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

263

 

(9D)   

For the purposes of subsection (9C) above “the relevant reinsurance

fraction” is—equation: over[times[char[R],char[L]],times[char[T],char[L]]]

   

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,”.

 
 

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

264

 

      (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.

 
 

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

266

 

      (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

 
 

Finance Bill (Volume II)
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.

 
 

Finance Bill (Volume II)
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).

 
 

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

269

 

(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

 
 

 
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