Finance Bill

House of Commons

Session 2007 - 08
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 17 — Insurance companies etc
242

      (2)
The amendment made by sub-paragraph (1) has effect for periods of account
beginning on or after 1 January 2007.
Deposit back arrangements
9     (1)
In paragraph 3A of Schedule 11 to FA 1996 (apportionments), after sub-
paragraph (2) insert—
5
   “(2A)
If any debits or credits relate to liabilities arising from deposit back
arrangements, they are (subject to sub-paragraph (2B)) referable to
the category of long-term business which comprises the business
reinsured by the arrangements under which the deposit back
arrangements are made.
10
     (2B)
If the business reinsured is not all of the same category of long-
term business, the debits and credits for any period of account are
referable to the categories of business in the same proportions as
the mean of the proportions at the beginning and end of the period
of account of the liabilities reinsured by the arrangements which
15
are liabilities of the categories of business.”;

and, in sub-paragraph (4), after “(2)” insert “, (2A)”.
      (2)
In section 431(2) of ICTA (interpretative provisions relating to insurance
companies), after the definitions of “contract of insurance” and “contract of
long-term insurance” insert—
20
““deposit back arrangements” means arrangements by which,
an amount is deposited by the reinsurer under a contract of
reinsurance with the cedant;”;

and, in the definition of “liabilities”, omit the words following paragraph (b).
      (3)
The amendments made by this paragraph have effect in relation to periods
25
of account beginning on or after 1 January 2008 and ending on or after 12
March 2008.
Foreign business assets
10    (1)
In ICTA, in subsection (2) of section 431 (interpretative provisions about
insurance companies), for the definition of “foreign currency assets”
30
substitute—
“foreign business assets”, in relation to an insurance company,
means assets, other than linked assets, which either—
(a)
are shown in the records of the company as being
primarily attributable to liabilities of the company’s
35
foreign business, or
(b)
are attributable, under the law of a country or
territory outside the United Kingdom, to a permanent
establishment of the company in that country or
territory through which it carries on foreign business;
40
and for this purpose “foreign business” means overseas life
assurance business or life reinsurance business to the extent
that it consists of the reinsurance of overseas life assurance
business;”.

Finance Bill
Schedule 17 — Insurance companies etc
243

      (2)
After that section insert—
“431ZA
Election that assets not be foreign business assets
(1)
An insurance company may, in its company tax return for the first
accounting period of the company beginning on or after 1 January
2008 in which any of the assets of the company’s long-term insurance
5
fund would (apart from this section) be foreign business assets, elect
that none of the assets of the company’s long-term insurance fund
are to be regarded for the purposes of this Act as being foreign
business assets.
(2)
The election has effect for that accounting period and all subsequent
10
accounting periods of the company.
(3)
An election under subsection (1) is irrevocable.”
      (3)
In ICTA—
(a)
in section 432A(4A),
(b)
in section 432C(3), (4), (5), (7), (8) and (9),
15
(c)
in section 432E, in subsection (3)(a), in subsection (4), in the
definition of A, and in subsection (4A),
(d)
in section 440(4), and
(e)
in section 804B(3A),

for “currency” substitute “business”.
20
      (4)
In section 432E of ICTA—
(a)
in subsection (3)(b), and
(b)
in subsection (4), in the definition of B,

omit “and foreign currency assets”.
      (5)
In paragraph 19(4)(b) of Schedule 7 to FA 2007, omit sub-paragraph (ii) (and
25
the “and” before it).
      (6)
The amendments made by this paragraph have effect in relation to periods
of account beginning on or after 1 January 2008.
      (7)
But an insurance company may, in its company tax return for an accounting
period beginning on or after 1 January 2007 but before 1 January 2008, elect
30
that the amendments made by this paragraph have effect in relation to that
accounting period.
Foreign currency assets
11    (1)
In section 431(2) of ICTA (interpretative provisions about insurance
companies), in the definition of “foreign currency assets”, for “three months”
35
substitute “one year”.
      (2)
The amendment made by sub-paragraph (1) has effect in relation to periods
of account beginning on or after 1 January 2007 but before 1 January 2008.
Derivative contracts
12    (1)
Schedule 26 to FA 2002 (derivative contracts) is amended as follows.
40
      (2)
In sub-paragraph (2) of paragraph 41, for “paragraphs 42 and 43” substitute
“the following paragraphs”.

Finance Bill
Schedule 17 — Insurance companies etc
244

      (3)
After that paragraph insert—
“Application of section 103(3)(c) of the Finance Act 1996
41A
Section 103(3)(c) of the Finance Act 1996 has effect for the purposes
of this Schedule as for the purposes of Chapter 2 of Part 4 of that
Act.”
5
      (4)
For paragraph 42 (and the heading before it) substitute—
“Liability hedging derivative contracts
42
This Schedule applies in relation to a derivative contract of an
insurance company where there is a hedging relationship between
the contract and the company’s liabilities to policy holders or
10
annuitants only for the purpose of computing profits of the
company’s life assurance business or gross roll-up business in
accordance with Case I of Schedule D.”
      (5)
After that paragraph insert—
“Mutual trading and non-life mutual business
15
43
Paragraphs (a) and (b) of section 103(3) of the Finance Act 1996
have effect for the purposes of this Schedule as for the purposes of
Chapter 2 of Part 4 of that Act.”
      (6)
The amendments made by sub-paragraphs (2) and (3) have effect in relation
to periods of account beginning on or after 1 January 2007.
20
      (7)
The amendments made by sub-paragraphs (4) and (5) have effect in relation
to periods of account beginning on or after 1 January 2008 and ending on or
after 12 March 2008.
Apportionments
13
In section 210A of TCGA 1992 (ring fencing of losses), after subsection (10)
25
insert—
“(10A)
But where the BLAGAB profits for an accounting period are nil, the
policy holders’ share of the chargeable gains or allowable losses
accruing in the accounting period—
(a)
if there are Case I profits of the accounting period in respect
30
of its life assurance business, is nil, and
(b)
otherwise, is such proportion of the chargeable gains or
allowable losses as is just and reasonable;

and for this purpose there are Case I profits if there are profits
computed in accordance with the provisions applicable to Case I of
35
Schedule D after making adjustments in respect of losses in
accordance with section 85A(4) of the Finance Act 1989.”
14
In section 755A of ICTA (treatment of chargeable profits and creditable tax
apportioned to life assurance company), after subsection (11B) insert—
“(11BA)
But where the BLAGAB profits for the relevant accounting period
40
are nil, the relevant fraction—

Finance Bill
Schedule 17 — Insurance companies etc
245

(a)
if there are Case I profits of the accounting period in respect
of its life assurance business, is nil, and
(b)
otherwise, is such fraction as is just and reasonable;

and for this purpose there are Case I profits if there are profits
computed in accordance with the provisions applicable to Case I of
5
Schedule D after making adjustments in respect of losses in
accordance with section 85A(4) of the Finance Act 1989.”
15
The amendments made by paragraphs 13 and 14 have effect in relation to
accounting periods beginning on or after 1 January 2008 and ending on or
after 12 March 2008.
10
UK distributions received by insurance companies
16    (1)
In ICTA, after section 95 insert—
“95ZA
Taxation of UK distributions received by insurance companies
(1)
If the total amount of relevant distributions received by a company
in an accounting period exceeds £50,000, those distributions are to be
15
taken into account in calculating for corporation tax purposes the
profits of the company in that period (and accordingly section 208
does not apply in relation to those distributions).
(2)
A company (“company A”) receives a “relevant distribution” if—
(a)
it receives a distribution made by a company resident in the
20
United Kingdom (“company B”),
(b)
the value of the shares or stock in respect of which the
distribution is made (“the holding”) is materially reduced by
reason of the distribution,
(c)
a profit on the sale of the holding (to anyone other than
25
company B) would be taken into account in calculating
company A’s profits in respect of relevant insurance
business, and
(d)
either—
(i)
the holding amounts to, or is an ingredient in a
30
holding amounting to, 10% of all holdings of the same
class in company B, or
(ii)
the period between the acquisition by company A of
the holding and that company first taking steps to
dispose of the holding does not exceed 30 days.
35
(3)
In this section “relevant insurance business” means any kind of
insurance business other than life assurance business.
(4)
Section 177(7) of TCGA 1992 (provision supplementing provision
corresponding to subsection (2)(d)(i) above) applies for the purposes
of subsection (2)(d)(i).
40
(5)
Section 731(4) below (interpretation of “taking steps to dispose of
securities”) applies for the purposes of subsection (2)(d)(ii) as if the
reference to the securities were to the holding.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to
distributions made on or after 1 April 2008.
45

Finance Bill
Schedule 17 — Insurance companies etc
246

Clarification of scope of ICTA s.432A
17    (1)
Section 432A of ICTA (apportionment of income and gains) is amended as
follows.
      (2)
In subsection (1)—
(a)
for “This” substitute “Subject to section 432B, this”,
5
(b)
in paragraph (a), after “income” insert “or losses”, and
(c)
in paragraph (b), insert at the end “in accordance with the provisions
of the 1992 Act”.
      (3)
After that subsection insert—
“(1ZA)
In subsection (1)(a) above “income” means—
10
(a)
income chargeable under Schedule A in respect of any
separate Schedule A businesses treated as carried on by the
company under section 432AA,
(b)
income chargeable under Schedule A in respect of
distributions treated by section 121(1)(a) of the Finance Act
15
2006 as profits of a Schedule A business,
(c)
income chargeable under Case V of Schedule D in respect of
any overseas property businesses treated as carried on by the
company under section 432AA,
(d)
credits in respect of any creditor relationships (within the
20
meaning of Chapter 2 of Part 4 of the Finance Act 1996) of the
company,
(e)
credits in respect of any derivative contracts (within the
meaning of Schedule 26 to the Finance Act 2002) of the
company, other than a liability hedging derivative contract,
25
(f)
any income of the company chargeable under Case III of
Schedule D in respect of annuities and other annual
payments within paragraph (b) of Case D as substituted by
section 18(3A),
(g)
any credits brought into account by the company under Part
30
3 of Schedule 29 to the Finance Act 2002 (intangible fixed
assets), and
(h)
any income of the company chargeable under Case VI of
Schedule D, other than any excepted by subsection (1ZB)
below.
35
(1ZB)
The income excepted by this subsection is—
(a)
profits of gross roll-up business,
(b)
amounts directly referable to basic life assurance and general
annuity business by virtue of section 432A(7)(c), and
(c)
excess adjusted Case I profits within the meaning of section
40
85A of the Finance Act 1989.
(1ZC)
In subsection (1)(a) above “losses” means—
(a)
losses in respect of any separate Schedule A businesses
treated as carried on by the company under section 432AA,
(b)
losses in respect of any overseas property businesses treated
45
as carried on by the company under that section,

Finance Bill
Schedule 17 — Insurance companies etc
247

(c)
debits in respect of any creditor relationships (within the
meaning of Chapter 2 of Part 4 of the Finance Act 1996) of the
company,
(d)
debits in respect of any derivative contracts (within the
meaning of Schedule 26 to the Finance Act 2002) of the
5
company, other than a liability hedging derivative contract,
(e)
any debits brought into account by the company under Part
2 of Schedule 29 to the Finance Act 2002 (intangible fixed
assets), and
(f)
any losses of the company chargeable computed in the same
10
way as profits chargeable under Case VI of Schedule D, other
than any losses of gross roll-up business.
(1ZD)
In subsections (1ZA)(e) and (1ZC)(d) above “liability hedging
derivative contract” means a derivative contract where there is a
hedging relationship between the contract and the company’s
15
liabilities to policy holders or annuitants.”
      (4)
In subsection (1A), for “income, gains or losses referred to in subsection (1)
above” substitute “income and losses referred to in paragraph (a) of
subsection (1) above, and gains and losses referred to in paragraph (b) of that
subsection,”.
20
      (5)
In subsections (3) and (4), after “Income” insert “or losses”.
      (6)
In subsection (5), for “income, gains or losses” substitute “income and losses
referred to in paragraph (a) of subsection (1) above, and any gains and losses
referred to in paragraph (b) of that subsection,”.
      (7)
In subsection (7)—
25
(a)
in paragraph (a), for “income, gains or losses” substitute “income and
losses referred to in paragraph (a) of subsection (1) above, and gains
and losses referred to in paragraph (b) of that subsection,”, and
(b)
in paragraph (b), after “income” insert “and losses” and for “or”
substitute “and”.
30
      (8)
In consequence of the preceding provisions, omit the provisions specified in
sub-paragraph (9).
      (9)
The provisions mentioned in sub-paragraph (8) are—
(a)
section 432AB(2) of ICTA,
(b)
in section 502H of that Act, subsections (2) to (7),
35
(c)
paragraph 3 of Schedule 11 to FA 1996,
(d)
paragraph 19(4) of Schedule 12 to FA 1997,
(e)
paragraph 41A of Schedule 26 to FA 2002,
(f)
paragraphs 36(1) and (2) and 138(2) and (3) of Schedule 29 to that Act,
and
40
(g)
paragraph 19(4) of Schedule 9 to F(No.2)A 2005.
     (10)
The amendments made by this paragraph have effect in relation to periods
of account beginning on or after 1 January 2008.
Abolition of “inherited estates” apportionment rules
18    (1)
Chapter 1 of Part 12 of ICTA (insurance companies) is amended as follows.
45

Finance Bill
Schedule 17 — Insurance companies etc
248

      (2)
In section 431(2ZB) and (2ZC) (interpretative provisions), insert “or” at the
end of paragraph (b) and omit paragraph (d) and the “or” before it.
      (3)
In section 432A (apportionment of income and gains), omit—
(a)
in subsection (6), paragraph (b) of the definition of A (but not the
“and” following it),
5
(b)
in subsection (8), paragraph (b) and the “and” before it, and
(c)
subsections (8A) and (8B).
      (4)
In section 432B (apportionment of receipts brought into account), omit
subsections (4) to (12).
      (5)
The amendments made by this paragraph have effect in relation to periods
10
of account beginning on or after 1 January 2007.
Charges on income
19    (1)
In section 434A(3) of ICTA (limitation on relief), after paragraph (a) (before
the “or” at the end) insert—
“(aa)
(where the company’s life assurance business is not mutual
15
business) in respect of any amount which is a charge on
income for the purposes of corporation tax,”.
      (2)
The amendment made by sub-paragraph (1) has effect in relation to periods
of account beginning on or after 1 January 2008 and ending on or after 12
March 2008.
20
Excess adjusted Case I profits
20    (1)
In section 85A(6)(a) of FA 1989 (excess adjusted Case I profits), after “United
Kingdom” insert “but excluding any amount within this section”.
      (2)
The amendment made by sub-paragraph (1) has effect in relation to periods
of account beginning on or after 1 January 2008.
25
Remediation of contaminated land
21    (1)
Schedule 22 to FA 2001 (remediation of contaminated land) is amended as
follows.
      (2)
In paragraph 14 (entitlement to land remediation tax credit)—
(a)
in sub-paragraph (7), omit “or (13)”, “and charges on income” and
30
“and charges”,
(b)
in sub-paragraph (8), omit “or (13)”, and
(c)
in sub-paragraph (9)—
(i)
for “Step 6” substitute “Step 7”, and
(ii)
omit “or (13)”, in the first place.
35
      (3)
In paragraph 21 (provision in respect of I minus E basis), for the words after
“where” substitute “an insurance company is charged to tax under the I
minus E basis in respect of its life assurance business for any accounting
period.”
      (4)
In paragraph 22(2) (entitlement to relief: I minus E basis), for “is entitled to
40
relief for that accounting period in respect of its qualifying expenditure”
substitute “may treat the amount of its qualifying expenditure as expenses