Income and Corporation Taxes Act 1988

CHAPTER IU.K. INSURANCE COMPANIES, UNDERWRITERS AND CAPITAL REDEMPTION BUSINESS

Insurance companies: generalU.K.

431 Interpretative provisions relating to insurance companies.U.K.

[F1M1(1)This section has effect for the interpretation of the life assurance provisions of the Corporation Tax Acts.]

(2)M2Unless the context otherwise requires—

• F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F4F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F7“basic life assurance and general annuity business” has the meaning given by section 431F;]

• [F8“brought into account” has the meaning given by section 83A of the Finance Act 1989;]

• [F9“child trust fund business” has the meaning given by section 431BA;]

• “closing” and “opening”, in relation to a period of account, refer respectively to the position at the end and at the beginning of the period and, in relation to an accounting period, refer respectively to the position at the end and at the beginning of the period of account in which the accounting period falls;

• “closing liabilities” includes liabilities assumed at the end of the period of account concerned in consequence of the declaration of reversionary bonuses or a reduction in premiums;

• [F10“contract of insurance” has the meaning given by Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and “contract of long-term insurance” means any contract which falls within Part II of Schedule 1 to that Order;]

• [F11“fair value”, in relation to assets, means the amount which would be obtained from an independent person purchasing them or, if the assets are money, its amount;]

• [F12“foreign currency assets”, in relation to an insurance company and any time during a period of account, means assets, other than assets linked to gross roll-up business, which—

  (a)

  are at that time managed under the control of a person whose normal place of work is at a permanent establishment outside the United Kingdom at or through which the company carries on gross roll-up business; or

  (b)

  are denominated in a foreign currency and specified in a certificate given by a director of the company no later than three months after the end of the period of account as being all of the assets of the company's long-term insurance fund which are held at that time during the period of account to enable the company to meet liabilities of its gross roll-up business which are denominated in that currency;]

• [F13F14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

• [F15“free assets amount”, in relation to an insurance company, means the excess of the value of the assets of the company's long-term business over the aggregate of —

  (a)

  the value of the liabilities of that business,

  (b)

  any money debts (within the meaning of Chapter 2 of Part 4 of the Finance Act 1996) of the company not within paragraph (a) above which are owed in respect of that business, and

  (c)

  the amount of the shareholders' excess assets within the meaning given by section 432A(8)(b));]

• [F16“General Prudential Sourcebook” means the General Prudential Sourcebook made by the Financial Services Authority under the Financial Services and Markets Act 2000 M3;]

• [F17“gross roll-up business” has the meaning given by section 431EA;]

• [F18“the I minus E basis” means the basis under which a company carrying on life assurance business is charged to tax on the relevant profits (within the meaning of section 88(3) of the Finance Act 1989) of that business otherwise than under Case I of Schedule D;]

• [F19“immediate needs annuities business” means business which consists of the effecting or carrying out of immediate needs annuities (within the meaning of section 725 of ITTOIA 2005);]

• [F20“individual savings account business” has the meaning given by section 431BB;]

• F21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

• [F22[F23[F24“insurance business transfer scheme” means—

  (a)

  a scheme falling within section 105 of the Financial Services and Markets Act 2000, including an excluded scheme falling within Case 2, 3 or 4 of subsection (3) of that section, or

  (b)

  a scheme which would fall within that section but for subsection (1)(b) of that section;]

• “insurance company” means—

  (a)

  a person (other than a friendly society) who has permission under Part 4 of the Financial Services and Markets Act 2000 to effect or carry out contracts of insurance, or

  (b)

  an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to that Act or a firm qualifying for authorisation under Schedule 4 to that Act which—

  (i)

  carries on business which consists of the effecting or carrying out of contracts of insurance, and

  (ii)

  carries on that business through a branch or agency in the United Kingdom,

  [F25but does not include an insurance special purpose vehicle;]]]

• [F26“the Insurance Prudential Sourcebook” means the Prudential Sourcebook for Insurers made by the Financial Services Authority under the Financial Services and Markets Act 2000;

• “insurance special purpose vehicle” means any undertaking which assumes risks from insurance or reinsurance undertakings and which fully funds its exposure to such risks through the proceeds of a debt issue or some other financing mechanism where the repayment rights of the providers of such debt or other financing mechanism are subordinated to the reinsurance obligations of the undertaking;]

• [F27F28. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

• [F29“internal linked fund”, in relation to an insurance company, means an account—

  (a)

  to which linked assets are appropriated by the company, and

  (b)

  which may be divided into units the value of which is determined by the company by reference to the value of those assets;]

• [F30F31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

• [F32F33. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F34“liabilities”, in relation to an insurance company, means—

  (a)

  the mathematical reserves of the company as determined in accordance with [F35section 1.2 of the Insurance Prudential Sourcebook], and

  (b)

  liabilities of the company (whose value falls to be determined in accordance with [F36section 1.3 of the General Prudential Sourcebook]) which arise from deposit back arrangements;

  and for this purpose “deposit back arrangements” has the same meaning as in that Sourcebook;]]

• [F37“life assurance business” means business which—

  (a)

  consists of the effecting or carrying out of contracts of insurance which fall within paragraph I, II, III or VII(b) of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, or

  (b)

  is capital redemption business,

  other than immediate needs annuities business;]

• [F38“the life assurance provisions of the Corporation Tax Acts” means—

  (a)

  the provisions of this Chapter so far as relating to life assurance business, companies carrying on such business and friendly societies, and

  (b)

  any other provisions of the Corporation Tax Acts making separate provision by reference to whether or not the business of a company is or includes life assurance business or any category of business that includes life assurance business;]

• [F39“life reinsurance business” has the meaning given by section 431C;

• [F40[F41“linked assets”, and related expressions, shall be construed in accordance with section 432ZA;]

• [F42“long-term business” means business which consists of the effecting or carrying out of contracts of long-term insurance;]

• “ [F43long-term insurance fund]” means the fund maintained by an insurance company in respect of its [F44long-term] business F45. . . ;]

• [F46F47. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

• [F48“net value”, in relation to any assets, means the excess of the value of the assets over the value of money debts (within the meaning of Chapter 2 of Part 4 of the Finance Act 1996) attributable to an internal linked fund which are not owed in respect of liabilities;]

• [F49“non-profit company”, in relation to a period of account, means a company carrying on long-term business where, at the end of the period—

  (a)

  none of the liabilities of that business, or

  (b)

  none but an insignificant proportion of those liabilities,

  are with-profits liabilities;]

• [F50“non-profit fund” means a fund that is not a with-profits fund;]

• F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F52F53. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F54. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F55“overseas life assurance business” has the meaning given by section 431D;

• F56. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

• “overseas life insurance company” means an insurance company [F57not resident in] the United Kingdom but carrying on life assurance business through a branch or agency in the United Kingdom; F58. . .

• [F59“pension business” has the meaning given by section 431B;

• “periodical return”, in relation to an insurance company, means a return deposited with the [F60Financial Services Authority under section 9.6 of the Prudential Sourcebook (Insurers)].

• [F61“period of account” means the period covered by a periodical return;]

• [F62“PHI business” means long-term business other than life assurance business (including the reinsurance of such long-term business);]

• F63. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F64“the Prudential Sourcebook (Insurers)” means the Interim Prudential Sourcebook for Insurers made by the Financial Services Authority under the Financial Services and Markets Act 2000;]

• [F65[F66“reinsurance” includes retrocession;]]

• [F67“shareholders' excess assets” has the meaning given by section 432A(8)(b));]

• [F68F69. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

• [F70[F71“value”, in relation to an asset of an insurance company, means the value of the asset as determined in accordance with [F72section 1.3 of the General Prudential Sourcebook, as read with section 2.1 of the Insurance Prudential Sourcebook;]]

• [F73“with-profits fund” has the meaning given by the Prudential Sourcebook (Insurers);]

• “with-profits liabilities” means liabilities in respect of policies or contracts under which the policy holders or annuitants are eligible to participate in surplus;]

[F74(2ZA)Subsections (2ZB) and (2ZC) below apply where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

(2ZB)If the transfer takes place otherwise than on the last day of a period of account of the transferor, references to—

(a)opening liabilities of the transferor,

(b)opening values or net values of assets of the transferor, F75. . .

(c)the opening amount of the [F76free assets amount] of the transferor, [F77 or

(d)the opening amount of the [F78shareholders'] excess assets of the transferor,]

for the period of account, so far as relating to the business transferred, are to the part of those liabilities, [F79values or amounts] which bears to the whole the proportion A/C.

(2ZC)If the transfer takes place otherwise than on the first day of a period of account of the transferee, references to—

(a)closing liabilities of the transferee,

(b)closing values or net values of assets of the transferee, F80. . .

(c)the closing amount of the [F81free assets amount] of the transferee, [F82 or

(d)the closing amount of the [F83shareholders'] excess assets of the [F84transferee],]

for the period of account, so far as relating to the business transferred, are to the part of those liabilities, [F85values or amounts] which bears to the whole the proportion B/C.

(2ZD)For the purposes of subsection (2ZC) above—

(a)closing liabilities of the transferee are to be taken not to relate to the business transferred to the extent that they are liabilities which, immediately before the transfer, were reinsured by the transferor with the transferee, but

(b)closing liabilities of the transferee are to be taken to relate to the business transferred to the extent that they are liabilities which, immediately before the transfer, were reinsured by the transferee with the transferor if the business transferred consists of or includes that reinsurance business.

(2ZE)In subsections (2ZB) and (2ZC) above—

• A is the number of days in the period beginning with the period of account and ending with the day of the transfer,

• B is the number of days in the period beginning with the day of the transfer and ending with the period of account, and

• C is one-half of the number of days in the period of account.]

[F86(2ZF)In this Chapter “capital redemption business” means any business of a company carrying on insurance business in so far as it consists of the effecting on the basis of actuarial calculations, and the carrying out, of contracts under which, in return for one or more fixed payments, a sum or series of sums of a specified amount become payable at a future time or over a period.]

[F87(2ZG)The Treasury may by order amend the definition of “insurance business transfer scheme” given by subsection (2) above where it is expedient to do so in consequence of any amendment of section 105 of the Financial Services and Markets Act 2000.

(2ZH)The power conferred by subsection (2ZG) above includes power to make incidental, supplementary, consequential or transitional provisions and savings (including provision amending any provision of the Corporation Tax Acts relating to insurance companies).]

[F88(2A)F89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(3)F89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)F89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)F89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)F89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]]]

[F91[F92431A Amendment of Chapter etcU.K.

(1)The Treasury may by order amend any [F93of the life assurance provisions of the Corporation Tax Acts] where it is expedient to do so in consequence of the exercise of any power under the Financial Services and Markets Act 2000, in so far as that Act relates to insurance companies.

(2)Where any exercise of a power under that Act has effect for a period ending on or before, or beginning before and ending after, the day on which an order containing an amendment in consequence of that exercise is made under subsection (1) above, the power conferred by that subsection includes power to provide for the amendment to have effect in relation to that period.

(3)The Treasury may by order amend any of the following provisions—

(a)sections 432ZA, 432A, 432B to 432G and 755A F94. . . ;

(b)sections 83A, 85, 88 and 89 of the Finance Act 1989;

(c)section 210A of the Taxation of Chargeable Gains Act 1992.

(4)An order under subsection (3) above may only be made so as to have effect in relation to periods of account—

(a)beginning on or after 1st January 2005, and

(b)ending before 1st October 2006.

(5)F95. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)Any power conferred by this section to make an order includes power to make—

(a)different provision for different cases or different purposes, and

(b)incidental, supplemental, consequential or transitional provision and savings.

(7)F96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]]

[F97431AA Relevant benefits for purposes of section 431(4)(d) and (e).U.K.

F98. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F99Classes of life assurance business]U.K.

[F100431B Meaning of “pension business”.U.K.

(1)In this Chapter “pension business” means so much of a company’s life assurance business as is referable to contracts entered into for the purposes of a registered pension scheme or is the reinsurance of such business.

(2)Where a pension scheme ceases to be a registered pension scheme by virtue of the withdrawal of registration of the pension scheme under section 157 of the Finance Act 2004, any of the company’s life assurance business that was pension business when the pension scheme was a registered pension scheme is to be treated as ceasing to be pension business at the beginning of the period of account of the company in which the pension scheme so ceases to be a registered pension scheme.

(3)Where—

(a)immediately before 6th April 2006 an annuity contract falls within any of the descriptions of contracts specified in subsection (2) of this section as it had effect immediately before that date, but

(b)on or after that date the contract does not fall to be regarded for the purposes of this section as having been entered into for the purposes of a registered pension scheme,

the contract is to be treated for the purposes of this section as having been entered into for such purposes.]

[F101431BAMeaning of “child trust fund business”U.K.

(1)In this Chapter “child trust fund business” means so much of a company's life assurance business as is referable to child trust fund policies (but not including the reinsurance of such business).

(2)In this section “child trust fund policy” means a policy of life insurance which is an investment under a child trust fund (within the meaning of the Child Trust Funds Act 2004).]

[F101431BBMeaning of “individual savings account business”U.K.

(1)In this Chapter “individual savings account business” means so much of a company's life assurance business as is referable to individual savings account policies (but not including the reinsurance of such business).

(2)In this section “individual savings account policy” means a policy of life insurance which is an investment of a kind specified in regulations made by virtue of section 695(1) of ITTOIA 2005.]

431C Meaning of “life reinsurance business”.U.K.

(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.

431D Meaning of “overseas life assurance business”.U.K.

[F102(1)In this Chapter “overseas life assurance business” means so much of a company's relevant life assurance business as is with a policy holder or annuitant not residing in the United Kingdom (but not including the reinsurance of such business).

(1A)In subsection (1) above “relevant life assurance business” means life assurance business other than—

(a)pension business

(b)individual savings account business,

(c)child trust fund business, and

(d)business of any description prescribed by regulations made by the Commissioners for Her Majesty's Revenue and Customs.]

[F103(2)Regulations under subsection [F104(1A)] above may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.

(3)The Board may by regulations—

(a)make provision as to the circumstances in which a trustee who is a policy holder or annuitant residing in the United Kingdom is to be treated for the purposes of this section as not so residing; and

(b)provide that nothing in Chapter II of Part XIII [F105or Chapter 9 of Part 4 of ITTOIA 2005] shall apply to a policy or contract which constitutes overseas life assurance business by virtue of any such provision as is mentioned in paragraph (a) above.

(4)Regulations under subsection [F104(1A)] or (3) above may contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate [F106(including provision amending any enactment or any instrument made under an enactment)].]

431E Overseas life assurance business: regulations.U.K.

(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.

[F107431EAMeaning of “gross roll-up business”U.K.

In this Chapter “gross roll-up business” means business of any of the following kinds—

(a)pension business;

(b)child trust fund business;

(c)individual savings account business;

(d)life reinsurance business; and

(e)overseas life assurance business.]

431F Meaning of “basic life assurance and general annuity business”.U.K.

In this Chapter “basic life assurance and general annuity business” means life assurance business [F108other than gross roll-up business].

[F109[F110Basis of taxation etc]]U.K.

[F111431GCompany carrying on life assurance businessU.K.

(1)This section applies in relation to an insurance company which carries on life assurance business (whether or not it also carries on insurance business of any other kind).

(2)Subject as follows, the profits of the life assurance business for any accounting period shall be charged to tax under the I minus E basis.

(3)Where in the case of an insurance company for an accounting period either—

(a)all of its life assurance business is reinsurance business and none of that business is of a type excluded from this subsection by regulations made by the Board, or

(b)all, or substantially all, of its life assurance business is gross roll-up business,

the profits of that business for the accounting period shall be charged to tax in accordance with Case I of Schedule D and not otherwise.

(4)Where—

(a)the profits of the life assurance business of an insurance company for any accounting period are charged to tax under the I minus E basis, and

(b)had those profits been charged to tax in accordance with Case I of Schedule D, a loss would have arisen to the company from that business for the period,

the loss (after being reduced in accordance with section 434A(2)(a)) may be set-off under section 393A or section 403(1).

(5)The application, in relation to the life assurance business of an insurance company, of any provision of Case I of Schedule D is not to be taken—

(a)to prevent the application of the I minus E basis in relation to that business of the company for any accounting period, or

(b)to affect the operation of the I minus E basis in relation to the that business of the company for any accounting period except as specifically provided by the Corporation Tax Acts.]

[F112431HCompany carrying on life assurance business and other insurance businessU.K.

(1)This section applies in relation to an insurance company which carries on life assurance business and insurance business of any other kind.

(2)For the purposes of the Corporation Tax Acts—

(a)the life assurance business, and

(b)the other insurance business,

are to be treated as separate businesses.

(3)The profits of the other insurance business shall be charged to tax under Case I of Schedule D as the profits of a separate trade.

(4)But subsection (3) above does not apply where that business is mutual business.

(5)As to the profits of the life assurance business, see section 431G.]

[F113432YALong-term business other than life assurance business — adjustment consequent on change in Insurance Prudential SourcebookU.K.

(1)This section applies in the case of—

(a)a company which is a non-profit company, or

(b)the non-profit fund of a company which is not a non-profit company,

if an amount [F114 (“the relevant amount”)] is shown in paragraph 4(12) of Appendix 9.4 to the periodical return for the company for [F115a] period of account which ends on or after 31st December 2006 [F116 but before 1st January 2009 (a “relevant period of account”)].

[F117(2)In computing profits of long-term business which is not life assurance business in accordance with the provisions applicable to Case I of Schedule D—

(a)X shall be added to the closing long term business provision of the company for the relevant period of account; and

(b)XA shall be brought into account as a trading receipt of the company for each subsequent period of account until the total sum of the amounts so bought into account is equal to X (and if that total sum would otherwise exceed X, the excess shall be ignored).

(2A)In applying subsection (2)(b) above no account shall be taken of a period of account which is deemed to exist by virtue of section [F118444AA(4)].

(2B)X is—

(a)where the relevant period of account ends before 1st April 2007, the whole of the relevant amount;

(b)where the relevant period of account ends on or after 1st April 2007 but before 1st January 2008, two-thirds of the relevant amount;

(c)where the relevant period of account ends on or after 1st January 2008, one-third of the relevant amount.

(2C)XA is the amount found by applying the following formula—

(3)F119. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)F119. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)In this section—

• “long term business provision” has the same meaning as in Schedule 9A to the Companies Act 1985;

• F120. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F120. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F121(6)This section is subject to sections 82E and 82F of the Finance Act 1989 (treatment of transferors and transferees under insurance business transfer schemes) and those sections shall apply in relation to this section as if any reference in them to a provision of section 82D of that Act (treatment of profits: life assurance – adjustment consequent on change in Insurance Prudential Sourcebook) were a reference to the corresponding provision of section 432YA.]]

[F122432ZA Linked assets.U.K.

(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 [F123 and in a case where only part of an asset is so identified, references to a linked asset are references to that part.]

(2)Linked assets shall be taken—

(a)to be linked to [F124long-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 [F124long-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 [F124long-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 [F125the proportion A/B where—

A is the total of the linked liabilities of the company which are liabilities of the internal linked fund in which the asset is held and are referable to that category of business;

B is the total of the linked liabilities of the company which are liabilities of that fund.]

(5)For the purposes of sections 432A to [F126432E]—

(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.

[F127(6)In this section—

• F128. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “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 [F129PHI] business shall be disregarded for the purposes of this section unless the benefits to be provided which constitute [F129PHI] business are to be determined by reference to the value of assets.]

[F130432A Apportionment of income and gains.U.K.

[F131(1)This section has effect [F132for determining for the purposes of any provision of the Corporation Tax Acts in relation to any period for which an insurance company carries on business] what parts of—

(a)income arising from the assets of the company’s [F133long-term insurance fund], or

(b)gains or losses accruing on the disposal of such assets,

are referable to any category of business.

[F134(1A)If the company carries on only one category of business in the period, all of the income and gains or losses referred to in subsection (1) above [F135is] referable to that category of business; but if the company carries on more than one category of business in the period, the following provisions shall apply.]

(2)The categories of business referred to in [F136subsections (1) and (1A)] above are—

[F137(a)basic life assurance and general annuity business,

(b)gross roll-up business, and

(c)PHI business.]

(3)Income arising from, and gains or losses accruing on the disposal of, assets linked to any category of business [F138is] referable to that category of business.]

(4)F139. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F140(4A)Income arising from, and gains or losses accruing on the disposal of, foreign currency assets is referable to gross roll-up business.]

(5)There [F141is] referable to any category of business F142. . . the relevant fraction of any income, gains or losses not directly referable to [F143any category] of business.

[F144(6)For the purposes of subsection (5) above “the relevant fraction”, in relation to basic life assurance and general annuity business, is—

(6A)For the purposes of subsection (5) above “the relevant fraction”, in relation to gross roll-up business, is—

(6B)For the purposes of subsection (5) above “the relevant fraction”, in relation to PHI business, is—

(6C)But if the denominator found in accordance with subsection (6), (6A) or (6B) above is nil, the relevant fraction for the purposes of subsection (5) above in relation to the category of business in question is such fraction as is just and reasonable.]

[F145(7)For the purposes of subsections [F146(5), (6) [F147, (6A) and (6B)]] 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 [F148(4A)] above, F149. . .

(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) [F150or (4A)] above,[F151 and

(c)amounts are directly referable to basic life assurance and general annuity business if they fall within any of the following provisions—

(i)sections F152. . . 441B and 442A,

(ii)section [F15385(2C) or 85A] of the Finance Act 1989.]]

[F154(8)In [F155subsection (6)] above—

(a)“appropriate part”, in relation to the free assets amount, means—

(i)where none (or none but an insignificant proportion) of the liabilities of the long-term business are with-profits liabilities, the part of that amount which bears to the whole the proportion A/B where—

A is the amount of the liabilities of the category of business in question [F156(but taking that amount to be nil if it would otherwise be below nil)];

B is the whole amount of the liabilities of the long-term business; and

(ii)in any other case the part of the free assets amount which bears to the whole the proportion C/D where—

C is the amount of the with-profits liabilities of the category of business in question;

D is the whole amount of the with-profits liabilities of the long-term business; and

(b)the amount of the shareholders' excess assets in relation to any period of account of the company is the amount equal to SXA — L27 where—

(i)SXA is the aggregate amount of the assets shown in its non-participating funds which are attributed to its shareholders as a result of a relevant reattribution; and

(ii)L27 is the amount (if any) shown in line 27 of Form 19 in its periodical return for the relevant period of account.

[F157This is subject to subsection (8ZA) below.]

[F158(8ZA)If for the purposes of subsection (8)(a) above either B or D is nil then, in [F159paragraph (c) of the definition of A and paragraph (b) of the definitions of B and C in subsection (6)] above, “appropriate part”, in relation to the free assets amount, means the part of that amount which bears to the whole such proportion as is just and reasonable.]

(8A)In this section—

• “non-participating funds” means accounts which relate exclusively to policies or contracts under which the policy holders or annuitants are not eligible to participate in surplus;

• “reattribution” in relation to an insurance company which has an inherited estate, means the attribution of assets to shareholders' interests as a result of—

  (a)

  an agreement between the company and the relevant regulator as to the amount of that estate and its attribution between shareholders and policy holders; or

  (b)

  a decision of the company to specify and identify an amount of assets (otherwise than in connection with a transfer to the company's long-term insurance fund) as attributable only to shareholders' interests;

  a reattribution is “relevant” if it arises as a result of any of the following—

  (a)

  a transfer of business under—

  (i)

  section 49 of, or Schedule 2C to, the Insurance Companies Act 1982;

  (ii)

  an insurance business transfer scheme (within the meaning of section 431(2));

  (b)

  a scheme of arrangement under section 425 of the Companies Act 1985;

  (c)

  an order under section 68 of the Insurance Companies Act 1982;

  (d)

  a waiver under section 148 of the Financial Services and Markets Act 2000;

  (e)

  an amendment to the company's memorandum, articles of association or other instrument regulating the company.

(8B)In subsection (8A) above—

• “inherited estate” has the same meaning as it has in the [F160Insurance Prudential Sourcebook]; and

• “relevant regulator” means the Financial Services Authority, the Treasury or the Secretary of State.]

(9)F161. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F162(9A)F163. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9B)F164. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

F165(10). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F166432AA Schedule A business or overseas property business.U.K.

(1)An insurance company is treated as carrying on separate Schedule A businesses, or overseas property businesses, in accordance with the following rules.

(2)The exploitation of land held as an asset of the company’s [F167long-term insurance fund] is treated as a separate business from the exploitation of land not so held.

(3)F168. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)The exploitation of land held as an asset linked to any of the following categories of business is regarded as a separate business—

[F169(a)basic life assurance and general annuity business;

(b)gross roll-up business; and

(c)PHI business.]

(5)Accordingly, the exploitation of land held as an asset of the company’s [F167long-term insurance fund] otherwise than as mentioned in subsection F170. . . (4) is treated as a separate business from any other.

(6)In this section “land” means any estate, interest or rights in or over land.]

[F166432AB Losses from Schedule A business or overseas property business.U.K.

(1)This section applies to any loss arising in a Schedule A business or overseas property business.

(2)A loss arising from any category of business mentioned in section 432A(2) shall be apportioned under that section in the same way as income.

[F171(3)So far as a loss is referable to basic life assurance and general annuity business, it shall be treated for the purposes of section 76 as expenses payable which fall to be brought into account at Step 3 in subsection (7) of that section.]

(4)Where a company is treated under section 432AA as carrying on—

(a)more than one Schedule A business, or

(b)more than one overseas property business,

then, in relation to either kind of business, the reference in subsection (3) above to a loss referable to basic life assurance and general annuity business shall be construed as a reference to any aggregate net loss after setting the losses from those businesses which are so referable against any profits from those businesses that are so referable.

(5)The provisions of section 392A or 392B (loss relief) do not apply to a loss referable to life assurance business or any category of life assurance business.

(6)F172. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F173432B Apportionment of receipts brought into account.U.K.

(1)This section and [F174sections 432C to [F175432G]] have effect where it is necessary in accordance with section 83 of the Finance Act 1989 to determine what parts of any items [F176brought into account, within the meaning of that section,] are referable to life assurance business or [F177gross roll-up business].

[F178(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 [F179432G] apply separately in relation to each account.]

(3)[F180Section 432C applies] where the business with which an account is concerned (“the relevant business”) relates exclusively to policies or contracts under which the policy holders or annuitants are not eligible to participate in surplus; and [F181sections 432E and 432F apply] where the relevant business relates wholly or partly to other policies or contracts [F182(and section 432G applies in either case)]. ]

[F183(4)The following provisions of this section have effect where [F184section 432C]—

(a)[F185applies] in relation to any account for a fund in which shareholders' excess assets are held, F186. . .

(b)F186. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)The part of the amount brought into account as income which is referable in accordance with section 432C to [F187gross roll-up business] is reduced by F188. . . the shareholders' excess income.

(6)The part of the amount brought into account as the increase or decrease in the value of assets or as other income which is referable in accordance with section [F189432C to gross roll-up business] is reduced or increased as follows.

(7)The part of that amount is—

(a)reduced by F190. . . the shareholders' excess gains, or

(b)increased by F190. . . the shareholders' excess losses,

as the case may be.

[F191(8)But if, in relation to the fund in question, an election in accordance with Rule 9.10(c) of the Prudential Sourcebook (Insurers) has effect for the period of account, the following rules apply.

(8A)In any case where there are adjusted shareholders' excess gains (“amount A”) and an adjusted increase in value of inherited estate assets (“amount B”), the part of the amount mentioned in subsection (6) (“the relevant amount”) is reduced by F192. . . the lower of amounts A and B.

(8B)The difference between amounts A and B is carried forward to the next period of account—

(a)as shareholders' excess gains (if amount A is the greater amount), or

(b)as an increase in value of inherited estate assets (if amount B is the greater amount).

(8C)In any case where there are adjusted shareholders' excess losses (“amount C”) and an adjusted decrease in value of inherited estate assets (“amount D”), the relevant amount is increased by F193. . . the lower of amounts C and D.

(8D)The difference between amounts C and D is carried forward to the next period of account—

(a)as shareholders' excess losses (if amount C is the greater amount), or

(b)as a decrease in value of inherited estate assets (if amount D is the greater amount).

(8E)In any other case—

(a)the relevant amount is neither reduced nor increased, and

(b)the adjusted shareholders' excess gains or losses, and the adjusted increase or decrease in value of inherited estate assets, are carried forward to the next period of account as shareholders' excess gains or losses and an increase or decrease in value of inherited estate assets (as the case may be).

(8F)For the purposes of subsections (8A) to (8E), in relation to any period of account (“the relevant period”), the adjusted shareholders' excess gains or losses, and the adjusted increase or decrease in value of inherited estate assets, are determined as follows.

Step 1

Find the amount of shareholders' excess gains or losses, and the amount of the increase or decrease in value of inherited estate assets, for the relevant period.

Step 2

Find the amount (if any) of shareholders' excess gains or losses, and the amount (if any) of the increase or decrease in value of inherited estate assets, carried forward to the relevant period (without being taken into account for the purposes of step 3 or 4 in any previous period of account).

Step 3

This step applies if, for the relevant period, there are shareholders' excess gains or an increase in value of inherited estate assets.

• In such a case—

  (a)

  increase that amount by the amount of any such gains or (as the case may be) of any such increase in value so carried forward to the relevant period, or

  (b)

  reduce that amount (but not below nil) by the amount of any shareholders' excess losses or (as the case may be) of any decrease in value of inherited estate assets so carried forward to the relevant period.

• The resulting amount is the adjusted shareholders' excess gains or (as the case may be) the adjusted increase in value of inherited estate assets for the relevant period.

Step 4

This step applies if, for the relevant period, there are shareholders' excess losses or a decrease in value of inherited estate assets.

• In such a case—

  (a)

  increase that amount by the amount of any such losses or (as the case may be) of any such decrease in value so carried forward to the relevant period, or

  (b)

  reduce that amount (but not above nil) by the amount of any shareholders' excess gains or (as the case may be) of any increase in value of inherited estate assets so carried forward to the relevant period.

• The resulting amount is the adjusted shareholders' excess losses or (as the case may be) the adjusted decrease in value of inherited estate assets for the relevant period.

(8G)For the purposes of subsections (8A) to (8F), in relation to any company and any period of account,—

“decrease in value of inherited estate assets” means so much of the amount of the decrease in value of assets brought into account in line 13 of Form 40 in the periodical return of the company for that period as relates to shareholders' excess assets;

“increase in value of inherited estate assets” means so much of the amount of the increase in value of assets brought into account in line 13 of Form 40 in the periodical return of the company for that period as relates to shareholders' excess assets.]

(9)For the purposes of this section—

F194. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F195. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“shareholders' excess gains” means the amount by which—

(a)[F196the aggregate amount of investment gains and amounts chargeable under Case VI of Schedule D by virtue of section 85(2C)(c) of the Finance Act 1989 for the accounting periods comprised in the period of account exceeds]

(b)[F197the aggregate amount that would be found under paragraph (a)] if section 432A(6) were amended in accordance with subsection (10) below;

“shareholders' excess income” means the amount by which—

(a)the investment income referable to basic life assurance and general annuity business in accordance with section 432A for the [F198accounting periods comprised in the] period of account exceeds

(b)the amount that would be so referable if section 432A(6) were amended in accordance with subsection (10) below;

“shareholders' excess losses” means the amount by which—

(a)[F199investment losses for the accounting periods comprised in the period of account exceeds]

(b)the amount that would be [F200found under paragraph (a)] if section 432A(6) were amended in accordance with subsection (10) below.

(10)For the purposes of the definitions of “shareholders' excess gains”, “shareholders' excess income” and “shareholders' excess losses”, the amendments of section 432A(6) mentioned in those definitions are—

(a)in [F201the definition of A, in paragraph (b)] the insertion after “the mean of” of “the appropriate parts of”;

(b)in [F201the definition of A, in paragraph (b)] the insertion after “assets” of—

“(and for this purpose the definition of “appropriate part” in subsection (8)(a) below applies in relation to the shareholders' excess assets as it applies in relation to the free assets amount)”; and

[F202(c)the substitution for the definitions of B and C of—

“B is the amount that would be given by A if A applied in relation to gross roll-up business; and

C is the amount that would be given by A if A applied in relation to PHI business.”.]

(11)For the purposes of subsection (9)—

(a)the amount of a company's investment gains is the greater of LG [F203+ OIG] + NTC - NTD and nil where—

[F204(i)LG is the amount of BLAGAB chargeable gains accruing from disposals of assets of the company's long-term insurance fund in each accounting period comprised in the period of account after deducting the aggregate of BLAGAB allowable losses so accruing in the accounting period and in any accounting period to which section 8(1)(b) of the Taxation of Chargeable Gains Act 1992 (company's total profits to include chargeable gains) applies];

[F205(ia)OIG is the amount of offshore income gains accruing in each such accounting period and charged to corporation tax under Case VI of Schedule D by virtue of section 761(1)(b)(ii);]

(ii)NTC is the amount of non-trading credits for the period [F206of account] which arise to the company from increases in the fair value of the company's loan relationships or from related transactions; and

(iii)NTD is the amount of non-trading debits [F207for the period of account] which arise to the company from decreases in the fair value of the company's loan relationships or from related transactions;

(b)“investment income” means the aggregate of—

(i)the non-trading credits for the period [F208of account] which do not arise to the company from increases in the fair value of the company's loan relationships or from related transactions;

[F209(ia)annuities or other annual payments in each accounting period comprised in the period of account that are chargeable under Case III of Schedule D by virtue of paragraph (b) of that Case;]

(ii)income [F210for each such accounting period] falling with Schedule A; and

(iii)income [F211for each such accounting period] falling within Case V of Schedule D; and

(c)the amount of a company's investment losses is the greater [F212of

or

and nil where—

[F213(i)LA is the amount of the company's BLAGAB allowable losses accruing from disposals of assets of the company's long-term insurance fund in each accounting period comprised in the period of account after deducting BLAGAB chargeable gains so accruing; and]

(ii)[F214LG, OIG,] NTC and NTD have the same meanings as they have in relation to a company's investment gains.

[F215(12)In subsection (11)—

“BLAGAB allowable losses” means allowable losses referable in accordance with section 432A to the company's basic life assurance and general annuity business;

“BLAGAB chargeable gains” means chargeable gains referable in accordance with section 432A to the company's basic life assurance and general annuity business;

“related transaction” has the meaning given by section 84(5) of the Finance Act 1996.]]

[F216432CSection 432B apportionment: non-participating fundsU.K.

(1)This section specifies the extent to which the net amount is referable to life assurance business or to gross roll-up business.

(2)In this section “the net amount” means the aggregate of the amounts brought into account—

(a)as investment income,

(b)as an increase in the value of assets, or

(c)as other income,

less the aggregate of the amounts brought into account as a decrease in the value of assets.

(3)To the extent that the net amount is attributable to—

(a)assets linked to life assurance business, or

(b)foreign currency assets,

it is referable to life assurance business.

(4)There is also referable to life assurance business the appropriate fraction of so much of the net amount as is not attributable to linked assets or foreign currency assets.

(5)For the purposes of subsection (4) above “the appropriate fraction” is—

(6)But if the denominator found in accordance with subsection (5) above is nil, the appropriate fraction for the purposes of subsection (4) above is such fraction as is just and reasonable.

(7)To the extent that the net amount is attributable to—

(a)assets linked to gross roll-up business, or

(b)foreign currency assets,

it is referable to gross roll-up business.

(8)There is also referable to gross roll-up business the relevant fraction of so much of the net amount as is not attributable to linked assets or foreign currency assets.

(9)For the purposes of subsection (8) above “the relevant fraction” is—

(10)But if the denominator found in accordance with subsection (9) above is nil, the relevant fraction for the purposes of subsection (8) above is such fraction as is just and reasonable.

(11)For the purposes of this section, so much of the net amount—

(a)as is brought into account as other income in an internal linked fund of the company, and

(b)as is not attributable to assets of that fund,

is to be treated as linked to a category of business to the same extent as income attributable to an asset of the fund would, by virtue of section 432ZA, be referable to that category of business.]

[F219432D Section 432B apportionment: value of non-participating funds.U.K.

F220. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F221432ESection 432B apportionment: participating funds.U.K.

[F222(1)The part of the net amount which is referable to life assurance business or to gross roll-up business is—

(a)the amount determined in accordance with subsections (2) and (2A) below, or

(b)if greater, the amount determined in accordance with subsection (3) below.

(1A)In this section “the net amount” means the aggregate of the amounts brought into account—

(a)as investment income,

(b)as an increase in the value of assets, or

(c)as other income,

less the aggregate of the amounts brought into account as a decrease in the value of assets.]

(2)For the purposes of subsection (1) above there shall be determined the amount which is such as to secure—

(a)F223. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)F224. . . that

(2A)In a case where [F226an amount or amounts are] taken into account under subsection (2) of section 83 of the Finance Act 1989 by virtue of subsection (2B) of that section [F227or by virtue of section F228. . . [F229[F230444AB, 444ABC,][F231444AEA,] 444AF(2) or 444AK(2)] of this Act], the amount determined under subsection (2) above is increased by—

(3)For the purposes of subsection (1) above there shall also be determined the aggregate of—

(a)the applicable percentage of what is left of the mean of the opening and closing liabilities of the relevant business so far as referable to the category of business concerned [F236(but taking that mean to be nil if it would otherwise be below nil)] after deducting from it the mean of the opening and closing values of any assets of the relevant business [F237linked] to that category of business [F238and foreign currency assets], and

(b)the part of the net amount F239. . . that is attributable to assets [F237linked] to that category of business [F240and foreign currency assets].

(4)[F241Subject to subsection (4A) below, for] the purposes of subsection (3) above “the applicable percentage”, in any case, [F242is—

[F243(4A)If the mean of the opening and closing liabilities of the relevant business reduced by the opening and closing values of any assets of the relevant business which are linked assets [F244or foreign currency assets] is nil then, for the purposes of subsection (3) above, “the applicable percentage” is such percentage as is just and reasonable.]

(5)F245. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)F245. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]