Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill (Volume II)
Schedule 17 — Insurance companies etc
263

(9D)
For the purposes of subsection (9C) above “the relevant reinsurance
fraction” is—

where—
RL is so much of TL as is reinsured under the fronting
reinsurance contract, and
TL is the amount of the total liabilities under the relevant
reinsured policies and contracts at the end of the accounting
period.
(9E)
For the purposes of subsections (9B) and (9C) above policies and
contracts are relevant reinsured policies and contracts in relation to
a fronting reinsurance contract if—
(a)
they are attributable to the company’s basic life assurance
and general annuity business, and
(b)
any or all of the risks under them are reinsured under the
fronting reinsurance contract.”
      (4)
The amendments made by this paragraph have effect in relation to policies
and contracts made on or after 9 October 2007.
      (5)
For the purposes of the operation of Step 6 in section 76(7) of ICTA in
relation to an accounting period of an insurance company beginning on or
after 9 October 2007, the adjusted amount of the acquisition expenses
(within the meaning of section 86(6) of FA 1989) of the company for any
earlier accounting period which is relevant for those purposes (a “relevant
earlier accounting period”) is to be arrived at as if the amendments made by
this paragraph had effect in relation to policies and contracts whenever
made.
      (6)
And for those purposes, if the relevant earlier accounting period is a period
which began before 1 April 2004 the amount which would be required to be
deducted for that period at paragraph (d) of Step 2 by the subsection (9A)
inserted by sub-paragraph (3) is to be treated as an amount to be deducted
from the amount treated as the expenses of management of the company for
that period under section 75 of ICTA as it applied in relation to the relevant
earlier accounting period by virtue of section 76 of that Act.
      (7)
In the application of the subsection (9C) inserted by sub-paragraph (3) by
virtue of sub-paragraph (6) the reference to Step 1 is to be read as a reference
to section 75 (as it so applied).
6     (1)
Section 85 of FA 1989 (charge of certain receipts of BLAGAB under Case VI)
is amended as follows.
      (2)
In subsection (2), for paragraph (b) substitute—
“(b)
any sum received under a reinsurance contract, except for
reinsurance commissions, however described, (but subject to
subsection (2ZA) below) and any sum calculated to any
extent by reference to expenses of the company brought into
account at Step 1 in section 76(7) of the Taxes Act 1988; or”.
      (3)
In paragraph (f) of that subsection, after “Scheme” insert “, or from another
insurance company,”.

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Schedule 17 — Insurance companies etc
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      (4)
After that subsection insert—
“(2ZA)
The reference in subsection (2)(b) above to reinsurance commissions
does not include so much of the relevant reinsurance fraction (see
subsection (9D) of section 76 of the Taxes Act 1988) of any
reinsurance commissions received from the reinsurer under a
fronting reinsurance contract (within the meaning of subsection (9B)
of that section) as does not exceed the amount arrived at under
subsection (9C) of that section in relation to the contract.”
      (5)
The amendments made by this paragraph have effect in relation to
accounting periods beginning on or after 9 October 2007.
Structural assets
7
In section 83XA of FA 1989 (structural assets), omit—
(a)
subsections (10) and (11), and
(b)
in subsection (15), “or (10)”.
8     (1)
In section 431(2) of ICTA (interpretative provisions relating to insurance
companies), in the definition of “free assets amount”, after “long-term
business” insert “, other than any structural assets (within the meaning of
section 83XA of the Finance Act 1989),”.
      (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—
   “(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.
     (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
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—
““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
of account beginning on or after 1 January 2008 and ending on or after 12
March 2008.

Finance Bill (Volume II)
Schedule 17 — Insurance companies etc
265

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”
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
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;
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;”.
      (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
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
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),
(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”.
      (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
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.

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Schedule 17 — Insurance companies etc
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      (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
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”
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.
      (2)
In sub-paragraph (2) of paragraph 41, for “paragraphs 42 and 43” substitute
“the following paragraphs”.
      (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.”
      (4)
Omit paragraph 42 (and the heading before it).
      (5)
After that paragraph insert—
“Mutual trading and non-life mutual business
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.
      (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)
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
of its life assurance business, is nil, and

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Schedule 17 — Insurance companies etc
267

(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
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
are nil, the relevant fraction—
(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
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.
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
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
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
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
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.
(3)
In this section “relevant insurance business” means any kind of
insurance business other than life assurance business.

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Schedule 17 — Insurance companies etc
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(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).
(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.
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”,
(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—
(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
2006 as profits of a Schedule A business carried on by the
company,
(c)
income chargeable under Case V of Schedule D in respect of
any overseas property business treated as carried on by the
company under section 432AA,
(d)
other income of the company chargeable under Case V of
Schedule D,
(e)
distributions received by the company from companies
resident in the United Kingdom,
(f)
credits in respect of any creditor relationships (within the
meaning of Chapter 2 of Part 4 of the Finance Act 1996) of the
company,
(g)
credits in respect of any derivative contracts (within the
meaning of Schedule 26 to the Finance Act 2002) of the
company,
(h)
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 III of Schedule D as
substituted by section 18(3A),
(i)
any credits brought into account by the company under Part
3 of Schedule 29 to the Finance Act 2002 (intangible fixed
assets), and
(j)
any income of the company chargeable under Case VI of
Schedule D, other than profits of the company chargeable
under section 436A (gross roll-up business).

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Schedule 17 — Insurance companies etc
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(1ZB)
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
as carried on by the company under that section,
(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
company,
(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 computed in the same way as
profits chargeable under Case VI of Schedule D, other than
any losses of gross roll-up business.
(1ZC)
For determining as mentioned in subsection (1) above what parts of
income or gains arising from the assets of the company’s long-term
insurance fund are referable to PHI business (to the extent that it
would not be the case by virtue of subsections (1ZA) and (1ZB))—
(a)
“income” also includes profits shown in the technical
account, and
(b)
“losses” also includes losses so shown.”
      (4)
In subsection (1A), for “, all of the income and gains or losses referred to in
subsection (1) above is” substitute—
(a)
all of the income and losses referred to in paragraph (a) of
subsection (1) above, and
(b)
all of the gains and losses referred to in paragraph (b) of that
subsection,

are”.
      (5)
In subsection (3), after “Income” insert “or losses”.
      (6)
After that subsection insert—
“(3A)
Amounts falling within—
(a)
section 442A,
(b)
section 85(2C) of the Finance Act 1989, or
(c)
section 85A of that Act,

are directly referable to basic life assurance and general annuity
business.”
      (7)
In subsection (4A), after “Income” insert “or losses”.
      (8)
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,”.
      (9)
In subsection (7)—
(a)
in paragraph (a), for “income, gains or losses” substitute “income and
losses referred to in paragraph (a) of subsection (1) above, and gains