Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill (Volume II)
Schedule 13 — Company gains from investment life insurance contracts
242

(a)
an investment life insurance contract under, or purchased
with sums or assets held for the purposes of, a registered
pension scheme, or
(b)
(subject to sub-paragraph (3)) a policy of life insurance issued
in respect of an insurance made before 14 March 1989.
      (2)
In sub-paragraph (1)—
“capital redemption policy” means a contract made in the course of
capital redemption business (as defined in section 431(2ZF) of ICTA),
“life insurance company” means—
(a)
an insurance company (as defined in subsection (2) of section
431 of ICTA) which carries on long-term business (as defined
in that subsection), or
(b)
a friendly society which would be such an insurance
company but for the words “(other than a friendly society)”
in the definition of “insurance company” in that subsection,
and
“purchased life annuity” means an annuity—
(a)
granted for consideration in money or money’s worth in the
ordinary course of a business of granting annuities on human
life, and
(b)
payable for a term ending at a time ascertainable only by
reference to the end of a human life (whether or not it may in
some circumstances end before or after the life).
      (3)
A policy of life insurance issued in respect of an insurance made before 14
March 1989 is to be treated for the purposes of this Schedule as issued in
respect of one made on or after that date if it is varied on or after that date so
as to—
(a)
increase the benefits secured, or
(b)
extend the term of the insurance;

and any exercise of rights conferred by the policy is to be regarded for this
purpose as a variation.
      (4)
In this Schedule—
“fair value accounting” has the same meaning as in Chapter 2 of Part 4
of FA 1996 (see section 103(1) of that Act),
“non-trading credit” has the same meaning as in that Chapter (see
section 82(3) of that Act),
“registered pension scheme” has the same meaning as in Part 4 of FA
2004, and
“related transaction” has the same meaning as in Chapter 2 of Part 4 of
FA 1996 (see section 84(5) and (6) of that Act).
Contract to be loan relationship
2     (1)
If a relevant company is a party to an investment life insurance contract, for
the purposes of Chapter 2 of Part 4 of FA 1996 the contract is, in relation to
the company, a loan relationship of the company (as a creditor relationship).
      (2)
But if—
(a)
the amount or value of a lump sum payable under an investment life
contract by reason of death or the onset of critical illness, exceeds

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Schedule 13 — Company gains from investment life insurance contracts
243

(b)
the surrender value of the contract immediately before the time
when the lump sum becomes payable,

the excess is not to be brought into account as a credit under that Chapter
representing a profit from a related transaction arising by reason of the lump
sum becoming payable.
Increased non-trading credits
3     (1)
This paragraph applies where—
(a)
by virtue of paragraph 2 the relevant company is required to bring
into account for an accounting period a non-trading credit
representing a profit from a related transaction, and
(b)
the investment life insurance contract is a BLAGAB contract, or a
contract which is subject to a relevant comparable EEA tax charge.
      (2)
The non-trading credit (“NTC”) is to be treated as increased by the relevant
amount and the relevant amount is to be set off against corporation tax
assessable on the company for the accounting period.
      (3)
The relevant amount is—

where AR is the appropriate rate for the accounting period, that is—
(a)
if a single rate of tax under section 88(1) of FA 1989 (lower
corporation tax rate on certain insurance company profits) is
applicable in relation to the accounting period, that rate, and
(b)
if more than one such rate of tax is applicable in relation to the
accounting period, the average of those rates over the accounting
period.
      (4)
In sub-paragraph (1) “BLAGAB contract” means a contract forming part of
basic life assurance and general annuity business of an insurance company
but not part of business which is exempt from corporation tax under section
460 of ICTA (friendly society business and former friendly society business).
      (5)
For the purposes of sub-paragraph (1) the contract is subject to a relevant
comparable EEA tax charge if the contract forms part of the business of a
company (other than the relevant company) to which a relevant comparable
EEA tax charge has applied.
      (6)
For the purposes of sub-paragraph (5) a relevant comparable EEA tax charge
has applied to a company if—
(a)
a charge to tax has applied to the company under the laws of a
territory outside the United Kingdom that is within the European
Economic Area,
(b)
the charge has applied to the company—
(i)
as a body deriving its status as a company from those laws,
(ii)
as a company with its place of management there, or
(iii)
as a company falling under those laws to be regarded for any
other reason as resident or domiciled there,
(c)
the charge applies at a rate of at least 20% in relation to the amounts
subject to tax in the company’s hands, other than amounts arising or
accruing in respect of investments of a description for which a
special relief or exemption is generally available, and

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Schedule 13 — Company gains from investment life insurance contracts
244

(d)
the charge is made otherwise than by reference to the company’s
profits.
4     (1)
Where the relevant company brings into account credits and debits in
respect of the investment life insurance contract on the basis of fair value
accounting, the relevant amount under paragraph 3 is determined as if for
“NTC” in the formula in sub-paragraph (3) of that paragraph there were
substituted “PC”.
      (2)
For this purpose “PC” is the profit from the contract, that is any amount by
which—
(a)
the amount payable as a result of the related transaction, exceeds
(b)
the fair value of the contract when the contract was made or, if the
contract was made before the beginning of the first accounting
period of the company beginning on or after 1st April 2008, at the
beginning of that period.
      (3)
If the related transaction is an assignment (or, in Scotland, assignation) or
surrender of only part of the rights conferred by the contract, sub-paragraph
(2) has effect as if paragraph (b) of that sub-paragraph referred to the
relevant fraction of the fair value of the contract when the contract was made
or, if the contract was made before the beginning of the first accounting
period of the company beginning on or after 1st April 2008, at the beginning
of that period.
      (4)
For this purpose the relevant fraction is—

where—
C is the amount payable as a result of the related transaction, and
FVC is the fair value of the contract immediately before the related
transaction.
Commencement
5
This Schedule has effect for accounting periods beginning on or after 1 April
2008.
6     (1)
Where the relevant company was a party to an investment life insurance
contract immediately before the beginning of the first accounting period of
the company beginning on or after that date, the company is to be treated for
the purposes of Chapter 2 of Part 13 of ICTA (life policies etc) as having
surrendered all the rights under the contract immediately before that date
for an amount equal to the carrying value of the contract at that time as
recognised for accounting purposes.
      (2)
Any gain arising under Chapter 2 of Part 13 of ICTA by reason of that
deemed surrender (“the Chapter 2 gain”)—
(a)
is not income of the company for the accounting period in which it
arises, but
(b)
is instead to be brought into account as a non-trading credit for the
accounting period in which there is a related transaction.
      (3)
If, immediately after the related transaction, the company is still a party to
the investment life insurance contract, only the relevant fraction of the
Chapter 2 gain is brought into account as mentioned in sub-paragraph (2)(b).

Finance Bill (Volume II)
Schedule 13 — Company gains from investment life insurance contracts
245

      (4)
“The relevant fraction” is—

where—
P is the amount payable as a result of the related transaction, and
SAR is the amount that would have been payable on a surrender of all
of the rights under the contract immediately before the related
transaction.
7     (1)
This paragraph applies where—
(a)
the relevant company was a party to an investment life insurance
contract immediately before the beginning of the first accounting
period of the company beginning on or after 1 April 2008,
(b)
at all time since the contract was made the rights conferred by the
contract have been in the beneficial ownership of the company,
(c)
the company brings into account credits and debits in respect of the
contract on the basis of fair value accounting, and
(d)
the relevant amount exceeds the fair value of the contract
immediately before the beginning of that accounting period.
      (2)
In sub-paragraph (1)(d) “the relevant amount” means—
(a)
where section 541 of ICTA applies on the deemed surrender under
paragraph 6(1), the amount specified in sub-paragraph (i) of
subsection (1)(b) of that section less the amount or value of any
relevant capital payments (as defined in subsection (5)(a) of that
section), or
(b)
where section 543 of that Act applies on that deemed surrender, the
amount specified in sub-paragraph (i) of subsection (1)(a) of that
section less the amount or value of any relevant capital payments (as
defined in subsection (3) of that section).
      (3)
No amount is to be brought into account as a credit by virtue of paragraph 2
in relation to the contract except to the extent that the aggregate of—
(a)
the amount of the credit, and
(b)
the total of any other credits which have previously arisen in relation
to the contract by virtue of that paragraph,

is greater than the excess mentioned in sub-paragraph (1)(d).
8     (1)
This paragraph applies where—
(a)
the relevant company was a party to an investment life insurance
contract immediately before the beginning of the first accounting
period of the company beginning on or after 1 April 2008,
(b)
the company brings into account credits and debits in respect of the
contract otherwise than on the basis of fair value accounting, and
(c)
the carrying value of the contract as recognised for accounting
purposes immediately before the beginning of that first accounting
period exceeds the fair value of the contract at that time.
      (2)
No amount is to be brought into account as a debit by virtue of paragraph 2
in relation to the contract except to the extent that the aggregate of—
(a)
the amount of the debit, and
(b)
the total of any other debits which have previously arisen in relation
to the contract by virtue of that paragraph,

Finance Bill (Volume II)
Schedule 14 — Company gains from investment life insurance contracts: consequential amendments etc
246


is greater than the excess mentioned in sub-paragraph (1)(c).
Schedule 14
Section 34

Company gains from investment life insurance contracts: consequential
amendments etc
ICTA
1
ICTA is amended as follows.
2     (1)
Subsection (1C) of section 437 (general annuity business: income limit) is
amended as follows.
      (2)
In paragraph (b)(ii), omit “capital elements and”.
      (3)
Omit paragraph (c).
      (4)
In paragraph (d), for the words after “2005” substitute “are so much of the
payments under the new annuities as would be within the exemption in
subsection (1) of that section if—
(i)
section 718 of that Act were omitted, and
(ii)
that exemption were an exemption applying in
relation to companies as well as individuals.”
3
Omit sections 539 to 551A (corporation tax in respect of gains arising in
connection with life policies etc).
4     (1)
Section 552 (information: duty of insurers) is amended as follows.
      (2)
In subsection (3), omit—
(a)
the words from “(or” to “year)”, and
(b)
“, and the corresponding financial year,”.
      (3)
In subsection (5)—
(a)
in paragraph (b)—
(i)
omit “section 546C(7)(a) of this Act and”, and
(ii)
for “the year and the insurance year end” substitute “the
insurance year ends”, and
(b)
in paragraph (c), omit—
(i)
“this Chapter and”,
(ii)
in sub-paragraph (i), “the amount or value of any relevant
capital payments and”,
(iii)
in sub-paragraph (iii), the words from the beginning to “656
and”, and
(iv)
in sub-paragraph (v), the words from the beginning to “year
and”.
      (4)
In subsection (6)—
(a)
in paragraph (b)—
(i)
omit “section 546C(7)(a) of this Act (and”,
(ii)
omit the closing bracket after “2005”, and

Finance Bill (Volume II)
Schedule 14 — Company gains from investment life insurance contracts: consequential amendments etc
247

(iii)
for “the year (and the insurance year)” substitute “the
insurance year”, and
(b)
in paragraph (c), omit “section 546C(7)(a) of this Act (and” and the
closing bracket after “2005”.
      (5)
In subsection (7)—
(a)
in paragraph (a), omit “, or, where the policy holder is a company,
the financial year,”, and
(b)
in paragraph (b), for the words from “section 546C(7)(a)” to
“insurance year)” substitute “section 514(1) of ITTOIA 2005, the
period of three months following the end of the insurance year”.
      (6)
In subsection (8)(c), omit the words from “or” to “financial year”.
      (7)
In subsection (9)—
(a)
in the words before paragraph (a), omit “or financial year”,
(b)
in paragraph (a), for the words from “section 546C(7)(b)” to the end
substitute “subsection (1) of section 514 of ITTOIA 2005, the year of
assessment which includes the end of the insurance year mentioned
in subsection (3) and (4) of that section;”, and
(c)
in paragraph (b) omit “or financial year”.
      (8)
In subsection (10)—
(a)
in the definition of “amount”, omit “section 553(3) of this Act and”,
(b)
in the definition of “chargeable event”, omit “this Chapter and”,
(c)
omit the definition of “financial year”,
(d)
after that definition insert—
““insurance year” has the same meaning as in Chapter 9
of Part 4 of ITTOIA 2005 (see section 499 of that Act);”,
(e)
in the definition of “the relevant year of assessment”, omit paragraph
(b) and the “or” before it, and
(f)
omit the definitions of “section 546 excess” and “year”.
      (9)
Omit subsection (11).
     (10)
In subsection (13), omit “section 548A above or”.
5
In section 552ZA(3) (information: supplementary provisions), omit “section
546C(7)(a) of this Act and”.
6
In section 552A(12) (tax representatives)—
(a)
omit “this Chapter and” in each place, and
(b)
for “have” substitute “has” in each place.
7
Omit sections 553 to 553C (further provisions about corporation tax in
respect of gains arising in connection with life policies etc).
8
Omit sections 656 to 658 (purchased life annuities).
9
In paragraph 20 of Schedule 15 (qualifying policies)—
(a)
in sub-paragraph (1)(a), omit “and 540 and 541”, and
(b)
in sub-paragraph (3)—
(i)
in paragraph (a), omit “and 540 and 541”, and
(ii)
omit paragraph (b) and the “and” before it.

Finance Bill (Volume II)
Schedule 14 — Company gains from investment life insurance contracts: consequential amendments etc
248

ITTOIA 2005
10
ITTOIA 2005 is amended as follows.
11
In section 467(5) (persons liable: UK resident trustees), for paragraph (c)
substitute—
“(c)
neither section 465 nor section 466 applies.”
12
In section 469(2) (two or more persons interested in policy or contract), omit
“above and section 547(1) of ICTA (persons liable for tax etc.)”.
13
Omit section 486 (exclusion of maturity of capital redemption policies in
certain circumstances).
14
In section 501 (part surrenders: loans)—
(a)
in subsection (1), insert “or” at the end of paragraph (a) and omit
paragraph (c) and the “or” before it”, and
(b)
omit subsection (4).
15
In section 541B(7) (section 541A: further definitions), omit paragraph (b) and
the “or” before it.
16
In Schedule 1 (consequential amendments), omit paragraphs 210 to 221 and
226 to 228.
Other Acts
17
Omit—
(a)
in FA 1989, section 90 and Schedule 9,
(b)
in FA 1991, section 76(1),
(c)
in F(No.2)A 1992, paragraph 15 of Schedule 9,
(d)
in FA 1995, section 55(8),
(e)
in FA 1996, section 168(4) to (6) and paragraph 1A of Schedule 9,
(f)
in FA 1997, section 79,
(g)
in FA 1998, sections 88 and 89 and paragraphs 1 to 4 of Schedule 14,
(h)
in FA 1999, section 80 and paragraphs 16 and 18(3) of Schedule 4,
(i)
in FA 2000, in section 46(2A), “547(1)(b)”,
(j)
in FA 2001, section 83(2) and Part 1 of Schedule 28,
(k)
in FA 2002, section 87 and paragraph 21 of Schedule 25,
(l)
in FA 2003, section 171 and Schedule 34,
(m)
in FA 2004, paragraphs 25 and 27 of Schedule 35,
(n)
in ITTOIA 2005, paragraph (b) of section 473(2) and the “or” before
it, paragraphs 268(1) and (2), 269 and 493 of Schedule 1 and
paragraph 86(3) of Schedule 2,
(o)
in ITA 2007, paragraphs 111 and 141 of Schedule 1, and
(p)
in FA 2007, section 29(1), paragraphs 45 and 46 of Schedule 7 and
paragraph 6(3) of Schedule 10.
Commencement
18    (1)
The amendments made by this Schedule—
(a)
so far as relating to corporation tax, have effect for accounting
periods beginning on or after 1 April 2008, and