Office of Public Sector Information
Section 43
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 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—
(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,
(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.
(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 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.
(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
(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.
(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—
(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.
(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—
AA>R
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) 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 is 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.
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.
(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,”.
(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.
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.
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.
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—
(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.
(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.
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.
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—
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—
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.
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
(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.
16 (1) In ICTA, after section 95 insert—
(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.
(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.
Finance Act 2008