Income and Corporation Taxes Act 1988

[F1Miscellaneous provisions relating to life assurance business]U.K.

434 Franked investment income etc.U.K.

[F2[F3[F4(1)Where an insurance company makes a payment representative of a distribution made by a company resident in the United Kingdom in respect of an asset of its long-term insurance fund, the payment is to be taken into account in computing its profits in accordance with the provisions applicable to Case I of Schedule D unless the amount taken into account in accordance with section 83(2)(a) of the Finance Act 1989 includes the amount of the payment.]]]

(2)F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F6(3)F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3A)[F8So much of the policy holders' share of the franked investment income from investments of a company’s long-term insurance fund as is referable to its] life assurance business shall be left out of account in determining, under subsection (7) of section 13, the franked investment income forming part of the company’s profits for the purposes of that section.]

[F9(3B)F10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3C)F10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3D)F10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(4)M1Subject to subsection (5)below, the specified part shall be, in the case of any unrelieved income, the same fraction of it as the fraction which, on a computation of the profits of the company in respect of its life assurance business in accordance with the provisions applicable to Case Iof Schedule D (whether or not the company is in fact charged to tax under that Case for the relevant accounting period or periods),would be connoted by the words in section 433 “such part of those profits as belongs or is allocated to, or is reserved for, or expended on behalf of, policy holders or annuitants”. F11

(5) If the income exceeds the profits as computed in accordance with the provisions applicable to Case Iof Schedule D other than section 433, the specified part shall be that fraction of the income so far as not exceeding the profits, together with the amount of the excess. F12

(6)F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F13(6A)For the purposes of this section—

(a)“the policy holders’ share” of any franked investment income is so much of that income as is not the shareholders’ share within the meaning of section 89 of the Finance Act 1989, F14. . .

[F15(aa)F16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ab)F16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ac)F16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(b)F17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F18[F19434A Computation of losses and limitation on relief.U.K.

(1)F20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F21(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—

(a)the loss resulting from the computation shall be reduced (but not below nil) by F22. . . —

(i)F23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ii)any relevant non-trading deficit for that period on the company’s debtor relationships; and

[F24(iii)F25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(b)if the whole or any part of that loss as so reduced is set off—

(i)under section 393A, or

(ii)under section 403(1),

[F26any loss for that period under section 436A shall be reduced (but not below nil) by the total of the amounts set off as mentioned in sub-paragraphs (i) and (ii) above.]]

[F27(2A)The reference in subsection [F28(2)(a)(ii)] above to a relevant non-trading deficit for any period on a company’s debtor relationships is a reference to the non-trading deficit on the company’s loan relationships which would be produced by any separate computation made under [F29paragraph 2(1)] of Schedule 11 to the Finance Act 1996 for the company’s basic life assurance and general annuity business if credits and debits given in respect of the company’s creditor relationships (within the meaning of Chapter II of Part IV of that Act) were disregarded.]

(3)In the case of a company carrying on life assurance business, no relief shall be allowable [F30—

(a)under Chapter II (loss relief) or Chapter IV (group relief) of Part X, or

(b)in respect of any amount representing a non-trading deficit on the company’s loan relationships that has been computed otherwise than by reference to debits and credits referable to that business,]

against the policy holders’ share of the relevant profits for any accounting period.

[F33434B Treatment of interest and annuities.U.K.

(1)F34. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)F35. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F36434C Interest on repayment of advance corporation tax.U.K.

F37. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F38434D Capital allowances: management assets.U.K.

F39. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

434E Capital allowances: investment assets.U.K.

F40. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

F41435 Taxation of gains reserved for policy holders and annuitants.U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

436[F42Pension business]: separate charge on profits.U.K.

F43. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F44436AGross roll-up business: separate charge on profitsU.K.

(1)Profits arising to an insurance company from gross roll-up business—

(a)are to be treated as income within Schedule D, and

(b)are chargeable under Case VI of that Schedule.

(2)For that purpose—

(a)the gross roll-up business is to be treated separately, and

(b)the profits from it are to be computed in accordance with the provisions of this Act applicable to Case I of Schedule D.

(3)In making that computation, sections 82 and 82B to [F4583ZA] of the Finance Act 1989 apply with the necessary modifications.

(4)If in any accounting period an insurance company incurs a loss, to be computed on the same basis as the profits, arising from its gross roll-up business—

(a)the loss must be set off against the amount of any profits chargeable under this section for any subsequent accounting period, and

(b)accordingly, the amount of the company's profits so charged in any such accounting period is to be treated as reduced by the amount of the loss or so much of that amount as cannot be relieved under this section against profits of an earlier accounting period.

(5)Section 396 does not apply to a loss incurred by an insurance company on its gross roll-up business.

(6)No loss to which section 396 applies may be set off under subsection (4) above against the amount of any profits chargeable under this section.

(7)This section does not apply in relation to an insurance company for an accounting period if the profits of its long-term business for the accounting period are charged to tax under Case I of Schedule D.]

[F44436BGains referable to gross roll-up business not to be chargeable gainsU.K.

(1)Gains referable to gross roll-up business are not chargeable gains.

(2)For the purposes of this section “gains referable to gross roll-up business” means gains which—

(a)accrue to an insurance company on the disposal by it of assets of its long-term insurance fund, and

(b)are referable (in accordance with section 432A) to gross roll-up business.]

437 General annuity business.U.K.

[F46[F47(1A)In the computation [F48under the I minus E basis] of the [F49relevant profits (within the meaning of section 88(1) of the Finance Act 1989) of an insurance company for any accounting period], new annuities paid by the company in that period shall be brought into account by treating an amount equal to the income limit for that period [F50 as expenses payable which fall to be brought into account for that period at Step 3 in section 76(7)].]

(1C)For the purposes of this section [F51(but subject to subsections (1CA) to (1CD) below)]—

(a)“new annuity” means any annuity, so far as paid under a contract made by an insurance company in an accounting period beginning on or after 1st January 1992 and so far as referable to the company’s basic life assurance and general annuity business;

(b)“the income limit” for an accounting period of an insurance company is the difference between—

(i)the total amount of the new annuities paid by the company in that accounting period; and

(ii)the total of the capital elements [F52and amounts exempt under section 717 of ITTOIA 2005] contained in the new annuities so paid; F53. . .

(c)the capital element contained in an annuity shall be determined in accordance with Chapter V of Part XIV, but for this purpose—

(i)it is immaterial whether or not an annuitant claims any relief to which he is entitled under that Chapter; and

(ii)where, by virtue of subsection (2) of section 657, section 656 does not apply to an annuity, the annuity shall be treated as containing the capital element that it would have contained apart from that subsection; [F54and

(d)the amounts exempt under section 717 of ITTOIA 2005 shall be determined in accordance with Chapter 7 of Part 6 of that Act, but for this purpose—

(i)it is immaterial whether or not an annuitant claims any relief to which the annuitant is entitled under that section; and

(ii)where, by virtue of section 718 of that Act, section 717 does not apply to an annuity, the annuity shall be treated as being exempt to the same extent that it would have been apart from that section.]

[F55(1CA)Where a new annuity (“the actual annuity”) is a steep-reduction annuity, the income limit for an accounting period of the company paying the annuity shall be computed for the purposes of this section as if—

(a)the contract providing for the actual annuity provided instead for the annuities identified by subsections (1CB) and (1CC) below; and

(b)the consideration for each of those annuities were to be determined by the making of a just and reasonable apportionment of the consideration for the actual annuity.

(1CB)The annuities mentioned in subsection (1CA)(a) above are—

(a)an annuity the payments in respect of which are confined to the payments in respect of the actual annuity that fall to be made before the earliest time for the making in respect of the actual annuity of a reduced payment such as is mentioned in section 437A(1)(c); and

(b)subject to subsection (1CC) below, an annuity the payments in respect of which are all the payments in respect of the actual annuity other than those mentioned in paragraph (a) above.

(1CC)Where an annuity identified by paragraph (b) of subsection (1CB) above (“the later annuity”) would itself be a steep-reduction annuity, the annuities mentioned in subsection (1CA)(a) above—

(a)shall not include the later annuity; but

(b)shall include, instead, the annuities which would be identified by subsection (1CB) above (with as many further applications of this subsection as may be necessary for securing that none of the annuities mentioned in subsection (1CA)(a) above is a steep-reduction annuity) if references in that subsection to the actual annuity were references to the later annuity.

(1CD)Subsections (1CA) to (1CC) above shall be construed in accordance with section 437A.]

(1D)In any case where—

(a)a payment in respect of an annuity is made by an insurance company under a group annuity contract made in an accounting period beginning before 1st January 1992,

(b)the company’s liabilities first include an amount in respect of that annuity in an accounting period beginning on or after that date, and

(c)the company’s liability in respect of that annuity is referable to its basic life assurance and general annuity business,

the payment shall be treated for the purposes of this section, other than this subsection, as if the group annuity contract had been made in an accounting period beginning on or after 1st January 1992 (and, accordingly, as payment of a new annuity).

(1E)In any case where—

(a)a payment in respect of an annuity is made by a reinsurer under a reinsurance treaty made in an accounting period beginning before 1st January 1992,

(b)the reinsurer’s liabilities first include an amount in respect of that annuity in an accounting period beginning on or after that date, and

(c)the reinsurer’s liability in respect of that annuity is referable to its basic life assurance and general annuity business,

the payment shall, as respects the reinsurer, be treated for the purposes of this section, other than this subsection, as if the reinsurance treaty had been made in an accounting period beginning on or after 1st January 1992 (and, accordingly, as payment of a new annuity).

(1F)In this section—

• “group annuity contract” means a contract between an insurance company and some other person under which the company undertakes to become liable to pay annuities to or in respect of such persons as may subsequently be specified or otherwise ascertained under or in accordance with the contract (whether or not annuities under the contract are also payable to or in respect of persons who are specified or ascertained at the time the contract is made);

• “reinsurance treaty” means a contract under which one insurance company is obliged to cede, and another (in this section referred to as a “reinsurer”) to accept, the whole or part of a risk of a class or description to which the contract relates.]

F56(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F57(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F58(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F59(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)F60. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F61437A Meaning of “steep-reduction annuity” etc.U.K.

(1)For the purposes of section 437 an annuity is a steep-reduction annuity if—

(a)the amount of any payment in respect of the annuity (but not the term of the annuity) depends on any contingency other than the duration of a human life or lives;

(b)the annuitant is entitled in respect of the annuity to payments of different amounts at different times; and

(c)those payments include a payment (“a reduced payment”) of an amount which is substantially smaller than the amount of at least one of the earlier payments in respect of that annuity to which the annuitant is entitled.

(2)Where there are different intervals between payments to which an annuitant is entitled in respect of any annuity, the question whether or not the conditions in subsection (1)(b) and (c) above are satisfied in the case of that annuity shall be determined by assuming—

(a)that the annuitant’s entitlement, after the first payment, to payments in respect of that annuity is an entitlement to payments at yearly intervals on the anniversary of the first payment; and

(b)that the amount to which the annuitant is assumed to be entitled on each such anniversary is equal to the annuitant’s assumed entitlement for the year ending with that anniversary.

(3)For the purposes of subsection (2) above an annuitant’s assumed entitlement for any year shall be determined as follows—

(a)the annuitant’s entitlement to each payment in respect of the annuity shall be taken to accrue at a constant rate during the interval between the previous payment and that payment; and

(b)his assumed entitlement for any year shall be taken to be equal to the aggregate of the amounts which, in accordance with paragraph (a) above, are treated as accruing in that year.

(4)In the case of an annuity to which subsection (2) above applies, the reference in section 437(1CB)(a) to the making of a reduced payment shall be construed as if it were a reference to the making of a payment in respect of that annuity which (applying subsection (3)(a) above) is taken to accrue at a rate that is substantially less than the rate at which at least one of the earlier payments in respect of that annuity is taken to accrue.

(5)Where—

(a)any question arises for the purposes of this section whether the amount of any payment in respect of any annuity—

(i)is substantially smaller than the amount of, or

(ii)accrues at a rate substantially less than,

an earlier payment in respect of that annuity, and

(b)the annuitant or, as the case may be, every annuitant is an individual who is beneficially entitled to all the rights conferred on him as such an annuitant,

that question shall be determined without regard to so much of the difference between the amounts or rates as is referable to a reduction falling to be made as a result of the occurrence of a death.

(6)Where the amount of any one or more of the payments to which an annuitant is entitled in respect of an annuity depends on any contingency, his entitlement to payments in respect of that annuity shall be determined for the purposes of section 437(1CA) to (1CC) and this section according to whatever (applying any relevant actuarial principles) is the most likely outcome in relation to that contingency.

(7)Where any agreement or arrangement has effect for varying the rights of an annuitant in relation to a payment in respect of any annuity, that payment shall be taken, for the purposes of section 437(1CA) to (1CC) and this section, to be a payment of the amount to which the annuitant is entitled in accordance with that agreement or arrangement.

(8)References in this section to a contingency include references to a contingency that consists wholly or partly in the exercise by any person of any option.]

438 Pension business: exemption from tax.U.K.

(1)M2Exemption from corporation tax shall be allowed in respect of income [F62from assets solely linked to pension business.]

(2)F63. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)F64. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F65(3AA)F64. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(4)F63. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F67(6A)F68. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F69(6B)F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6C)F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6D)F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6E)F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(7)F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)F70. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F71(9)F72. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F73438A Pension business: payments on account of tax credits and deducted tax.U.K.

F74. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F75438B Income or gains arising from property investment LLPU.K.

F76. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

438C Determination of policy holders’ share for purposes of s.438BU.K.

F77. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

439 Restricted government securities.U.K.

F78. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F79439A Taxation of pure reinsurance business.U.K.

F80. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F81439B Life reinsurance business: separate charge on profits.U.K.

F82. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F83440 Transfers of assets etc.U.K.

(1)If at any time an asset (or a part of an asset) held by an insurance company ceases to be within one of the categories set out in subsection (4) below and comes within another of those categories, the company shall for the purposes of corporation tax be deemed to have disposed of and immediately re-acquired the asset (or part) for a consideration equal to its [F84fair] value at that time.

(2)Where—

[F85(a)an asset is acquired by a company as a result of an insurance business transfer scheme which has effect to transfer long-term business from any person (“the transferor”) to the company, and]

(b)the asset (or part of it) is within one of the categories set out in subsection (4) below immediately before the acquisition and is within another of those categories immediately afterwards,

the transferor shall for the purposes of corporation tax be deemed to have disposed of and immediately re-acquired the asset (or part) immediately before the acquisition for a consideration equal to its [F84fair] value at that time.

[F86(2A)F87. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F88(2B)F87. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(3)Where, apart from this subsection, section [F89171 or 173 the 1992 Act] (transfers within a group) would apply to a disposal or acquisition by an insurance company of an asset (or part of an asset) which, immediately before the disposal or (as the case may be) immediately after the acquisition, is within one of the categories set out in [F90paragraphs [F91(a), (d) and (e)]] of subsection (4) below, that section shall not apply to the disposal or acquisition.

[F92(4)The categories referred to in subsections (1) to (3) above are—

[F93(a)assets which are linked solely to gross roll-up business or are foreign currency assets;]

(d)assets linked solely to basic life assurance and general annuity business;

(e)assets of the [F94long-term insurance fund] not within [F95either] of the preceding paragraphs;

(f)other assets.]

(5)F96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F97(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).]]

[F98440A Securities.U.K.

(1)Subsection (2) below applies where the assets of an insurance company include securities of a class all of which would apart from this section be regarded for the purposes of corporation tax on chargeable gains as one holding.

(2)Where this subsection applies—

[F99(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—

[F100(i)basic life assurance and general annuity business, or

(ii)gross roll-up business,]

shall be treated for the purposes of corporation tax as a separate holding linked solely to that business,]

(c)F101. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d)so many of the securities as are included in the company’s [F102long-term insurance fund] but do not fall within [F103paragraph (a)] shall be treated for those purposes as a separate holding which is an asset of that fund (but not of [F104the description mentioned in that paragraph]), and

(e)any remaining securities shall be treated for those purposes as a separate holding which is not of any of the descriptions mentioned in the preceding paragraphs.

(3)Subsection (2) above also applies where the assets of an insurance company include securities of a class and apart from this section some of them would be regarded as a 1982 holding, and the rest as a [F105section 104 holding], for the purposes of corporation tax on chargeable gains.

(4)In a case within subsection (3) above—

(a)the reference in any paragraph of subsection (2) above to a separate holding shall be construed, where necessary, as a reference to a separate 1982 holding and a separate [F105section 104 holding], and

(b)the questions whether such a construction is necessary in the case of any paragraph and, if it is, how many securities falling within the paragraph constitute each of the two holdings shall be determined in accordance with paragraph 12 of Schedule 6 to the Finance Act 1990 and the identification rules applying on any subsequent acquisitions and disposals.

(5)Section [F106105 of the 1992 Act]] shall have effect where subsection (2) above applies as if securities regarded as included in different holdings by virtue of that subsection were securities of different kinds.

[F107F108(6)In this section—

• “1982 holding” has the same meaning as in section 109 of the 1992 Act;

• “ [F105section 104 holding]” has the same meaning as in section 104(3) of that Act; and

• “securities” means shares, or securities of a company, and any other assets where they are of a nature to be dealt in without identifying the particular assets disposed or acquired.]

[F107(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).]

[F109440B Modifications where tax charged under Case I of Schedule D.U.K.

(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 [F110in accordance with section 431G(3)].

[F111(1A)F112. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(2)F112. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)[F113Subsection (1) of section 440 applies] as if the only categories set out in subsection (4) of that section were—

(a)assets of the [F114long-term insurance fund], and

(b)other assets.

(4)Section 440A applies as if for paragraphs [F115(a), (d) and (e)] of subsection (2) there were substituted—

[F116“(a)so many of the securities as are included in the company's long-term insurance fund shall be treated for the purposes of corporation tax as a separate holding which is an asset of that fund, 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.”.

[F117(4A)Section 440(2) does not apply if either the transferor or the company by which the asset is acquired is a company whose profits are charged to tax in accordance with Case I of Schedule D (or if they both are).

(4B)Section 211 of the 1992 Act does not apply if the transferor is a company whose profits are charged to tax in accordance with Case I of Schedule D.]

(5)F118. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F119440CModifications for change of tax basisU.K.

(1)Subsection (2) makes provision for a case where—

(a)subsection (4) of section 431G applies in relation to the profits of the life assurance business of an insurance company for any accounting period, but

(b)the profits of that business for a succeeding accounting period fall to be charged to tax in accordance with Case I of Schedule D by virtue of subsection (3) of that section.

(2)The loss referred to in section 431G(4)(b) (less any loss for the same accounting period set off under section 436A for any intervening accounting period and any amount deducted for any such period in respect of the loss by virtue of section 85A(3)(b) of the Finance Act 1989) may be set off under section 393 against profits of that succeeding accounting period (without being reduced in accordance with section 434A(2)(a)).

(3)In determining whether any loss has been set off under section 436A for any intervening accounting period, or whether any amount has been deducted for any such period in respect of the loss by virtue of section 85A(3)(b) of the Finance Act 1989, losses of earlier accounting periods are to be assumed to be set off before those of later accounting periods.

(4)Subsection (5) makes provision for a case where—

(a)a loss arises to an insurance company for an accounting period for which the profits of its life assurance business fall to be charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3)(b),

(b)the profits of that business for a subsequent accounting period are charged to tax under the I minus E basis, and

(c)had those profits (instead) been charged to tax in accordance with Case I of Schedule D, any of that loss would have been available to be set off against them under section 393.

(5)The loss is to be treated for the purposes of the operation of section 436A in relation to the subsequent accounting period as if it were a loss arising from its gross roll-up business in the accounting period in which it arose.

(6)Subsections (7) and (8) make provision for a case where—

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

(b)the profits of that business for its next accounting period fall to be charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3), and

(c)that prevents the giving of relief in accordance with section 86(8) of the Finance Act 1989 (acquisition expenses relieved in fractions under section 76).

(7)Any relief which would have been so given in—

(a)the next accounting period, or

(b)any subsequent accounting period for which the profits of the company's life assurance business continue to be charged to tax in accordance with Case I of Schedule D,

may be given by set-off against any gains treated as accruing under section 213(1) of the 1992 Act at the end of the accounting period.

(8)But if the profits of the company's life assurance business for a subsequent accounting period are charged to tax under the I minus E basis, any relief not previously given under subsection (7) is to be treated for the purposes of the operation of section 76 in relation to the first subsequent accounting period for which profits are so charged as if it were an amount which is to be relieved under that section by virtue of section 86(8) and (9) of the Finance Act 1989.]

441 Overseas life assurance business.U.K.

F121. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F122441A Section 441: distributions.U.K.

(1)F123. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)F124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F125(3)F124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)F124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)F124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(7)F124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)F124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F126441B Treatment of UK land.U.K.

(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.

[F127(2A)For the purposes of subsection (2) above a Schedule A business for the exploitation of any land to which this section applies shall be treated as a separate business from any other such 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.]

442 Overseas business of U.K. companies.U.K.

(1)M3Subsections (2) and (3) below apply where a company resident in the United Kingdom carries on insurance business outside the United Kingdom through a [F128permanent establishment] and—

(a)that business, or part of it, together with the whole assets of the company used for the purposes of that business or part (or together with the whole of those assets other than cash), is transferred to a company not resident in the United Kingdom;

(b)the business or part is so transferred wholly or partly in exchange for shares, or for shares and loan stock, issued by the transferee company to the transferor company; and

(c)the shares so issued, either alone or taken together with any other shares in the transferee company already held by the transferor company, amount in all to not less than one quarter of the ordinary share capital of the transferee company.

(2)In making any computation in accordance with the provisions of this Act applicable to Case I of Schedule D of the profits or losses of the transferor company for the accounting period in which the transfer occurs, there shall be disregarded any profit or loss in respect of any asset transferred which, apart from this subsection, would fall to be taken into account in making that computation.

(3)Where by virtue of subsection (2) above any profit or loss is disregarded in making any computation F129. . . the profit or loss shall be treated for the purposes of the [F1301992 Act] as a chargeable gain or allowable loss accruing to the transferor company on the transfer.

(4)F131. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F132442A Taxation of investment return where risk reinsured.U.K.

(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 [F133while the risk remains reinsured by the company under] 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.

[F134(3A)Where a transfer of the reinsurance arrangement from one insurance company (“the transferor”) to another (“the transferee”) is effected by novation or an insurance business transfer scheme, for the purpose of calculating the investment return to be treated as accruing to the transferee in respect of the policy or contract after the transfer, the references to the company in subsection (3)(a), (b) and (c) above include (as well as the transferee)—

(a)the transferor, and

(b)any insurance company from which the reinsurance arrangement was transferred on an earlier transfer effected by novation or an insurance business transfer scheme.]

(4)The regulations shall provide that the amount of investment return to be treated as accruing F135. . . 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.

(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.]

443 Life policies carrying rights not in money.U.K.

F136. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

444 Life policies issued before 5th August 1965.U.K.

F137. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F138444A Transfers of business.U.K.

[F139(1)F140. . . This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).]

[F141(2)Any expenses payable which (assuming the transferor had continued to carry on the business transferred after the transfer) would have fallen to be brought into account by the transferor in determining the deduction for expenses payable to be allowed under section 76 in computing profits for an accounting period following the period which ends with the day on which the transfer takes place shall, instead, be brought into account under and in accordance with that section by the transferee as expenses payable by him (and giving effect in the case of acquisition expenses, to section 86(6) to (9) of the Finance Act 1989).]

(3)Any loss which (assuming the transferor had continued to carry on the business transferred after the transfer)—

(a)would have been available under section [F142436A(4)] to be set off against profits of the transferor for the accounting period following that which ends with the day on which transfer takes place, F143. . .

(b)F143. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

shall, instead, be treated as a loss of the transferee (and available to be set off against profits of [F144gross roll-up business)][F145if the conditions in paragraphs (a) and (b) of section 343(1) are satisfied in relation to the business transferred (construing references to an event as to the transfer).]

[F146(3ZA)Where subsection (3) above has effect, sections [F147343(4),] (5) and (7) to (12) and 344 apply in relation to the business in which the loss arose construing—

(a)references to the predecessor and the successor as to (respectively) the transferor and the transferee, and

(b)references to section 343(3) as to subsection (3) of this section,

except that nothing in section 343(8) to (10) and (12) applies in relation to the transferee.]

[F148(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.]

(4)Where acquisition expenses are treated as [F149expenses payable by the transferee] by virtue of subsection (2) above, the amount deductible for the first accounting period of the transferee ending after the transfer takes place shall be calculated as if that accounting period began with the day after the transfer.

(5)Where the transfer is of part only of the transferor’s [F150long-term] business, [F151subsection (2), (3) or (3A)] above shall apply only to such part of any amount to which it would otherwise apply as is appropriate.

(6)Any question arising as to the operation of subsection (5) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and transferee shall be entitled to appear and be heard or to make representations in writing.

(7)F152. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)F152. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Valid from 19/02/2008

[F153444AZATransfers of life assurance business: Case VI losses of the transferorU.K.

(1)This section applies where—

(a)an insurance business transfer scheme has effect to transfer life assurance business from one person (“the transferor”) to another (“the transferee”),

(b)assuming the transferor had continued to carry on the business transferred after the transfer, the amount of any profits would have been charged to tax in respect of that business under the I minus E basis,

(c)the profits in respect of the business transferred for the first period of account of the transferee ending after the date on which the transfer takes effect are charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3), and

(d)the conditions in paragraphs (a) and (b) of section 343(1) are satisfied in relation to the business transferred (construing references to an event as to a transfer).

(2)Any loss which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been available to be set off against profits chargeable under section 436A (a “Case VI loss”) shall instead be treated as a loss of the transferee (a “Case I loss”) available to be set off against GRBP in relation to a period of account.

(3)For the purposes of subsection (2) above “GRBP”, in relation to a period of account, is—

where—

• P is the amount of such profits of the transferee's life assurance business for the period of account as relate to the business transferred (that amount being determined in accordance with section 343(9) and (10), where applicable),

• GRBTL is the mean of the opening and closing liabilities of the transferred gross roll-up business for the period of account, and

• TL is the mean of the opening and closing liabilities of the transferred life assurance business for the period of account.

(4)Where the transfer is of part only of the transferor's long-term business, subsection (2) above shall apply only to such part of any Case VI loss to which it would otherwise apply as is appropriate.

(5)Any question arising as to the operation of subsection (4) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and the transferee shall be entitled to appear and be heard or to make representations in writing.]

Textual Amendments

F153Ss. 444AZA, 444AZB inserted (19.2.2008 with effect in accordance with art. 1(5) of the amending S.I.) by The Insurance Business Transfer Schemes (Amendment of the Corporation Tax Acts) Order 2008 (S.I. 2008/381), art. 9

Valid from 19/02/2008

[F153444AZBTransfers of life assurance business: Case I losses of the transferorU.K.

(1)This section applies where—

(a)an insurance business transfer scheme has effect to transfer life assurance business from one person (“the transferor”) to another (“the transferee”),

(b)assuming the transferor had continued to carry on the business transferred after the transfer, the amount of any profits would have been charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3),

(c)the profits in respect of the business transferred for the first period of account of the transferee ending after the date on which the transfer takes effect are charged to tax under the I minus E basis, and

(d)the conditions in paragraphs (a) and (b) of section 343(1) are satisfied in relation to the business transferred (construing references to an event as to a transfer).

(2)The relevant fraction of any loss which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been available to be set off against profits of that business (a “Case I loss”) shall instead be treated as a loss of the transferee (a “Case VI loss”) available to be set off against the amount of such profits chargeable under section 436A for a period of account as relate to the business transferred (that amount being determined in accordance with section 343(9) and (10), where applicable).

(3)For the purposes of subsection (2) above “the relevant fraction”, in relation to a period of account, is—

where—

• GRBTL is the mean of the opening and closing liabilities of the transferred gross roll-up business for the period of account, and

• TL is the mean of the opening and closing liabilities of the transferred life assurance business for the period of account.

(4)Where the transfer is of part only of the transferor's long-term business, subsection (2) above shall apply only to such part of the amount of any Case I loss to which it would otherwise apply as is appropriate.

(5)Any question arising as to the operation of subsection (4) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and the transferee shall be entitled to appear and be heard or to make representations in writing.]

Textual Amendments

F153Ss. 444AZA, 444AZB inserted (19.2.2008 with effect in accordance with art. 1(5) of the amending S.I.) by The Insurance Business Transfer Schemes (Amendment of the Corporation Tax Acts) Order 2008 (S.I. 2008/381), art. 9

[F154[F155444AATransfers of business: deemed periodical returnU.K.

(1)This section applies where the whole, or substantially the whole, of the long-term business of a person (“the transferor”) is transferred from that person—

(a)by one insurance business transfer scheme, or

(b)by two or more insurance business transfer schemes which are associated.

(2)For the purposes of subsection (1) above two or more insurance business transfer schemes are associated if they form part of an arrangement for the transfer of the whole, or substantially the whole, of the transferor's long-term business.

(3)Where (apart from this subsection) there would not be a periodical return of the transferor covering a period ending immediately before a relevant transfer date, there is to be deemed for the purposes of corporation tax to be a periodical return of the transferor covering the period—

(a)beginning immediately after the last period ending before the relevant transfer date which is covered by a periodical return of the transferor, and

(b)ending immediately before the relevant transfer date,

containing such entries as would be included in an actual periodical return of the transferor covering that period (and so making that period a period of account of the transferor).

(4)There is to be deemed for the purposes of corporation tax to be a periodical return of the transferor—

(a)covering a relevant transfer date, and

(b)containing such entries as would be included in an actual periodical return covering the relevant transfer date,

(and so making the relevant transfer date a period of account of the transferor).

(5)Any actual periodical return covering a period which includes a relevant transfer date is to be ignored for the purposes of corporation tax.

(6)Where the transferor continues to carry on long-term business after a relevant transfer date, there is to be deemed for the purposes of corporation tax to be a periodical return of the transferor covering the immediate post-RTD period containing such entries as would be included in an actual periodical return covering that period (and so making that period a period of account of the transferor).

(7)In this section “relevant transfer date” means—

(a)in relation to a case within paragraph (a) of subsection (1) above, the date that is the transfer date in relation to the insurance business transfer scheme, and

(b)in relation to a case within paragraph (b) of that subsection—

(i)the earliest date that is the transfer date in relation to any of the insurance business transfer schemes, other than one that is a preliminary non-EEA transfer scheme, and

(ii)(where there are two or more insurance business transfer schemes that are not preliminary non-EEA transfer schemes) the latest date that is the transfer date in relation to any of them.

(8)In subsection (6) above “the immediate post-RTD period” means the period beginning immediately after the relevant transfer date mentioned in that subsection and (subject to subsection (9) below) ending with—

(a)the end of the period covered by the periodical return covering a period which includes a relevant transfer date (if there is one), or

(b)(if there is not) the period covered by the accounts of the company prepared in accordance with generally accepted accounting practice which includes the relevant transfer date.

(9)If the case is within subsection (1)(b) above and two or more of the insurance business transfer schemes are not preliminary non-EEA transfer schemes, the period ends with the latest date that is the transfer date in relation to any of them if that is before the end of the period mentioned in paragraph (a) or (b) of subsection (8) above.

(10)In this section and sections 444AB to 444AEC “the transfer date”, in relation to an insurance business transfer scheme, means the date on which it takes effect.

(11)For the purposes of this section an insurance business transfer scheme is a preliminary non-EEA transfer scheme if—

(a)it is an insurance business transfer scheme by virtue of paragraph (b) of the definition of “insurance business transfer scheme” in section 431(2), and

(b)the transfer date in relation to it is earlier than the transfer date in relation to an associated insurance business transfer scheme which is an insurance business transfer scheme by virtue of paragraph (a) of that definition.]]

[F156444ABTransfers of business: charge on transferor retaining assetsU.K.

(1)This section applies where, immediately after an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to one or more others (“the transferee” or “the transferees”), the transferor—

(a)does not carry on long-term business, but

(b)holds assets which, immediately before the transfer, were assets of its long-term insurance fund.

(2)The transferor shall be charged to tax under Case VI of Schedule D in respect of the taxable amount as if it had been received by the transferor during the accounting period beginning immediately after the day of the transfer.

(3)If the transferor was charged to tax on the profits of its life assurance business under Case I of Schedule D for the accounting period [F157ending immediately before the transfer], the taxable amount is the whole of the previously untaxed amount.

(4)Otherwise, the taxable amount is the non-BLAGAB fraction of the previously untaxed amount.

(5)The previously untaxed amount is the lesser of—

[F158(a)if there are no retained liabilities, the fair value of the retained assets or, if there are, so much of the fair value of the retained assets as exceeds the amount of the retained liabilities, and]

(b)the amount by which the fair value of the assets of the transferor’s long-term insurance fund immediately before the transfer exceeds the amount of the relevant pre-transfer liabilities.

(6)F159. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F160(6A)In subsection (5) above—

(a)“the retained assets” means such of the assets held by the transferor immediately after the transfer as were assets of its long-term insurance fund immediately before the transfer; and

(b)“the retained liabilities” means such of the liabilities of the transferor immediately after the transfer as were included in column 1 of line 14, 17, 22, 31 or 38 of Form 14 in the periodical return of the transferor covering the period of account ending immediately before the transfer.]

(7)Subject to subsection (8) below, the amount of the relevant pre-transfer liabilities is the aggregate of the amounts shown in column 1 of lines 14 and 49 of Form 14 in the periodical return of the transferor covering the period of account ending immediately before the transfer.

(8)If the amount of the liabilities transferred exceeds the value of the assets so transferred, as brought into account for the first period of account of the transferee (or any of the transferees) ending after the transfer, the amount of the relevant pre-transfer liabilities is the amount arrived at by deducting the excess from the aggregate of the amounts shown as mentioned in subsection (7) above.

(9)For the purposes of subsection (4) above the non-BLAGAB fraction of the previously untaxed amount is the fraction of which—

(a)the numerator is the amount of the liabilities transferred, apart from those which are liabilities of basic life assurance and general annuity business, and

(b)the denominator is the amount of the liabilities transferred.

(10)References in this section to assets held by the transferor after the transfer do not include any held on trust for the transferee or any of the transferees.

(11)F161. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F162[F163444ABARelevant non-transferred assetsU.K.

(1)For the purposes of section 444AB the relevant amount in relation to assets that are relevant non-transferred assets is—

(2)For the purposes of this section and section 444ABB—

(a)the recognised value of any assets which, immediately before the transfer date, are held by the transferor in a non-profit fund which is not a Form 14 line 51 fund is the relevant Form 13 value of those assets, and

(b)the recognised value of any other assets is the appropriate fraction of the relevant Form 13 value of those assets.

(3)For the purposes of subsection (2) above a non-profit fund is a Form 14 line 51 fund if an amount in respect of the fund is shown (or treated as shown) in line 51 of Form 14 in the periodical return of the transferor covering the relevant period of account.

(4)For the purposes of subsection (2) above the relevant Form 13 value of any assets is the value which is shown (or treated as shown) in respect of the assets in Form 13 in the periodical return of the transferor covering the relevant period of account (ignoring lines 91 to 99 of that Form).

(5)For the purposes of subsection (2)(b) above the appropriate fraction is—

(6)The increase or reduction referred to in the definition of A in subsection (5) above is any increase or decrease deemed to be brought into account by section 83YA(3) or (4) of the Finance Act 1989 in respect of the fund for the relevant period of account.

(7)See section 444AA for the meaning of “the transfer date”, and section 444AB for the meaning of “the relevant period of account”, in this section.]]

Valid from 16/12/2010

[F164444ABAANon-profit fund transferred assetsU.K.

(1)For the purposes of section 444AB the relevant amount in relation to assets that are non-profit fund transferred assets is—

where—

FVA is the fair value of the assets on the transfer date,

ABTO is any amount brought into account in respect of the assets as a business transfer-out and shown (or treated as shown) in line 32 of Form 40 in the periodical return of the transferor for the period of account of the transferor including the transfer date, and

TL is the amount of any non-profit fund transferred liabilities which are shown (or treated as shown) in any of lines 17, 21 to 23 and 31 to 38, but not in line 61, in Form 14 in the periodical return for the period of account of the transferor ending (or treated as ending by section 444AA) immediately before the transfer date or, if there is no period of account of the transferor so ending (or treated as so ending), the amount of any liabilities which would be so shown if one did.

(2)In subsection (1) “non-profit fund transferred liabilities” means such of the liabilities of the transferor's long-term insurance fund as are transferred from the transferor to the transferee by the insurance business transfer scheme and were, immediately before their transfer, liabilities of a non-profit fund of the transferor.

(3)See section 444AA for the meaning of “the transfer date” in this section.]

Textual Amendments

F164S. 444ABAA inserted (with effect in accordance with s. 15(11) of the amending Act) by Finance (No. 3) Act 2010 (c. 33), s. 15(10)

[F165444ABBRetained assetsU.K.

(1)For the purposes of section 444AB the relevant amount in relation to assets that are retained assets is the lesser of FVA and UTA, where—

(a)FVA is the fair value of the assets on the transfer date, and

(b)UTA is the amount by which the fair value of the assets of the long-term insurance fund of the transferor immediately before the transfer date exceeds the amount shown (or treated as shown) in line 32 of Form 40 in the periodical return of the transferor covering the transfer date.

(2)See section 444AA for the meaning of “the transfer date” in this section.]

[F167444ABCTransfer scheme transferring part of business: transferorU.K.

(1)This section applies where an insurance business transfer scheme has effect to transfer part (but not the whole or substantially the whole) of the long-term business of a person (“the transferor”) to another person (“the transferee”) and the condition in subsection (2) below is met.

(2)That condition is that any of the assets of the transferor's long-term insurance fund which are transferred from the transferor to the transferee by the insurance business transfer scheme are not, immediately after their transfer—

(a)if the transferee is an insurance company, assets of the transferee's long-term insurance fund, or

(b)if the transferee is not an insurance company, assets of a with-profits fund of the transferee,

(“relevant non-transferred assets”).

(3)The relevant amount in relation to the relevant non-transferred assets (see subsection (4) below) is to be taken into account under section 83(2) of the Finance Act 1989 as an increase in value of the assets of the long-term insurance fund of the transferor for the period of account covering the transfer date.

(4)The relevant amount in relation to the relevant non-transferred assets is—

(5)See section 444AA for the meaning of “the transfer date” in this section.]

[F168444ABDTransferor's period of account including transferU.K.

(1)Any profits representing the amount by which—

(a)the value of the liabilities transferred by an insurance business transfer scheme, exceeds

(b)the value of the assets transferred by the insurance business transfer scheme shown (or treated as shown) in line 32 of the periodical return of the transferor for the period of account of the transferor including the transfer date,

are to be taken into account as profits of that period of account.

(2)See section 444AA for the meaning of “the transfer date” in this section.]

444AC[F169Transfers of business: excess of assets or liabilities]U.K.

(1)This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

(2)If—

(a)[F170the transferee's line 31 amount in relation to the transfer], exceeds

(b)[F171the aggregate amount] of the liabilities to policy holders and annuitants transferred to the transferee [F172and of any relevant debts],

the excess is not to be regarded [F173as a business transfer-in] of the transferee for the purposes of section [F17483(2)(e)] of the Finance Act 1989.

[F175(2A)Subject to subsections (2C) and (2D) below, subsection (2B) below applies if—

(a)the aggregate amount of the liabilities to policy holders and annuitants transferred to the transferee and of any relevant debts, exceeds

(b)[F170the transferee's line 31 amount in relation to the transfer].

(2B)Where this subsection applies—

(a)[F176the life assurance part of the excess] is to be taken into account as a receipt of the transferee in computing in accordance with the provisions of this Act applicable to Case I of Schedule D the profits of its life assurance business for the period of account of the transferee in which the transfer takes place (“the relevant period of account”); and

(b)the relevant proportion of the excess is to be taken into account as a receipt of the transferee in so computing the profits of [F177its gross roll-up business] for the relevant period of account;

and, for this purpose, [F178“the life assurance part of the excess” means the proportion of the excess that the liabilities of the transferee's life assurance business that are transferred bear to the total liabilities transferred and] “the relevant proportion”, in relation to [F179the transferee's gross roll-up business], is the proportion that the liabilities of [F180gross roll-up business] that are transferred bear to the total liabilities transferred.

(2C)Subsection (2B) above does not require [F181the life assurance part of the excess] to be taken into account as a receipt of the transferee in so computing the profits of its life assurance business for the relevant period of account if—

(a)transferred liabilities of an aggregate amount equal to [F181the life assurance part of the excess] are not taken into account in so computing those profits for that period of account, and

(b)the amount of the closing liabilities of that period of account is taken into account as opening liabilities in so computing those profits for the next period of account.

(2D)Subsection (2B) above does not require the relevant proportion of the excess to be taken into account as a receipt of the transferee in so computing the profits of [F182its gross roll-up business] for the relevant period of account if—

(a)transferred liabilities of an aggregate amount equal to the relevant proportion of the excess are not taken into account in so computing those profits for that period of account, and

(b)the amount of the closing liabilities of that period of account is taken into account as opening liabilities in so computing those profits for the next period of account.

(2E)In subsections (2C)(a) and (2D)(a) above “transferred liabilities” means—

(a)liabilities to policy holders or annuitants at the end of the relevant period of account that were transferred to the transferee, and

(b)payments made to discharge, during that period of account, liabilities to policy holders or annuitants that were transferred to the transferee.]

(3)F183. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F184(4)In this section “relevant debts” means debts which become debts of the transferee's long-term insurance fund as a result of the transfer.

(5)But if—

(a)[F185the aggregate amount of any relevant reinsurance amounts and of] the fair value, as at the date of the transfer, of the assets which become assets of the transferee's long-term insurance fund as a result of the transfer, exceeds

(b)[F170the transferee's line 31 amount in relation to the transfer],

the amount of any relevant debts for the purposes of this section is to be reduced (but not below nil) by the excess.

[F186(5A)In subsection (5)(a) above “relevant reinsurance amounts” means—

(a)amounts which are comprised in line 16 of Form 14 in the periodical return of the transferor covering the period ending immediately before the transfer (or would be so comprised if the transferor drew up a periodical return covering that period), or

(b)other amounts which arise under contracts of reinsurance in relation to which the reinsurer is the transferee and which, as at the date of the transfer, have fallen due to the transferor,

and which (in either case) do not become assets of the transferee's long-term insurance fund as a result of the transfer because (and only because) they arise under contracts of reinsurance in relation to which the reinsurer is the transferee.]

(6)In determining the amount of the liabilities transferred for the purposes of this section, there is to be disregarded any reduction in the transferee's liabilities resulting from reinsurance under a contract of reinsurance which is a relevant financial reinsurance contract (within the meaning of section 82C of the Finance Act 1989).

(7)But where—

(a)such a reduction results from reinsurance under a contract which was entered into by the transferor as cedant before the day on which the transfer takes place, and

(b)the transferor's rights and obligations under the contract are transferred to the transferee under the transfer,

the amount of the reduction that would (apart from this subsection) be disregarded under subsection (6) above shall be reduced (but not below nil) by the amount given by subsection (8) below or, if less, the amount given by subsection (9) below.

(8)The amount given by this subsection is the amount by which the liabilities at the end of the closing period which fell to be taken into account in computing in accordance with the provisions of this Act applicable to Case I of Schedule D the profits of the transferor's business for that period were reduced as a result of reinsurance under the contract.

(9)The amount given by this subsection is the amount given by paragraph (a) below reduced (but not below nil) by the amount given by paragraph (b) below—

(a)the amount given by this paragraph is the aggregate of the relevant amounts for any accounting period, and for this purpose the relevant amount for an accounting period is the amount in sub-paragraph (i) or (ii) below or, where applicable, the aggregate of those amounts—

(i)the amount by which the profits of the transferor's business, computed in accordance with the provisions of this Act applicable to Case I of Schedule D, were increased for that accounting period as a result of reinsurance under the contract;

(ii)the amount by which the losses of the transferor's business, so computed, were reduced for that accounting period as a result of reinsurance under the contract; and

(b)the amount given by this paragraph is the aggregate of the relevant amounts for any accounting period, and for this purpose the relevant amount for an accounting period is the amount in sub-paragraph (i) or (ii) below or, where applicable, the aggregate of those amounts—

(i)the amount by which the profits of the transferor's business, so computed, were reduced for that accounting period as a result of a reduction in reinsurance under the contract;

(ii)the amount by which the losses of the transferor's business, so computed, were increased for that accounting period as a result of a reduction in reinsurance under the contract.

(10)In subsections (8) and (9) above—

• “the closing period” means the accounting period of the transferor ending with the day on which the transfer takes place;

• “the transferor's business” means—

  (a)

  the transferor's life assurance business, and

  (b)

  [F187its gross roll-up business.]

(11)F188. . .

• F188. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F189. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F190444ACZATransfer schemes transferring part of business: reduction in income of transfereeU.K.

(1)This section applies where an insurance business transfer scheme has effect to transfer part (but not the whole or substantially the whole) of the long-term business of a person (“the transferor”) to another person (“the transferee”) and the condition in subsection (2) below is met.

(2)The condition is that the transferor did not carry on life assurance business that is mutual business during the period of account of the transferor covering the transfer date.

(3)The amount which (apart from this section) would be regarded as other income of the transferee for the purposes of section 83(2)(e) of the Finance Act 1989 for the period of account of the transferee which includes the transfer date is to be reduced by an amount equal to the transferred surplus.

(4)In subsection (4) above “the transferred surplus” means such part of the amount shown (or treated as shown) in line 13 of Form 14 in the periodical return of the transferor covering the last period of account of the transferor ending before the transfer date as it is just and reasonable to regard as being attributable to the transfer.

(5)See section 444AA for the meaning of “the transfer date” in this section.]

[F191[F192444ACATransfers of business: transferor shares are assets of transferee's long-term insurance fund etcU.K.

F193. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]]

444ADTransfers of business: modification of s.83(2B) FA 1989U.K.

(1)This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

(2)If the transferor and the transferee jointly elect, section 83(2B) of the Finance Act 1989 does not apply to the transferor by reason of the transfer as respects so much of the value of the assets to which it would otherwise so apply as does not exceed the amount specified in subsection (4) below.

(3)An election under subsection (2) above—

(a)is irrevocable, and

(b)is to be made by notice to an officer of the Board no later than the end of the period of 28 days beginning with the day following that on which the transfer takes place;

and a copy of the notice containing the election must accompany the tax return of the transferee for the first accounting period ending after the transfer.

Paragraphs 54 to 60 of Schedule 18 to the Finance Act 1998 (claims and elections for corporation tax purposes) do not apply to such an election.

(4)The amount referred to in subsection (2) above is the amount by which—

[F194(a)the fair value of such of the assets of the long-term insurance fund of the transferee immediately after the transfer as were assets of the transferor’s long-term insurance fund immediately before the transfer, is greater than]

(b)[F195the transferee's line 31 amount in relation to the transfer] representing the transferor’s long-term insurance fund.

(5)F196. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F197(6)For the purposes of this section “insurance business transfer scheme” includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State).]

444AETransfers of business: modification of s.83ZA FA 1989U.K.

(1)This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

(2)If a contingent loan made to the transferor (within the meaning of subsection (1) of section 83ZA of the Finance Act 1989) is transferred to the transferee, that section has effect as if—

(a)the contingent loan had become repayable by the transferor immediately before the transfer, and

(b)the contingent loan were made to the transferee immediately after the transfer.

444AEATransfer schemes: anti-avoidance ruleU.K.

(1)This section applies where—

(a)as a result of the whole or any part of transfer scheme arrangements involving the transfer of long-term business from one person (“the transferor”) to another (“the transferee”) a Case I advantage is obtained by the transferor or the transferee (or by both), and

(b)the sole or main purpose, or one of the main purposes, of the whole or any part of the transfer scheme arrangements is the obtaining of that Case I advantage.

(2)In subsection (1) above “transfer scheme arrangements” means an insurance business transfer scheme (“the relevant transfer scheme”) together with any relevant associated operations.

(3)If a Case I advantage is obtained by the transferor (see subsection (1) of section 444AEB), the amount of the transferor's Case I advantage (see subsection (2) of that section) is to be taken into account as an increase in value of the assets of the long-term insurance fund of the transferor for the period of account of the transferor covering the transfer date.

(4)If a Case I advantage is obtained by the transferee (see subsection (1) of section 444AEC), the amount of the transferee's Case I advantage (see subsection (2) of that section) is to be taken into account as an increase in value of the assets of the long-term insurance fund of the transferee for the first period of account of the transferee ending after the transfer date.

(5)In this section and sections 444AEB and 444AEC “relevant associated operations”, in relation to the relevant transfer scheme, means—

(a)any other insurance business transfer scheme,

(b)any contract of reinsurance,

(c)any reconstruction or amalgamation involving the transferor, a dependant of the transferor which is an insurance undertaking or the transferee, or

(d)any surplus-increasing transfer of assets,

which is effected in connection with the relevant transfer scheme.

(6)In subsection (5) above—

• “dependant” and “insurance undertaking” have the same meaning as in the Insurance Prudential Sourcebook, and

• “surplus-increasing transfer of assets” means a transfer of assets of the transferor's long-term insurance fund to the transferee which is not brought into account for any period of account of the transferee but increases the amount of total surplus shown in line 39 of Form 58 in any periodical return of the transferee.

(7)See section 444AA for the meaning of “the transfer date” in this section.

444AEBCase I advantage: transferorU.K.

(1)A Case I advantage is obtained by the transferor if—

(a)Case I profits of its life assurance business for a period of account to which this section applies are less than they would be but for the transfer scheme arrangements or any part of the transfer scheme arrangements, or

(b)Case I losses of its life assurance business for such a period of account are greater than they would be but for the transfer scheme arrangements or any part of the transfer scheme arrangements.

(2)If a Case I advantage is obtained by the transferor, the amount of the Case I advantage is the aggregate of—

(a)the amounts (if any) by which Case I profits for each period of account to which this section applies are less than they would be but for the transfer scheme arrangements or part, and

(b)the amounts (if any) by which Case I losses for each such period of account are greater than they would be but for the transfer scheme arrangements or part.

(3)This section applies to a period of account if it is—

(a)the period of account of the transferor covering the transfer date,

(b)any earlier period of account of the transferor, or

(c)where any relevant associated operations are effected in any later period of account, that period of account.

(4)In this section and section 444AEC “Case I profits” and “Case I losses” means profits and losses computed in accordance with the provisions of Case I of Schedule D.

(5)See section 444AA for the meaning of “the transfer date”, and section 444AEA for the meaning of “relevant associated operations”, in this section.

444AECCase I advantage: transfereeU.K.

(1)A Case I advantage is obtained by the transferee if—

(a)Case I profits of its life assurance business for a period of account to which this section applies are less than they would be but for the transfer scheme arrangements or any part of the transfer scheme arrangements, or

(b)Case I losses of its life assurance business for such a period of account are greater than they would be but for the transfer scheme arrangements or any part of the transfer scheme arrangements.

(2)If a Case I advantage is obtained by the transferee, the amount of the Case I advantage is—

(a)the amount by which Case I profits for each period of account to which this section applies are less than they would be but for the transfer scheme arrangements or part, or

(b)the amount by which Case I losses for each such period of account are greater than they would be but for the transfer scheme arrangements or part.

(3)This section applies to a period of account if it is—

(a)the first period of account of the transferee ending after the transfer date or after the effecting of the first of any relevant associated operations (if that occurs before the transfer date),

(b)the second period of account of the transferee ending after the transfer date or after the effecting of the last of any relevant associated operations (if that occurs after the transfer date), or

(c)any intervening period of account.

(4)See section 444AA for the meaning of “the transfer date”, section 444AEA for the meaning of “relevant associated operations” and section 444AEB for the meaning of “Case I profits” and “Case I losses”, in this section.

444AEDClearance: no avoidance or group advantageU.K.

(1)Section 444AEA does not apply in relation to the transferor or the transferee if, on an application under this section, the Commissioners for Her Majesty's Revenue and Customs (“the HMRC Commissioners”) have given a notice under subsection (2) below.

(2)A notice under this subsection is a notice stating that the HMRC Commissioners are satisfied—

(a)that the obtaining of a Case I advantage by the applicant is not the sole or main purpose of the whole or any part of the transfer scheme arrangements, or

(b)that the transferor and the transferee are members of the same group of companies and that there is no advantage to the group arising from any Case I advantage obtained by the transferor or by the transferee.

(3)For the purposes of this section there is no advantage to a group arising from any Case I advantage obtained by the transferor or by the transferee if—

(a)as a result of transfer scheme arrangements, there is an increase in the liability to corporation tax of one or more companies which are members of the group of companies, and

(b)the amount (or aggregate amount) of that increase is not less than the reduction in the liability to corporation tax of the transferor or the transferee (or both) arising from the obtaining of the Case I advantage.

(4)An application under this section must be in writing and contain particulars of the transfer scheme arrangements.

(5)The HMRC Commissioners may by notice require the applicant to provide further particulars in order to enable them to determine the application.

(6)A requirement may be imposed under subsection (5) above within 30 days of the receipt of the application or of any further particulars required under that subsection.

(7)If a notice under subsection (5) above is not complied with within 30 days or such longer period as the HMRC Commissioners may allow, they need not proceed further on the application.

(8)The HMRC Commissioners must give notice of their decision on an application under this section to the applicant within 30 days of receiving the application or, if they give a notice under subsection (5) above, within 30 days of that notice being complied with.

(9)If the HMRC Commissioners—

(a)give notice to the applicant under subsection (8) above that they are not satisfied as mentioned in subsection (2) above, or

(b)do not comply with subsection (8) above,

the applicant may require them to transmit the application to the Special Commissioners.

(10)A requirement under subsection (9) above must be imposed within 30 days of the giving of the notice or the failure to comply and must be accompanied by any notice given under subsection (5) above and further particulars provided pursuant to any such notice.

(11)Any notice given by the Special Commissioners has effect for the purposes of subsection (1) above as if it were given by the HMRC Commissioners.

(12)If any particulars provided under this section do not fully and accurately disclose all facts and considerations material for the decision of the HMRC Commissioners or the Special Commissioners, any resulting notice that they are satisfied as mentioned in subsection (2) above is void.

(13)For the purposes of this section two companies are members of the same group of companies if they are for the purposes of Chapter 4 of Part 10.