Office of Public Sector Information
SCHEDULE 8 continued PART I continued
(1) The provisions of this section provide for the reduction of the amount determined in accordance with section 432E(3) (“the subsection (3) figure”) for an accounting period in which that amount exceeds, or would otherwise exceed, the amount determined in accordance with section 432E(2) (“the subsection (2) figure”).
(2) For each category of business in relation to which section 432E falls to be applied there shall be determined for each accounting period the amount (if any) by which the subsection (2) figure, after making any reduction required by section 432E(5), exceeds the subsection (3) figure (“the subsection (2) excess”).
(3) Where there is a subsection (2) excess, the amount shall be carried forward and if in any subsequent accounting period the subsection (3) figure exceeds, or would otherwise exceed, the subsection (2) figure, it shall be reduced by the amount or cumulative amount of subsection (2) excesses so far as not previously used under this subsection.
(4) Where in an accounting period that amount is greater than is required to bring the subsection (3) figure down to the subsection (2) figure, the balance shall be carried forward and aggregated with any subsequent subsection (2) excess for use in subsequent accounting periods.”.
(4) In section 444A of the Taxes Act 1988 (transfers of business) after subsection (3) insert—
“(3A) Any subsection (2) excess (within the meaning of section 432F(2)) which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been available under section 432F(3) or (4) to reduce a subsection (3) figure (within the meaning of section 432F(1)) of the transferor in an accounting period following that which ends with the day on which transfer takes place—
(a) shall, instead, be treated as a subsection (2) excess of the transferee, and
(b) shall be taken into account in the first accounting period of the transferee ending after the date of the transfer (to reduce the subsection (3) figure or, as the case may be, to produce or increase a subsection (2) excess for that period),
in relation to the revenue account of the transferee dealing with or including the business transferred.”.
(5) In section 444A(5) of the Taxes Act 1988 for “subsection (2) or (3)” substitute “subsection (2), (3) or (3A)”.
18 (1) Chapter V of Part VI of the Taxes Act 1988 is amended as follows.
(2) In section 238(1) for the definition of “surplus of franked investment income” substitute—
““surplus of franked investment income” shall be construed in accordance with subsection (1A) below;”.
(3) After that subsection insert—
“(1A) For the purposes of this Chapter, a company has a surplus of franked investment income in an accounting period if the amount of the franked investment income of the company in that period exceeds the amount of the franked payments made by it in that period.
For the purposes of determining whether a company has such a surplus, or the amount of the surplus, franked investment income that cannot be used to frank distributions of the company shall be disregarded.”.
(4) For section 238(3) substitute—
“(3) References in this Chapter to using franked investment income to frank distributions of a company are to using the income in accordance with section 241(1) and Schedule 13 so as to relieve the company from, or obtain repayment of, advance corporation tax for which the company would otherwise be liable.”.
(5) In section 241(3) for the words from the beginning to “the excess” substitute “Where a company has a surplus of franked investment income for any accounting period, the surplus”.
(6) In section 241(5) omit the words from “(that is to say,” to “otherwise be liable)”.
(7) In section 242(1)(b) omit “for purposes of section 241(3)”.
(8) In section 242(9)—
(a) omit “by virtue of section 241(5)”, and
(b) for “a company” substitute “the company”.
19 (1) Section 434 of the Taxes Act 1988 is amended as follows.
(2) For subsection (1) substitute—
“(1) Nothing in section 208 shall prevent franked investment income or foreign income dividends from being taken into account—
(a) in any computation of profits for the purposes of section 89(7) of the Finance Act 1989, or
(b) in any computation for the purposes of section 76(2) of the tax that would have been paid if the company had been charged to tax under Case I of Schedule D in respect of its life assurance business.”.
(3) For subsection (3) substitute—
“(3) The policy holders' share of the franked investment income from investments held in connection with a company’s life assurance business shall not be used under Chapter V of Part VI to frank distributions made by the company; but it may be the subject of a claim under section 242 and shall be treated for that purpose as a surplus of franked investment income additional to any surplus under section 238(1A).
For the purpose of ascertaining whether any surplus or what amount of surplus franked investment income falls to be carried forward under section 241(3), relief under section 242 shall be treated as given against the policy holders' share before other franked investment income.”.
20 (1) For section 434A of the Taxes Act 1988 substitute—
(1) In ascertaining whether or to what extent a company has incurred a loss on its life assurance business profits derived from investments held for the purposes of that business (including franked investment income of, and foreign income dividends arising to, a company resident in the United Kingdom) shall be treated as part of the profits of that business.
(2) Where for any accounting period the loss arising to an insurance company from its life assurance business falls to be computed in accordance with the provisions of this Act applicable to Case I of Schedule D, any loss resulting from the computation shall be reduced (but not below nil) by the aggregate of—
(a) any losses for that period under section 436, 441 or 439B, and
(b) the amount of interest and annuities treated as charges on income in computing for the period otherwise than in accordance with the provisions of this Act applicable to Case I of Schedule D the profits or losses of the company’s life assurance business.
(3) In the case of a company carrying on life assurance business, no relief shall be allowable under—
(a) Chapter II (loss relief) or Chapter IV (group relief) of Part X, or
(b) Chapter II of Part II of the Finance Act 1993 so far as it has effect in relation to losses treated as non-trading losses for the purposes of section 160 of the Finance Act 1994,
against the policy holders' share of the relevant profits for any accounting period.
For the purposes of this subsection “the policy holders' share of the relevant profits” has the same meaning as in section 88 of the Finance Act 1989.”.
(2) In section 65(2) of the Finance (No. 2) Act 1992, for paragraph (a) substitute—
“(a) section 434A(1) of the Taxes Act 1988 (profits derived from investments held for purposes of life assurance business treated as profits of that business in ascertaining loss);”.
21 (1) After section 434A of the Taxes Act 1988 insert—
(1) Where the profits or losses arising to an insurance company from its life assurance business, or any class of life assurance business, fall to be computed for any purpose in accordance with the provisions of this Act applicable to Case I of Schedule D, section 337(2)(b) shall not prevent the deduction of any interest or annuity payable by the company under a liability of its long term business so far as referable to its life assurance business or any class of that business.
(2) Nothing in subsection (1) above or in section 338(2) shall be construed as preventing any such interest or annuity as is mentioned in subsection (1) above, so far as referable to the company’s basic life assurance and general annuity business, from being treated as a charge on income for the purposes of the computation of the profits or losses of that business otherwise than in accordance with Case I of Schedule D.”.
(2) In section 88 of the Finance Act 1989, for subsection (3) substitute—
“(3) For the purposes of subsection (1) above, the relevant profits of a company for an accounting period are the income and gains of the company’s life assurance business reduced by the aggregate amount of—
(a) expenses of management falling to be deducted under section 76 of the Taxes Act 1988, and
(b) charges on income,
so far as referable to the company’s life assurance business.”.
22 After section 434B of the Taxes Act 1988 (inserted by paragraph 21 above) insert—
Section 826(1) applies in a case where a repayment falls to be made of advance corporation tax paid by a company carrying on life assurance business in respect of distributions made by it.
In relation to such a case the material date for the purposes of that section is that specified in subsection (2A) of that section.”.
23 (1) After section 434C of the Taxes Act 1988 (inserted by paragraph 22 above) insert—
(1) This section has effect with respect to the allowances and charges to be made under the 1990 Act in respect of “management assets”, that is, assets provided for use or used for the management of life assurance business carried on by a company.
(2) No allowances or charges shall be made under that Act in respect of expenditure on management assets except under Part II (machinery and plant).
(3) Where the company is charged to tax under section 441 in respect of the profits of its overseas life assurance business for an accounting period—
(a) any allowance falling to be made under Part II of the 1990 Act in respect of expenditure on the provision outside the United Kingdom of machinery or plant for use for the management of that business shall be given effect by treating it as an expense of the business for that period; and
(b) any charge in respect of such expenditure falling to be so made shall be given effect by treating it as a receipt of the business for that period;
and sections 73, 144 and 145 of the 1990 Act do not apply.
(4) Allowances and charges falling to be made under Part II of the 1990 Act in respect of expenditure in respect of management assets not falling within subsection (3) above shall be apportioned between the different classes of life assurance business carried on by the company.
The amount referable to any class of life assurance business shall be the relevant fraction of the amount of the allowance or charge, that is, the fraction of which—
(a) the numerator is the mean of the opening and closing liabilities of the class of life assurance concerned, and
(b) the denominator is the mean of the opening and closing liabilities of all the classes of life assurance business carried on by the company.
(5) Where the company is charged to tax under section 436, 439B or 441 in respect of the profits of its pension business, life reinsurance business or overseas life assurance business for an accounting period—
(a) any allowance falling to be made under Part II of the 1990 Act in respect of expenditure on the provision of machinery or plant for use for the management of that business shall be given effect by treating the relevant proportion of the allowance as an expense of that business for the purpose of calculating the Case VI profit for that period; and
(b) any charge in respect of such expenditure falling to be so made shall be given effect by treating the relevant proportion of the charge as a receipt of that business for that purpose.
(6) Where a company carries on basic life assurance and general annuity business and the profits arising from that business do not fall to be charged to tax in accordance with the provisions applicable to Case I of Schedule D—
(a) allowances falling to be given under Part II of the 1990 Act in respect of expenditure on management assets shall be treated as additional expenses of management within section 76; and
(b) any charge falling to be made under that Part in respect of such assets shall be chargeable to tax under Case VI of Schedule D.
(7) For the purposes of this section the purposes of the management of a business shall be taken to be those purposes expenditure on which would be treated as expenses of management within section 76.
(8) Expenditure to which this section applies shall not be taken into account otherwise than in accordance with this section.
This shall not be construed as preventing any allowance under Part II of the 1990 Act which falls to be given by virtue of this section from being taken into account—
(a) in any computation of profits for the purposes of section 89(7) of the Finance Act 1989, or
(b) in any computation for the purposes of section 76(2) of the tax that would have been paid if the company had been charged to tax under Case I of Schedule D in respect of its life assurance business.
(1) In this section “investment asset” means an asset held by a company for the purposes of its life assurance business otherwise than for the management of that business.
(2) The letting by a company of an investment asset shall be treated for the purposes of section 61 of the 1990 Act (machinery and plant on lease) as a letting otherwise than in the course of a trade.
(3) Any allowance under Part V of the 1990 Act (agricultural buildings, &c.) in respect of an investment asset shall be made by way of discharge or repayment of tax and shall be available primarily against agricultural income and income which is the subject of a balancing charge.
Effect shall be given to any balancing charge under that Part in respect of an investment asset by treating the amount on which the charge is to be made as agricultural income.
(4) Any allowance under the 1990 Act in respect of an investment asset shall be treated as referable to the category or categories of business to which income arising from the asset is or would be referable and shall be apportioned in accordance with section 432A in the same way as such income.
(5) No allowance under the 1990 Act in respect of an investment asset shall be taken into account—
(a) in computing the profits of any class of life assurance business under section 436, 439B or 441, or
(b) where the company is charged to tax in respect of its life assurance business under Case I of Schedule D, in computing the profits of that business.
(6) Where any allowance under the 1990 Act in respect of an investment asset falls to be taken into account (having regard to subsection (5) above), only such allowances as are referable to the company’s basic life assurance and general annuity business shall be given effect under section 145(1) of that Act, and then only against income referable to that business; and section 145(3) shall not apply.”.
(2) In section 75(4) of the Taxes Act 1988 omit the words “and insurance”.
(3) In section 86 of the Finance Act 1989 (spreading of relief for acquisition expenses), after subsection (5) insert—
“(5A) References in this section to expenses of management do not include any amounts treated as additional expenses of management by virtue of section 434D(6)(a) of the Taxes Act 1988 (capital allowances in respect of expenditure on management assets).”.
24 In Chapter I of Part II of the Capital Allowances Act 1990 (machinery and plant), for section 28 (investment companies and life assurance companies) substitute—
(1) This Part and the other provisions of the Corporation Tax Acts relating to allowances or charges under this Part apply with the necessary adaptations in relation to machinery and plant provided for use or used for the purposes of the management of the business of an investment company (as defined in section 130 of the principal Act) as they apply in relation to machinery and plant provided for use or used for the purposes of a trade.
(2) Effect shall be given to allowances and charges falling to be made by virtue of this section as follows—
(a) any allowance falling to be made for any accounting period shall, as far as may be, be given effect by deducting the amount of the allowance from any income for the period of the business, and in so far as effect cannot be so given section 75(4) of the principal Act shall apply; and
(b) effect shall be given to any charge falling to be made under this section by treating the amount on which the charge is to be made as income of the business;
and sections 73, 144 and 145 do not apply.
(3) Except as provided by subsection (2) above, the Corporation Tax Acts apply in relation to allowances or charges falling to be made by virtue of this section as if they were to be made in taxing a trade.
(4) For the purposes of this section the purposes of the management of a business shall be taken to be those purposes expenditure on which would be treated as expenses of management within section 75 of the principal Act.
(5) Corresponding allowances or charges in the case of the same machinery or plant shall not be made under this Part both under this section and in some other way.
(6) Expenditure to which this section applies shall not be taken into account otherwise than under this Part or as provided by section 75(4) of the principal Act.”.
25 (1) In the Taxes Act 1988 omit—
(a) section 474(1)(b); and
(b) in section 475(2)(a), the words from “or,” to “life assurance business”.
(2) In section 474 of the Taxes Act 1988, at the end insert—
“(3) In this section any reference to insurance business includes a reference to insurance business of any category.”.
26 After section 439 of the Taxes Act 1988 insert—
If a company does not carry on life assurance business other than reinsurance business, and none of that business is of a type excluded from this section by regulations made by the Board, the profits of that business shall be charged to tax in accordance with Case I of Schedule D and not otherwise.”.
27 (1) After section 439A of the Taxes Act 1988 (inserted by paragraph 26 above) insert—
(1) Where a company carries on life reinsurance business and the profits arising from that business are not charged to tax in accordance with the provisions applicable to Case I of Schedule D, then, subject as follows, those profits shall be treated as income within Schedule D and be chargeable to tax under Case VI of that Schedule, and for that purpose—
(a) that business shall be treated separately, and
(b) subject to paragraph (a) above, the profits from it shall be computed in accordance with the provisions of this Act applicable to Case I of Schedule D.
(2) Subsection (1) above does not apply to so much of reinsurance business of any description excluded from that subsection by regulations made by the Board.
Regulations under this subsection may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.
(3) In making the computation referred to in subsection (1) above—
(a) sections 82(1), (2) and (4) and 83 of the Finance Act 1989 shall apply with the necessary modifications and in particular with the omission of the words “tax or” in section 82(1)(a),
(b) section 83(3) of that Act shall not apply, and
(c) there may be set off against the profits any loss, to be computed on the same basis as the profits, which has arisen from life reinsurance business in any previous accounting period beginning on or after 1st January 1995.
(4) Section 396 shall not be taken to apply to a loss incurred by a company on life reinsurance business.
(5) Nothing in section 128 or 399(1) shall affect the operation of this section.
(6) Gains accruing to a company which are referable to its life reinsurance business shall not be chargeable gains.
(7) In ascertaining whether or to what extent a company has incurred a loss on its life reinsurance business, franked investment income and foreign income dividends shall be taken into account (notwithstanding anything in section 208) as part of the profits of that business.”.
(2) In section 444A(3)(a) of the Taxes Act 1988 after “section 436(3)(c)” insert “or 439B(3)(c)”.
(3) In section 724(3) and (4) of the Taxes Act 1988 after “section 436” insert “, 439B”.
28 (1) After section 440A of the Taxes Act 1988 insert—
(1) The following provisions apply where the profits of a company’s life assurance business are charged to tax in accordance with Case I of Schedule D.
(2) Section 438 applies as if in subsections (6), (6B) and (6E) for the reference to any profit arising to the company and computed under section 436 there were substituted a reference to the profit that would arise on a computation under section 436 if the profits of the company’s life assurance business were not charged to tax under Case I of Schedule D.
(3) Section 440(1) and (2) apply as if the only categories set out in subsection (4) of that section were—
(a) assets of the long term business fund, and
(b) other assets.
(4) Section 440A applies as if for paragraphs (a) to (e) of subsection (2) there were substituted—
“(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 long term business, shall be treated for the purposes of corporation tax as a separate holding linked solely to that business, and
(b) any remaining securities shall be treated for those purposes as a separate holding which is not of the description mentioned in the preceding paragraph.”.
(5) Section 212(1) of the 1992 Act does not apply, but without prejudice to the bringing into account of any amounts deferred under section 213(1) or 214A(2) of that Act from any accounting period beginning before 1st January 1995.”.
(2) In section 438 of the Taxes Act 1988, after subsection (8) insert—
“(9) In a case where the profits of a company’s life assurance business are charged to tax in accordance with Case I of Schedule D this section has effect with the modification specified in section 440B(2).”.
(3) In section 440 of the Taxes Act 1988, after subsection (5) insert—
“(6) In a case where the profits of a company’s life assurance business are charged to tax in accordance with Case I of Schedule D this section has effect with the modification specified in section 440B(3).”.
(4) In section 440A of the Taxes Act 1988, after subsection (6) insert—
“(7) In a case where the profits of a company’s life assurance business are charged to tax in accordance with Case I of Schedule D this section has effect with the modification specified in section 440B(4).”.
(5) In section 212 of the Taxation of Chargeable Gains Act 1992, after subsection (7) insert—
“(7A) In a case where the profits of a company’s life assurance business are charged to tax in accordance with Case I of Schedule D subsection (1) above has effect subject to section 440B(5) of the Taxes Act.”.
29 In section 438(3) and (3AA) of the Taxes Act 1988 after “taken into account” insert “—(a)” and after “pension business” insert— “, or
(b) where the company is charged to tax in respect of its life assurance business under Case I of Schedule D, in computing the profits of that business.”.
30 In section 441(1) of the Taxes Act 1988 omit the words “resident in the United Kingdom”.
31 In section 441A of the Taxes Act 1988 for subsections (3) to (6) substitute—
“(3) A company shall be entitled to such a tax credit if and to the extent that regulations made by the Board so provide.
(4) Regulations under subsection (3) above may, in particular, provide for the entitlement of a company to a tax credit, and the amount to which the company is entitled, to be determined by reference to—
(a) the residence of any description of policy holders or annuitants prescribed by the regulations, or
(b) the location of any branch or agency at or through which the policy or contract for any business is effected.
(5) Subsections (2) and (3) of section 431E apply in relation to regulations under subsection (3) above as they apply in relation to regulations under subsection (1) of that section but as if any issue which falls to be decided for the purposes of the regulations under subsection (3) above were an issue such as is mentioned in subsection (2)(a) of that section.”.
32 After section 441A of the Taxes Act 1988 insert—
(1) This section applies to land in the United Kingdom which—
(a) is held by a company as an asset linked to the company’s overseas life assurance business, or
(b) is held by a company which is charged to tax under Case I of Schedule D in respect of its life assurance business as an asset by reference to the value of which benefits under any policy or contract are to be determined, where the policy or contract (or, in the case of a reinsurance contract, the underlying policy or contract) is held by a person not residing in the United Kingdom.
(2) Income arising from land to which this section applies shall be treated for the purposes of this Chapter as referable to basic life assurance and general annuity business.
(3) Where (apart from this subsection) an insurance company would not be carrying on basic life assurance and general annuity business it shall be treated as carrying on such business if any income of the company is treated as referable to such business by subsection (2) above.
(4) A company may be charged to tax by virtue of this section—
(a) notwithstanding section 439A, and
(b) whether or not the income to which subsection (2) above relates is taken into account in computing the profits of the company for the purposes of any charge to tax in accordance with Case I of Schedule D.
(5) In this section “land” has the same meaning as in Schedule 19AA.”.
33 In paragraph 1(2) of Schedule 19AA to the Taxes Act 1988, at the end insert “(including any modification of any of those provisions made by paragraph 14A of Schedule 19AC)”.
34 After section 442 of the Taxes Act 1988 insert—
(1) Where an insurance company reinsures any risk in respect of a policy or contract attributable to its basic life assurance and general annuity business, the investment return on the policy or contract shall be treated as accruing to the company over the period of the reinsurance arrangement and shall be charged to tax under Case VI of Schedule D.
(2) The Board may make provision by regulations as to the amount of investment return to be treated as accruing in each accounting period during which the reinsurance arrangement is in force.
(3) The regulations may, in particular, provide that the investment return to be treated as accruing to the company in respect of a policy or contract in any accounting period shall be calculated by reference to—
(a) the aggregate of the sums paid by the company to the reinsurer during that accounting period and any earlier accounting periods by way of premium or otherwise;
(b) the aggregate of the sums paid by the reinsurer to the company during that accounting period and any earlier accounting periods by way of commission or otherwise;
(c) the aggregate amount of the net investment return treated as accruing to the company in any earlier accounting periods, that is to say, net of tax at such rate as may be prescribed; and
(d) such percentage rate of return as may be prescribed.
(4) The regulations shall provide that the amount of investment return to be treated as accruing to the company in respect of a policy or contract in the final accounting period during which the policy or contract is in force is the amount, ascertained in accordance with regulations, by which the profit over the whole period during which the policy or contract, and the reinsurance arrangement, were in force exceeds the aggregate of the amounts treated as accruing in earlier accounting periods.
If that profit is less than the aggregate of the amounts treated as accruing in earlier accounting periods, the difference shall go to reduce the amounts treated by virtue of this section as arising in that accounting period from other policies or contracts, and if not fully so relieved may be carried forward and set against any such amounts in subsequent accounting periods.
(5) Regulations under this section—
(a) may exclude from the operation of this section such descriptions of insurance company, such descriptions of policies or contracts and such descriptions of reinsurance arrangements as may be prescribed;
(b) may make such supplementary provision as to the ascertainment of the investment return to be treated as accruing to the company as appears to the Board to be appropriate, including provision requiring payments made during an accounting period to be treated as made on such date or dates as may be prescribed; and
(c) may make different provision for different cases or descriptions of case.
(6) In this section “prescribed” means prescribed by regulations under this section.”.
Finance Act 1995