12)
Where at any time an insurance company acquires by way of transfer
of engagements from a friendly society any life or endowment
15
business consisting of business which—
(a)
relates to contracts made before that time; and
(b)
immediately before that time was tax exempt life or
endowment business,

that business shall continue to be exempt from corporation tax
20
(whether on income or chargeable gains) on profits arising from it.
(13)
But if any contracts constituting or forming part of the business of a
company covered by subsection (11) or (12) above are varied during
an accounting period of the company so as to increase the premiums
payable under them, the business relating to those contracts is not
25
exempt from corporation tax for that or any subsequent accounting
period.
(14)
For the purposes of the Corporation Tax Acts any part of a
company’s business which is exempt from corporation tax by virtue
of subsection (11) or (12) above shall be treated as a separate business
30
from any other business carried on by the company.”
      (5)
Insert at the end—
“(15)
The Treasury may by regulations provide that, where any part of the
business of a company is exempt from corporation tax by virtue of
subsection (11) or (12) above, the Corporation Tax Acts have effect
35
subject to such modifications (or exceptions) as the Treasury
consider appropriate.
(16)
Regulations under subsection (15) above—
(a)
may make different provision for different cases,
(b)
may include any incidental, supplementary, consequential or
40
transitional provisions which the Treasury consider
appropriate, and
(c)
may include retrospective provision.”

Finance Bill
Schedule 12 — Friendly societies: transfers to insurance companies etc
176

2     (1)
Section 464 of ICTA (maximum benefits payable to members) is amended as
follows.
      (2)
For the first sentence of subsection (1) substitute—
“(1)
Subject to subsections (2) and (3) below, a person is not entitled to
have at any time outstanding contracts with any one or more friendly
5
societies, registered branches or insurance companies which (taking
them all together) are for the assurance of—
(a)
more than £750 by way of gross sum under business which is
afforded exemption from corporation tax by section 460, or
(b)
more than £156 by way of annuity under such business.”
10
      (3)
In subsection (3), for the words preceding the paragraphs substitute “With
respect to contracts for the assurance of gross sums under business which is
afforded exemption from corporation tax by section 460, a person is not
entitled to have outstanding at any time with any one or more friendly
societies, registered branches or insurance companies—”.
15
      (4)
In subsection (4A), for “tax exempt life or endowment business” substitute
“business which is afforded exemption from corporation tax by section 460
if they are”.
      (5)
In subsection (6), for “member has outstanding with one or more society or
branch” substitute “person has outstanding with one or more societies,
20
branches or companies”.
      (6)
In subsection (7)—
(a)
for “or registered branch” substitute “, registered branch or
insurance company”,
(b)
for “member” (in both places) substitute “person”, and
25
(c)
for “or registered branches (taking together all such societies or
branches throughout the United Kingdom)” substitute “, registered
branches or insurance companies (taken together)”.
3
In section 466(2) of ICTA, in the definition of “tax exempt life or endowment
business”, for “(11)” substitute “(10A)”.
30
Other exempt business
4     (1)
Section 461 of ICTA (exemption of registered friendly societies from tax in
respect of business which is not life or endowment business) is amended as
follows.
      (2)
After subsection (4) insert—
35
“(4A)
Where—
(a)
at any time an insurance company acquires by way of
transfer of engagements from a registered friendly society
any business other than life or endowment business, and
(b)
immediately before that time the society was exempt from
40
corporation tax on profits arising from that business,

the insurance company shall be exempt from corporation tax on its
profits arising from any part of that business which relates to
contracts made before that time.

Finance Bill
Schedule 12 — Friendly societies: transfers to insurance companies etc
177

(4B)
But if during an accounting period of the insurance company there is
an increase in the scale of benefits which it undertakes to provide in
the course of carrying on any such part of that business, the company
shall not be exempt from corporation tax by virtue of subsection (4A)
above for that or any subsequent accounting period.”
5
      (3)
In subsection (5), after “(4)” insert “or (4A)”.
      (4)
Insert at the end—
“(12)
The Treasury may by regulations provide that, where any part of the
business of a company is exempt from corporation tax by virtue of
subsection (4) or (4A) above, the Corporation Tax Acts have effect
10
subject to such modifications (or exceptions) as the Treasury
consider appropriate.
(13)
Regulations under subsection (12) above—
(a)
may make different provision for different cases,
(b)
may include any incidental, supplementary, consequential or
15
transitional provisions which the Treasury consider
appropriate, and
(c)
may include retrospective provision.”
5     (1)
Section 461B of ICTA (exemption of incorporated friendly societies from tax
in respect of business which is not life or endowment business) is amended
20
as follows.
      (2)
For subsection (6) substitute—
“(6)
But if during an accounting period of the company there is an
increase in the scale of benefits which it undertakes to provide in the
course of carrying on any such part of its business, the company shall
25
not be exempt from corporation tax by virtue of subsection (5) above
for that or any subsequent accounting period.
(6A)
Where—
(a)
at any time an insurance company acquires by way of
transfer of engagements from a qualifying society any
30
business other than life or endowment business, and
(b)
immediately before that time the society was exempt from
corporation tax on profits arising from that business,

the insurance company shall be exempt from corporation tax on its
profits arising from any part of that business which relates to
35
contracts made before that time.
(6B)
But if during an accounting period of the insurance company there is
an increase in the scale of benefits which it undertakes to provide in
the course of carrying on any such part of that business, the company
shall not be exempt from corporation tax by virtue of subsection (6A)
40
above for that or any subsequent accounting period.”
      (3)
In subsection (7), after “(5)” insert “or (6A)”.
      (4)
Insert at the end—
“(8)
The Treasury may by regulations provide that, where any part of the
business of a company is exempt from corporation tax by virtue of
45
subsection (5) or (6A) above, the Corporation Tax Acts have effect

Finance Bill
Schedule 13 — Sale and repurchase of securities
178

subject to such modifications (or exceptions) as the Treasury
consider appropriate.
(9)
Regulations under subsection (8) above—
(a)
may make different provision for different cases,
(b)
may include any incidental, supplementary, consequential or
5
transitional provisions which the Treasury consider
appropriate, and
(c)
may include retrospective provision.”
Commencement
6     (1)
The amendment made by sub-paragraph (2) of paragraph 1, so far as
10
relating to section 460(11) of ICTA, and the amendments made by sub-
paragraph (3) of that paragraph and paragraph 3 are deemed always to have
had effect.
      (2)
The amendments made by paragraph 2 have effect in relation to contracts
made after the passing of this Act.
15
      (3)
The amendment made by sub-paragraph (2) of paragraph 1, so far as
relating to section 460(12) of ICTA, and the amendments made by sub-
paragraph (4) of that paragraph and paragraphs 4(2) and (3) and 5(2) and (3)
have effect in relation to transfers of engagements and conversions taking
place on or after the day on which this Act is passed.
20
Schedule 13
Section 46

Sale and repurchase of securities
Purpose of Schedule
1     (1)
The purpose of this Schedule is to secure that in the case of an
arrangement—
25
(a)
which involves the sale of securities and the subsequent purchase of
securities, and
(b)
which equates, in substance, to a transaction for the lending of
money at interest from or to a company (with the securities which
were sold as collateral for the loan),
30

the charge to corporation tax in that case reflects the fact that the
arrangement equates, in substance, to such a transaction.
      (2)
But this is not to be read as preventing the rules in this Schedule about
corporation tax in respect of chargeable gains from having no effect in
relation to debtor quasi-repos and creditor quasi-repos.
35
Meaning of debtor repo
2     (1)
For the purposes of this Schedule a company (“the borrower”) has a debtor
repo if conditions A to E are met.
      (2)
Condition A is that under an arrangement the borrower receives from
another person (“the lender”) any money or other asset (“the advance”).
40

Finance Bill
Schedule 13 — Sale and repurchase of securities
179

      (3)
Condition B is that, in accordance with generally accepted accounting
practice, the accounts of the borrower for the period in which the advance is
received record a financial liability in respect of the advance.
      (4)
Condition C is that under the arrangement the borrower sells any securities
at any time to the lender.
5
      (5)
Condition D is that the arrangement makes provision conferring a right or
imposing an obligation on the borrower to buy those or similar securities at
any subsequent time.
      (6)
Condition E is that, in accordance with generally accepted accounting
practice, the subsequent buying of those or similar securities would
10
extinguish the financial liability in respect of the advance recorded in the
accounts of the borrower.
      (7)
For the purposes of conditions A to E references to the borrower include a
partnership of which the borrower is a member.
Meaning of debtor quasi-repo
15
3     (1)
For the purposes of this Schedule a company (“the borrower”) has a debtor
quasi-repo in any case if—
(a)
the borrower does not have a debtor repo in that case, and
(b)
conditions A to E are met in that case.
      (2)
Condition A is that under an arrangement the borrower receives any money
20
or other asset (“the advance”).
      (3)
Condition B is that, in accordance with generally accepted accounting
practice, the accounts of the borrower for the period in which the advance is
received record a financial liability in respect of the advance.
      (4)
Condition C is that under that or any other arrangement the borrower or any
25
other person sells any securities at any time.
      (5)
Condition D is that the arrangement or other arrangement—
(a)
makes provision conferring a right or imposing an obligation on the
borrower to buy the securities or any other securities at any
subsequent time, or
30
(b)
makes provision conferring such a right or imposing such an
obligation on any other person and makes other relevant provision.
      (6)
For this purpose any arrangement makes “other relevant provision” if it
makes provision—
(a)
for the receipt of any money or other asset from the borrower under
35
that arrangement for the purpose of enabling the other person to
make that subsequent purchase, or
(b)
for the discharge of any liability to the borrower under that
arrangement for that purpose (whether by way of set off or
otherwise).
40
      (7)
Condition E is that, in accordance with generally accepted accounting
practice—
(a)
the subsequent buying of the securities or the other securities by the
borrower, or

Finance Bill
Schedule 13 — Sale and repurchase of securities
180

(b)
the receipt of the asset from the borrower, or the discharge of the
liability to the borrower, under the arrangement or other
arrangement,

would extinguish the financial liability in respect of the advance recorded in
the accounts of the borrower.
5
      (8)
For the purposes of conditions A to E references to the borrower include a
partnership of which the borrower is a member.
Ignoring effect on borrower of sale of securities: debtor repos, debtor quasi-repos and other
arrangements
4     (1)
This paragraph applies if a company (“the borrower”)—
10
(a)
has a debtor repo or a debtor quasi-repo, or
(b)
has a liability which is discharged under a relevant arrangement.
      (2)
A relevant arrangement is one in relation to which conditions C and D in
paragraph 3 are met and the main purpose, or one of the main purposes, of
which is the obtaining of a tax advantage.
15
      (3)
For the purposes of the charge to corporation tax in respect of income of the
borrower arising while the arrangement is in force, the Corporation Tax Acts
have effect as if—
(a)
the borrower held the securities that are initially sold for any period
for which the arrangement is in force, and
20
(b)
the borrower did not receive in that period amounts representative
of income payable in respect of those securities.
      (4)
But—
(a)
no amount is to be charged to corporation tax as a result of sub-
paragraph (3)(a) unless it is, in accordance with generally accepted
25
accounting practice, recognised in determining the borrower’s profit
or loss for that or any other period or taken into account in
calculating the amounts which are so recognised, and
(b)
there is the following exception to sub-paragraph (3) if the securities
that are initially sold are overseas securities.
30
      (5)
In the case of any overseas dividend payable in respect of those securities,
the entitlement of the borrower to double taxation relief in respect of that
dividend is determined as if—
(a)
sub-paragraph (3) were omitted,
(b)
the borrower received a payment of an amount which is
35
representative of that dividend,
(c)
the payment were made under a requirement of the arrangement,
and
(d)
the payment were made on the date on which that dividend is
payable.
40
      (6)
For the purposes of this paragraph “double taxation relief” means any relief
given under or as a result of Part 18 of ICTA.