6(1)Section 438 of the Taxes Act 1988 (pension business: exemption from tax) shall be amended as follows.
(2)The following subsection shall be inserted after subsection (3)—
“(3AA)Subject to subsection (6B) below, the exclusion by section 208 from the charge to corporation tax of foreign income dividends shall not prevent such dividends being taken into account as part of the profits in computing under section 436 income from pension business.”
(3)In subsection (6) the words from “being” to “that profit,” shall be omitted.
(4)The following subsections shall be inserted after subsection (6A)—
“(6B)If for any accounting period there is, apart from this subsection, a profit arising to an insurance company from pension business and computed under section 436, and the company so elects as respects all or any part of the relevant foreign income dividends arising to it in that period, subsection (3AA) above shall not apply to the foreign income dividends to which the election relates.
(6C)In subsection (6B) above “relevant foreign income dividends” means the shareholders’ share of foreign income dividends within subsection (1) above; and for this purpose “the shareholders’ share” of any foreign income dividends is so much of the income they represent as is the shareholders’ share within the meaning of section 89 of the Finance Act 1989.
(6D)If in the same accounting period both relevant franked investment income and relevant foreign income dividends arise to the company—
(a)only one election may be made under subsections (6) and (6B) above;
(b)the election may be made as regards both relevant franked investment income and relevant foreign income dividends (subject to paragraph (c) below);
(c)the election may not be made as regards relevant foreign income dividends unless the election is made as regards all the company’s relevant franked investment income arising in the period.
(6E)Where an election is made under one or both of subsections (6) and (6B) above, the elected amount must not exceed the amount of the profit which (apart from the election) arises to the company for the accounting period from pension business and is computed under section 436; and the elected amount is—
(a)the amount of franked investment income to which the election relates (where the election is made under subsection (6) alone);
(b)the amount of the foreign income dividends to which the election relates (where the election is made under subsection (6B) alone);
(c)the aggregate amount of the franked investment income and the foreign income dividends to which the election relates (where the election is made under subsections (6) and (6B)).”
(5)In subsection (7) for “subsection (6) above” there shall be substituted “ this section ”.