Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill (Volume II)
Schedule 17 — Insurance companies etc
256

ITA 2007
10    (1)
Section 818 of ITA 2007 (the independent investment manager conditions) is
amended as follows.
      (2)
In subsection (1), for the words from “if” to the end substitute “if conditions
A to E are met.”
      (3)
Omit subsections (7) and (8).
Part 4
Commencement
11    (1)
The amendments made by paragraph 1 have effect in relation to business
that relates to investment transactions occurring on or after the day on which
this Act is passed.
      (2)
The amendments made by paragraphs 7 to 9 have effect in relation to
accounting periods ending on or after the day on which this Act is passed.
      (3)
The amendments made by paragraph 10 have effect for the tax year 2008-09
and subsequent tax years.
      (4)
Subject to sub-paragraphs (1) to (3), the amendments made by this Schedule
come into force on the day on which this Act is passed.
      (5)
But, despite the coming into force of paragraph 2, 3 or 5—
(a)
the superseded provision, and
(b)
any regulations made under the superseded provision,

continue to have effect until such time as the first regulations under the new
regulation-making power come into force.
      (6)
In sub-paragraph (5)—
“new regulation-making power” means the regulation-making power
substituted by paragraph 2, 3 or 5, and
“superseded provision” means—
(a)
in relation to paragraph 2, the existing section 127(12) and
(13) of FA 1995,
(b)
in relation to paragraph 3, the existing paragraph 3(3) and (4)
of Schedule 26 to FA 2003, or
(c)
in relation to paragraph 5, the existing section 827(2) and (3)
of ITA 2007.
Schedule 17
Section 41

Insurance companies etc
Financing-arrangement-funded transfers
1     (1)
FA 1989 is amended as follows.
      (2)
In section 83(2A) (amounts not to be taken into account as receipts of a
period of account where profits computed in accordance with Case I of

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Schedule 17 — Insurance companies etc
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Schedule D), after paragraph (ab) insert—
“(ac)
consists of amounts brought into account as mentioned in
section 83YC(5) below;”.
      (3)
After section 83YB insert—
“83YC
FAFTS: charge in relevant period of account
(1)
This section applies where an insurance company makes a financing-
arrangement-funded transfer to shareholders (a “FAFTS”) in relation
to a non-profit fund.
(2)
A company makes a FAFTS in relation to a non-profit fund if—
(a)
the company enters into a relevant financing arrangement in
relation to a non-profit fund in a period of account (see
subsection (4) below),
(b)
a positive amount is brought into account by the company as
a transfer to non-technical account from the non-profit fund
for that or any subsequent period of account (“the relevant
period of account”), and
(c)
the positive amount so brought into account for the relevant
period of account exceeds the non-FAFTS surplus (see
subsection (8) below).
(3)
The amount of that excess is to be treated for the purposes of section
83(2) as brought into account by the company for the relevant period
of account as an increase in the value of assets.
(4)
For the purposes of this section and section 83YD a company enters
into a relevant financing arrangement in relation to a non-profit fund
in a period of account if—
(a)
the loan condition (see subsection (5) below), or
(b)
the reinsurance condition (see subsection (6) below),

is met.
(5)
The loan condition is met if credits in respect of a money debt which
is to any extent referable to the company’s life assurance business (a
“relevant money debt”) are brought into account in relation to a non-
profit fund as part of total income for the period of account.
(6)
The reinsurance condition is met if—
(a)
in the period of account the company enters into a financial
reinsurance arrangement relating to any liabilities (see
subsection (7) below), and
(b)
the reinsurance of the liabilities would (but for section
83YF(2)) be taken into account in calculating profits of the
company’s life assurance business in accordance with the
provisions of Case I of Schedule D for the period of account;

and such liabilities are referred to in this section and section 83YD as
“relevant liabilities”.
(7)
For the purposes of this section the company enters into a financial
reinsurance arrangement if—
(a)
it enters into a contract of insurance under which liabilities of
the company to policy holders or annuitants (or both) in
respect of a non-profit fund are reinsured,

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(b)
the reinsured liabilities are to reduce over time,
(c)
the contract is a financing arrangement within the meaning of
paragraph 9(3) of Appendix 9.4 to the Prudential Sourcebook
(Insurers), and
(d)
the premiums which, immediately after entering into the
contract, the company is liable to pay under the contract are
an insubstantial proportion of the amount of the reinsured
liabilities at that time.
(8)
For the purposes of this section the “non-FAFTS surplus” is—
(a)
the amount shown in line 39 of Form 58 in relation to the non-
profit fund in the periodical return for the relevant period of
account, reduced (but not to below nil) by
(b)
so much of the aggregate of the relevant outstanding debt
amount (see subsection (9) below) and the relevant
outstanding reinsurance amount (see subsection (10) below)
as is untaxed (see subsection (11) below).
(9)
The “relevant outstanding debt amount” is the total amount of the
credits brought into account by the company in relation to the non-
profit fund as part of total income—
(a)
for the relevant period of account, or
(b)
for any earlier period of account,

in respect of relevant money debts to the extent that they have not
been repaid before the end of the relevant period of account.
(10)
The “relevant outstanding reinsurance amount” is the total of the
amounts which would (but for section 83YF(2)) be taken into account
in calculating profits of the company’s life assurance business in
accordance with the provisions of Case I of Schedule D—
(a)
for the relevant period of account, or
(b)
for any earlier period of account,

in respect of the reinsurance of relevant liabilities to the extent that
they have not ceased to be reinsured before the end of the relevant
period of account.
(11)
The aggregate of the relevant outstanding debt amount and the
relevant outstanding reinsurance amount is “untaxed” to the extent
that it exceeds the difference between—
(a)
the aggregate of the amounts treated as brought into account
in the case of the company by the operation of subsection (3)
above for periods of account of the company earlier than the
relevant period of account, and
(b)
the aggregate of the amounts which are the relevant amount
for the relevant period of account or earlier periods of
account of the company under section 83YD.
83YD
FAFTS: deduction in subsequent periods of account
(1)
This section applies where section 83YC(3) has operated in the case
of the company for one or more periods of account.
(2)
The relevant amount (see subsection (4) below) is to be treated for the
purposes of section 83(2) as brought into account by the company as

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a decrease in the value of assets for any subsequent period of account
in relation to which the condition in subsection (3) below is met.
(3)
That condition is that—
(a)
a payment made by the company in respect of a relevant
money debt is brought into account for the period of account
as part of total expenditure in the revenue account for the
non-profit fund without being deductible under section
82(2)(b) of the Finance Act 1996, or
(b)
relevant liabilities are recaptured (that is, cease to be
reinsured under a financial reinsurance arrangement) during
the period of account.
(4)
For the purposes of subsection (2) above “the relevant amount” is an
amount equal to so much of the aggregate of—
(a)
the payments made and brought into account as mentioned
in paragraph (a) of subsection (3) above, and
(b)
the liabilities recaptured as mentioned in paragraph (b) of
that subsection,

as, when added to the aggregate of the amounts which are the
relevant amount for each earlier period of account of the company in
relation to which this section has applied, does not exceed the taxed
amount (see subsection (6) below).
(5)
But the making of payments or recapture of liabilities is to be left out
of account under paragraph (a) or (b) of subsection (4) above to the
extent that it relates to refinancing; and for this purpose a payment
or recapture of liabilities relates to refinancing if—
(a)
the company enters into a relevant financing arrangement in
relation to the non-profit fund (in any period of account), and
(b)
it is reasonable to assume that the making of the payments or
the recapture of the liabilities is connected with its doing so.
(6)
For the purposes of subsection (4) above “the taxed amount” is the
aggregate of the amounts treated as brought into account in the case
of the company by the operation of section 83YC(3) above for earlier
periods of account.
83YE
Regulations: apportionment and redefining “financial reinsurance
arrangement”
(1)
The Treasury may by regulations make provision for determining
what parts of amounts within sections 83YC(3) and 83YD(2)—
(a)
are referable to life assurance business, or
(b)
are referable to gross roll-up business.
(2)
The Treasury may by regulations make provision amending section
83YC(7).
(3)
Regulations under subsection (2) above may include incidental,
supplementary, consequential, transitional and savings provisions
and may amend or repeal any enactment.
(4)
Regulations under this section—
(a)
may make provision in relation to periods of account current
when they are made, and

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(b)
if made before 1 January 2009, may make provision in
relation to periods of account beginning on or after 1 January
2008 which have ended before they are made.
83YF
Financial reinsurance arrangements: further provision
(1)
This section applies where the company has entered into a financial
reinsurance arrangement for the purposes of section 83YC.
(2)
Any reduction in the company’s liabilities as a result of it doing so is
not to be taken into account in calculating profits of the company’s
life assurance business in accordance with the provisions of Case I of
Schedule D.
(3)
Any increase in the company’s liabilities as a result of the reduction
over time of the liabilities reinsured under the contract of
reinsurance is not to be taken into account in calculating profits of the
company’s life assurance business in accordance with the provisions
of Case I of Schedule D otherwise than in accordance with section
83YD.”
      (4)
Omit section 83ZA (contingent loans).
2
In ICTA, for section 444AE substitute—
“444AE
Transfers of business: FAFTS
(1)
Where an insurance business transfer scheme has effect to transfer
the relevant financing arrangements entered into in relation to a non-
profit fund of an insurance company (“the transferor”) to another
person (“the transferee”), after the transfer—
(a)
they are to be treated for the purposes of sections 83YC and
83YD of the Finance Act 1989 as having been entered into by
the transferee, but
(b)
the references in those sections to earlier periods of account
of the transferee include earlier periods of account of the
transferor.
(2)
But if the insurance business transfer scheme has effect—
(a)
to transfer some but not all of the relevant financing
arrangements entered into in relation to the non-profit fund
of the transferor, or
(b)
to transfer all of those relevant financing arrangements but
not all to one person,

any calculation required by virtue of section 83YC or 83YD in
relation to a period of account of the transferor, or of the transferee
or any of the transferees, ending after the transfer is to be made on a
just and reasonable basis.
(3)
Subsection (4) below applies where—
(a)
relevant financing arrangements have been entered into in
relation to a non-profit fund of an insurance company (“the
old company”), and
(b)
as a result of any transaction other than an insurance business
transfer scheme, another insurance company (“the new
company”) becomes the debtor in respect of the money debt,
or the cedant, under the financial reinsurance arrangements.

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(4)
Where this subsection applies, after the transaction—
(a)
the relevant financing arrangements are to be treated for the
purposes of sections 83YC and 83YD as having been entered
into by the new company, but
(b)
the references in those sections to earlier periods of account
of the new company include earlier periods of account of the
old company, and
(c)
the transaction is not to be regarded as causing the condition
in section 83YD(3) to be met in relation to the old company.
(5)
But if the transaction has effect—
(a)
to transfer some but not all of the relevant financing
arrangements entered into in relation to the non-profit fund
of the old company, or
(b)
to transfer all of those relevant financing arrangements but
not all to one person,

any calculation required by virtue of section 83YC or 83YD in
relation to a period of account of the old company, or of the new
company or any of the new companies, ending after the transaction
is to be made on a just and reasonable basis.
(6)
Expressions used in this section and section 83YC or 83YD have the
same meanings here as there.”
3
In consequence of paragraphs 1 and 2, omit—
(a)
paragraph 2(2A) of Schedule 11 to FA 1996,
(b)
paragraph 3 of Schedule 33 to FA 2003,
(c)
paragraph 8 of Schedule 11 to FA 2006, and
(d)
paragraph 1 of Schedule 10 to FA 2007.
4     (1)
The amendments made by paragraphs 1 to 3 have effect in relation to
periods of account beginning on or after 1 January 2008.
      (2)
Where, at the end of the last period of account of an insurance company
before the first beginning on or after 1 January 2008 (“the initial period of
account”) the company has unrepaid contingent loan liabilities, sections
83YC and 83YD of FA 1989, as inserted by paragraph 1, have effect as
follows.
      (3)
Those sections have effect as if—
(a)
the amount of the unrepaid contingent loan liabilities, so far as
relating to a non-profit fund, were credits in respect of a money debt
brought into account in relation to a non-profit fund as part of total
income for the initial period of account, and
(b)
any amount by which—

for any period of account beginning on or after 1 January 2008 is to
be included in the relevant amount for the period of account for the
purposes of section 83YD(2).
      (4)
For the purposes of sub-paragraph (2), subsection (3) of section 83ZA of FA
1989 applies for determining whether the company has unrepaid contingent
loan liabilities; and for the purposes of sub-paragraph (3)(a) the amount of
the unrepaid contingent loan liabilities is the amount given by subsection (7)

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of that section for the period of account preceding the initial period of
account.
      (5)
In sub-paragraph (3)(b)—
AA is the amount which would have been allowable for the period of
account by virtue of subsection (13) of section 83ZA of FA 1989, and
R the amount which would have been taken into account as a receipt of
the period of account under subsection (6)(b) of that section (on the
assumption that there were no reduction under subsection (7)(a) of
that section).
      (6)
Where by virtue of sub-paragraph (3)(b) an amount (“the contingent loan
amount”) is included in the relevant amount for a period of account for the
purposes of subsection (2) of section 83YD of FA 1989 by reason of any
repayment of a money debt, a payment brought into account as mentioned
in subsection (3)(a) of that section in respect of the money debt for the period
of account does not form part of the relevant amount for that period of
account for those purposes except to the extent that it exceeds the contingent
loan amount.
Expenses: fronting reinsurance commissions etc
5     (1)
Section 76 of ICTA (expenses of insurance companies) is amended as
follows.
      (2)
In subsection (7), in Step 2, omit “or” at the end of paragraph (b) and insert
at the end “or
(d)
required to be deducted by subsection (9A) below.”
      (3)
After subsection (9) insert—
“(9A)
The amount required to be deducted at paragraph (d) of Step 2 is the
total of the amounts (if any) arrived at under subsection (9C) below
in relation to the fronting reinsurance contracts (if any) made by the
company.
(9B)
A fronting reinsurance contract is a contract of reinsurance forming
part of a fronting reinsurance arrangement; and a fronting
reinsurance arrangement is an arrangement under which the
company—
(a)
enters into a contract constituting term assurance with a
person, and
(b)
reinsures all, or substantially all, of the liabilities under that
contract with a reinsurer which—
(i)
does not meet the BLAGAB group reinsurance
conditions in paragraph 1(3) of Schedule 19ABA to
this Act, and
(ii)
is connected with that person or with a person
entitled to commission from the company in respect
of the contract.
(9C)
The amount referred to in subsection (9A) above in relation to any
fronting reinsurance contract made by the company is the relevant
reinsurance fraction of so much of the amount found at Step 1 as
relates to policies and contracts which are relevant reinsured policies
and contracts in relation to the fronting reinsurance contract.