Office of Public Sector Information
Section 51.
1 In section 431(2) of the Taxes Act 1988 (interpretative provisions relating to insurance companies), insert the following at the appropriate places in alphabetical order—
“pension business” has the meaning given by section 431B;
“life reinsurance business” has the meaning given by section 431C;
“overseas life assurance business” has the meaning given by section 431D;
“basic life assurance and general annuity business” has the meaning given by section 431F;
“reinsurance business” includes retrocession business.
2 After section 431A of the Taxes Act 1988 insert—
(1) In this Chapter “pension business” means so much of a company’s life assurance business as is referable to contracts of the following descriptions or to the reinsurance of liabilities under such contracts.
(2) The descriptions of contracts are—
(a) any contract with an individual who is, or would but for an insufficiency of profits or gains be, chargeable to income tax in respect of relevant earnings (as defined in section 623(1) and (2)) from a trade, profession, vocation, office or employment carried on or held by him, being a contract approved by the Board under section 620 or a substituted contract within the meaning of section 622(3);
(b) any contract (including a contract of insurance) entered into for the purposes of, and made with the persons having the management of, an exempt approved scheme as defined in Chapter I of Part XIV, being a contract so framed that the liabilities undertaken by the insurance company under the contract correspond with liabilities against which the contract is intended to secure the scheme;
(c) any contract made under approved personal pension arrangements within the meaning of Chapter IV of Part XIV;
(d) any annuity contract entered into for the purposes of—
(i) a scheme which is approved or is being considered for approval under Chapter I of Part XIV;
(ii) a scheme which is a relevant statutory scheme for the purposes of Chapter I of Part XIV; or
(iii) a fund to which section 608 applies,
being a contract which is made with the persons having the management of the scheme or fund, or those persons and a member of or contributor to the scheme or fund, and by means of which relevant benefits (see subsections (3) and (4) below), and no other benefits, are secured;
(e) any annuity contract which is entered into in substitution for a contract within paragraph (d) above and by means of which relevant benefits (see subsections (3) and (4) below), and no other benefits, are secured;
(f) any contract with the trustees or other persons having the management of a scheme approved under section 620 or, subject to subsection (5) below, of a superannuation fund which was approved under section 208 of the 1970 Act, being a contract which—
(i) was entered into for the purposes only of that scheme or fund or, in the case of a fund part only of which was approved under section 208, for the purposes only of that part of that fund, and
(ii) (in the case of a contract entered into or varied after 1st August 1956) is so framed that the liabilities undertaken by the insurance company under the contract correspond with liabilities against which the contract is intended to secure the scheme or fund (or the relevant part of the fund).
(3) For the purposes of subsection (2)(d) and (e) above “relevant benefits” means relevant benefits as defined by section 612(1) which correspond—
(a) where subsection (2)(d)(i) above applies, or subsection (2)(e) above applies and the contract within subsection (2)(d) was entered into for the purposes of a scheme falling within subsection (2)(d)(i), with benefits that could be provided by a scheme approved under Chapter I of Part XIV;
(b) where subsection (2)(d)(ii) above applies, or subsection (2)(e) above applies and the contract within subsection (2)(d) was entered into for the purposes of a scheme falling within subsection (2)(d)(ii), with benefits that could be provided by a scheme which is a relevant statutory scheme for the purposes of Chapter I of Part XIV;
(c) where subsection (2)(d)(iii) above applies, or subsection (2)(e) above applies and the contract within subsection (2)(d) was entered into for the purposes of a fund falling within subsection (2)(d)(iii), with benefits that could be provided by a fund to which section 608 applies.
(4) For the purposes of subsection (3)(a), (b) or (c) above a hypothetical scheme or fund (rather than any particular scheme or fund), and benefits provided by a scheme or fund directly (rather than by means of an annuity contract), shall be taken.
(5) Subsection (2)(f) above shall not apply to a contract where the fund in question was approved under section 208 of the 1970 Act unless—
(a) immediately before 6th April 1980 premiums paid under the contract with the trustees or other persons having the management of the fund fell within section 323(4) of that Act (premiums referable to pension business); and
(b) the terms on which benefits are payable from the fund have not been altered since that time; and
(c) section 608 applies to the fund.
(6) In subsection (5) above “premium” includes any consideration for an annuity.
(1) In this Chapter “life reinsurance business” means reinsurance of life assurance business other than pension business or business of any description excluded from this section by regulations made by the Board.
(2) Regulations under subsection (1) above may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.
(1) In this Chapter “overseas life assurance business” means life assurance business, other than pension business or life reinsurance business, which—
(a) in the case of life assurance business other than reinsurance business, is business with a policy holder or annuitant not residing in the United Kingdom, and
(b) in the case of reinsurance business, is—
(i) reinsurance of life assurance business with a policy holder or annuitant not residing in the United Kingdom, or
(ii) reinsurance of business within sub-paragraph (i) above or this sub-paragraph.
(2) Subject to subsections (5) and (7) below, in subsection (1) above the references to life assurance business with a policy holder or annuitant do not include life assurance business with a person who is an individual if—
(a) the policy holder or annuitant is not beneficially entitled to the rights conferred by the policy or contract for the business, or
(b) any benefits under the policy or contract for the business are or will be payable to a person other than the policy holder or annuitant (or his personal representatives) or to a number of persons not including him (or them).
(3) For the purposes of subsection (2) above any nomination by a policy holder or annuitant of an individual or individuals as the recipient or recipients of benefits payable on death shall be disregarded.
(4) Subject to subsections (5) and (7) below, in subsection (1) above the references to life assurance business with a policy holder or annuitant do not include life assurance business with a person who is not an individual.
(5) Subsections (2) and (4) above do not apply if—
(a) the rights conferred by the policy or contract for the business are held subject to a trust,
(b) the settlor does not reside in the United Kingdom, and
(c) each beneficiary is either an individual not residing in the United Kingdom or a charity.
(6) In subsection (5) above—
(a) “settlor” means the person, or (where more than one) each of the persons, by whom the trust was directly or indirectly created (and for this purpose a person shall, in particular, be regarded as having created the trust if he provided or undertook to provide funds directly or indirectly for the purposes of the trust or made with any other person a reciprocal arrangement for that other person to create the trust),
(b) “beneficiary” means any person who is, or will or may become, entitled to any benefit under the trust (including any person who may become so entitled on the exercise of a discretion by the trustees of the trust), and
(c) “charity” means a person or body of persons established for charitable purposes only;
and for the purpose of that subsection an individual who is a trustee (of any trust) shall not be regarded as an individual.
(7) Subsections (2) and (4) above do not apply if the policy or contract for the business was effected solely to provide benefits for or in respect of—
(a) persons all, or all but an insignificant number, of whom are relevant overseas employees, or
(b) spouses, widows, widowers, children or dependants of such persons.
(8) In subsection (7) above “relevant overseas employees” means persons who are not residing in the United Kingdom and are—
(a) employees of the policy holder or annuitant,
(b) employees of a person connected with the policy holder or annuitant, or
(c) employees in respect of whose employment there is established a superannuation fund to which section 615(3) applies;
and section 839 applies for the purposes of this subsection.
(1) The Board may by regulations make provision for giving effect to section 431D.
(2) Such regulations may, in particular—
(a) provide that, in such circumstances as may be prescribed, any prescribed issue as to whether business is or is not overseas life assurance business (or overseas life assurance business of a particular kind) shall be determined by reference to such matters (including the giving of certificates or undertakings, the giving or possession of information or the making of declarations) as may be prescribed,
(b) require companies to obtain certificates, undertakings, information or declarations from policy holders or annuitants, or from trustees or other companies, for the purposes of the regulations,
(c) make provision for dealing with cases where any issue such as is mentioned in paragraph (a) above is (for any reason) wrongly determined, including provision allowing for the imposition of charges to tax (with or without limits on time) on the insurance company concerned or on the policy holders or annuitants concerned,
(d) require companies to supply information and make available books, documents and other records for inspection on behalf of the Board, and
(e) make provision (including provision imposing penalties) for contravention of, or non-compliance with, the regulations.
(3) The regulations may—
(a) make different provision for different cases, and
(b) contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate.
In this Chapter “basic life assurance and general annuity business” means life assurance business (including reinsurance business) other than pension business, life reinsurance business or overseas life assurance business.”.
3 In section 432C(2) of the Taxes Act 1988 after “assets of the overseas life assurance fund” insert “or land in the United Kingdom linked to overseas life assurance business”.
4 (1) Section 438 of the Taxes Act 1988 is amended as follows.
(2) In subsection (1) for “life assurance fund and separate annuity fund, if any” substitute “long term business fund”.
(3) In subsection (8) for “431(4)(c)” substitute “431B(2)(c)”.
5 (1) Section 440 of the Taxes Act 1988 is amended as follows.
(2) In subsection (3) for “paragraphs (a) to (d)” substitute “paragraphs (a) to (e)”.
(3) For subsection (4) substitute—
“(4) The categories referred to in subsections (1) to (3) above are—
(a) assets linked solely to pension business;
(b) assets linked solely to life reinsurance business;
(c) assets of the overseas life assurance fund;
(d) assets linked solely to basic life assurance and general annuity business;
(e) assets of the long term business fund not within any of the preceding paragraphs;
(f) other assets.”.
6 In section 440A of the Taxes Act 1988, in subsection (2) for paragraphs (a) and (b) substitute—
“(a) so many of the securities as are identified in the company’s records as securities by reference to the value of which there are to be determined benefits provided for under policies or contracts the effecting of all (or all but an insignificant proportion) of which constitutes the carrying on of—
(i) pension business, or
(ii) life reinsurance business, or
(iii) basic life assurance and general annuity business,
shall be treated for the purposes of corporation tax as a separate holding linked solely to that business,”.
7 In section 76(1)(d) of the Taxes Act 1988 after “pension business” insert “, life reinsurance business”.
8 In Schedule 19AA to the Taxes Act 1988, in the closing words of paragraph 5(5) for “pension business or basic life assurance business” substitute “pension business, life reinsurance business or basic life assurance and general annuity business”.
9 (1) The [1992 c. 12.] Taxation of Chargeable Gains Act 1992 is amended as follows.
(2) In section 212(2) after “pension business” insert “or life reinsurance business”.
(3) In section 214A(11)(a) for “any pension business or” substitute “any pension business or life reinsurance business of that company or to”.
10 (1) Schedule 18 to the Finance Act 1994 is amended as follows.
(2) In paragraph 1(5) for “life assurance fund and separate annuity fund, if any,” substitute “long term business fund”.
(3) In paragraph 1(6) after “pension business” insert “, life reinsurance business”.
(4) In paragraph 4 omit the definition of “life assurance business” and after the definition of “non-life mutual business” insert— “and other expressions have the same meaning as in Chapter I of Part XII of the Taxes Act 1988.”.
11 (1) In section 431(2) of the Taxes Act 1988, for the definition of “linked assets” substitute—
““linked assets”, and related expressions, shall be construed in accordance with section 432ZA;”.
(2) After section 432 of the Taxes Act 1988 insert—
(1) In this Chapter “linked assets” means assets of an insurance company which are identified in its records as assets by reference to the value of which benefits provided for under a policy or contract are to be determined.
(2) Linked assets shall be taken—
(a) to be linked to long term business of a particular category if the policies or contracts providing for the benefits concerned are policies or contracts the effecting of which constitutes the carrying on of business of that category; and
(b) to be linked solely to long term business of a particular category if all (or all but an insignificant proportion) of the policies or contracts providing for the benefits concerned are policies or contracts the effecting of which constitutes the carrying on of business of that category.
(3) Where an asset is linked to more than one category of long term business, a part of the asset shall be taken to be linked to each category; and references in this Chapter to assets linked (but not solely linked) to any category of business shall be construed accordingly.
(4) Where subsection (3) above applies, the part of the asset linked to any category of business shall be a proportion determined as follows—
(a) where in the records of the company values are shown for the asset in funds referable to particular categories of business, the proportion shall be determined by reference to those values;
(b) in any other case the proportion shall be equal to the proportion which the total of the linked liabilities of the company referable to that category of business bears to the total of the linked liabilities of the company referable to all the categories of business to which the asset is linked.
(5) For the purposes of sections 432A to 432F—
(a) income arising in any period from assets linked but not solely linked to a category of business,
(b) gains arising in any period from the disposal of such assets, and
(c) increases and decreases in the value of such assets,
shall be treated as arising to that category of business in the proportion which is the mean of the proportions determined under subsection (4) above at the beginning and end of the period.
(6) In this section “linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.
(7) In the case of a policy or contract the effecting of which constitutes a class of life assurance business the fact that it also constitutes long term business other than life assurance business shall be disregarded for the purposes of this section unless the benefits to be provided which constitute long term business other than life assurance business are to be determined by reference to the value of assets.”.
12 (1) In the following provisions for “linked solely” substitute “linked”—
(a) section 432C(1), section 432D(1) (twice) and section 432E(3)(a) and (b) and (6)(a) of the Taxes Act 1988;
(b) paragraph 1(5)(b)(i) of Schedule 19AB to the Taxes Act 1988;
(c) paragraph 1(4)(b) of Schedule 18 to the [1994 c. 9.] Finance Act 1994.
(2) The amendments made by paragraph 11 above do not affect the meaning of “linked assets”, and related expressions, in sections 214 and 214A of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (transitional provisions relating to changes made in 1990 and 1991).
(3) In section 432 of the Taxes Act 1988 for “class” in each place where it occurs substitute “category”.
13 (1) Section 432A of the Taxes Act 1988 is amended as follows.
(2) For subsections (1) to (3) substitute—
“(1) This section has effect where in any period an insurance company carries on more than one category of business and it is necessary for the purposes of the Corporation Tax Acts to determine in relation to the period what parts of—
(a) income arising from the assets of the company’s long term business fund, or
(b) gains or losses accruing on the disposal of such assets,
are referable to any category of business.
(2) The categories of business referred to in subsection (1) above are—
(a) pension business;
(b) life reinsurance business;
(c) overseas life assurance business;
(d) basic life assurance and general annuity business which is ordinary life assurance business;
(e) basic life assurance and general annuity business which is industrial assurance business; and
(f) long term business other than life assurance business.
(3) Income arising from, and gains or losses accruing on the disposal of, assets linked to any category of business (apart from overseas life assurance business) shall be referable to that category of business.”.
(3) In subsections (5) and (6)(b)(i) for “any of the appropriate categories” substitute “any category”.
(4) For subsection (7) substitute—
“(7) For the purposes of subsections (5) and (6) above—
(a) income, gains or losses are directly referable to a category of business if referable to that category by virtue of subsection (3) or (4) above, and
(b) assets are directly referable to a category of business if income arising from the assets is, and gains or losses accruing on the disposal of the assets are, so referable by virtue of subsection (3) above.”.
(5) For subsection (9) substitute—
“(9) Where a company carries on overseas life assurance business—
(a) references in this section to liabilities do not include liabilities of that business, and
(b) the appropriate part of the investment reserve as defined by paragraph 4(2)(a) of Schedule 19AA shall be left out of account in determining that reserve for the purposes of this section.”.
14 (1) Section 432C of the Taxes Act 1988 is amended as follows.
(2) In subsection (1) for the words from “life assurance business” to “general annuity business” substitute “pension business, life reinsurance business, basic life assurance and general annuity business or long term business other than life assurance business”.
(3) In subsection (3) for “any of the appropriate categories of business” substitute “any category of business”.
(4) In subsection (4)(b) for “any of the appropriate categories of business” substitute “any category of business”.
(5) In subsection (5), omit paragraph (a).
(6) For subsection (6) substitute—
“(6) For the purposes of this section, where a company carries on overseas life assurance business “liabilities” does not include liabilities of that business.”.
15 (1) Section 432D of the Taxes Act 1988 is amended as follows.
(2) In subsection (1) for the words from “life assurance business” to “general annuity business” substitute “pension business, life reinsurance business, basic life assurance and general annuity business or long term business other than life assurance business”.
(3) In subsection (2) for “any of the appropriate categories of business” substitute “any category of business”.
(4) For subsection (3) substitute—
“(3) For the purposes of subsection (2) above “the relevant fraction”, in relation to a category of business, is the fraction of which—
(a) the numerator is the mean of the opening and closing liabilities of the relevant business so far as referable to the category, reduced by the mean of the opening and closing values of any assets of the relevant business directly referable to the category; and
(b) the denominator is the mean of the opening and closing liabilities of the relevant business, reduced by the mean of the opening and closing values of any assets of the relevant business directly referable to any category of business.
(4) For the purposes of subsections (2) and (3) above, the part of the amount brought into account as the increase or decrease in the value of assets which is directly referable to a category of business is the part referable to the category by virtue of subsection (1) above and assets are directly referable to a category of business if such part of the amount brought into account as the increase or decrease in the value of assets as is attributable to them is so referable.”.
16 (1) For section 83 of the [1989 c. 26.] Finance Act 1989 substitute—
(1) The following provisions of this section have effect where the profits of an insurance company in respect of its life assurance business are, for the purposes of the Taxes Act 1988, computed in accordance with the provisions of that Act applicable to Case I of Schedule D.
(2) So far as referable to that business, the following items, as brought into account for a period of account (and not otherwise), shall be taken into account as receipts of the period—
(a) the company’s investment income from the assets of its long term business fund, and
(b) any increase in value (whether realised or not) of those assets.
If for any period of account there is a reduction in the value referred to in paragraph (b) above (as brought into account for the period), that reduction shall be taken into account as an expense of that period.
(3) In ascertaining whether or to what extent a company has incurred a loss in respect of that business any amount transferred into the company’s long term business fund from other assets of the company, or otherwise added to that fund, shall be taken into account, in the period in which it is brought into account, as an increase in value of the assets of that fund within subsection (2)(b) above.
This subsection does not apply where, or to the extent that, the amount concerned—
(a) would fall to be taken into account as a receipt apart from this section,
(b) is otherwise taken into account under subsection (2) above, or
(c) is specifically exempted from tax.
(1) In section 83 “brought into account” means brought into account in an account which is recognised for the purposes of that section.
(2) Subject to the following provisions of this section and to any regulations made by the Treasury, the accounts recognised for the purposes of that section are—
(a) a revenue account prepared for the purposes of the Insurance Companies Act 1982 in respect of the whole of the company’s long term business;
(b) any separate revenue account required to be prepared under that Act in respect of a part of that business.
Paragraph (b) above does not include accounts required in respect of internal linked funds.
(3) Where there are prepared any such separate accounts as are mentioned in subsection (2)(b) above, reference shall be made to those accounts rather than to the account for the whole of the business.
(4) If in any such case the total of the items brought into account in the separate accounts is not equal to the total amount brought into account in the account prepared for the whole business, there shall be treated as having been required and prepared a further separate revenue account covering the balance.
(5) Where a company carries on both ordinary long term business and industrial assurance business, the references above to the company’s long term business shall be construed as references to either or both of those businesses, as the case may require.”.
(2) In section 432B of the Taxes Act 1988—
(a) in subsection (1) for the words from “brought into account” to “1982” substitute “brought into account, within the meaning of that section,”; and
(b) for subsection (2) substitute—
“(2) Where for that purpose reference falls to be made to more than one account recognised for the purposes of that section, the provisions of sections 432C to 432F apply separately in relation to each account.”.
(3) In section 432E(1) of the Taxes Act 1988 for the words from “of the items referred to in subsection (1)” to “paragraph (b))” substitute “to be taken into account in accordance with section 83(2) of the [1989 c. 26.] Finance Act 1989 (that is to say, the aggregate amount to be taken into account as receipts reduced by the aggregate amount to be taken into account as expenses)”.
(4) In section 436(3) of the Taxes Act 1988, after paragraph (a) insert—
“(aa) section 83(3) of that Act shall not apply;”.
(5) In section 441(4) of the Taxes Act 1988, after paragraph (a) (and before the word “and” following that paragraph) insert—
“(aa) section 83(3) of that Act shall not apply,”.
(6) In section 65(2) of the Finance (No.2) Act 1992 for paragraph (d) substitute—
“(d) section 83(2) of the Finance Act 1989 (amounts to be taken into account as receipts or expenses);”.
17 (1) In section 432B of the Taxes Act 1988 (apportionment of receipts brought into account)—
(a) in subsections (1) and (2) for “sections 432C to 432E” substitute “sections 432C to 432F”, and
(b) in subsection (3) for “section 432E applies” substitute “sections 432E and 432F apply”.
(2) In section 432E of the Taxes Act 1988 (section 432B apportionment: participating funds)—
(a) in subsection (1), for the words from “shall be” to the end substitute “shall be the amount determined in accordance with subsection (2) below or, if greater, the amount determined in accordance with subsection (3) below.”; and
(b) in subsection (5) at the end insert— “ References in this subsection to the amount determined in accordance with subsection (3) above are to that amount after making any deduction required by section 432F.”.
(3) After section 432E of the Taxes Act 1988 insert—
Finance Act 1995