Finance Act 2008

Section 43

SCHEDULE 17Insurance companies etc

Financing-arrangement-funded transfers

1(1)FA 1989 is amended as follows.

(2)In section 83(2A) (amounts not to be taken into account as receipts of a period of account where profits computed in accordance with Case I of Schedule D), after paragraph (ab) insert—

“(ac)consists of amounts brought into account as mentioned in section 83YC(5) below;”.

(3)After section 83YB insert—

“83YCFAFTS: charge in relevant period of account

(1)This section applies where an insurance company makes a financing-arrangement-funded transfer to shareholders (a “FAFTS”) in relation to a non-profit fund.

(2)A company makes a FAFTS in relation to a non-profit fund if—

(a)the company enters into a relevant financing arrangement in relation to a non-profit fund in a period of account (see subsection (4) below),

(b)a positive amount is brought into account by the company as a transfer to non-technical account from the non-profit fund for that or any subsequent period of account (“the relevant period of account”), and

(c)the positive amount so brought into account for the relevant period of account exceeds the non-FAFTS surplus (see subsection (8) below).

(3)The amount of that excess is to be treated for the purposes of section 83(2) as brought into account by the company for the relevant period of account as an increase in the value of assets.

(4)For the purposes of this section and section 83YD a company enters into a relevant financing arrangement in relation to a non-profit fund in a period of account if—

(a)the loan condition (see subsection (5) below), or

(b)the reinsurance condition (see subsection (6) below),

is met.

(5)The loan condition is met if credits in respect of a money debt which is to any extent referable to the company’s life assurance business (a “relevant money debt”) are brought into account in relation to a non-profit fund as part of total income for the period of account.

(6)The reinsurance condition is met if—

(a)in the period of account the company enters into a financial reinsurance arrangement relating to any liabilities (see subsection (7) below), and

(b)the reinsurance of the liabilities would (but for section 83YF(2)) be taken into account in calculating profits of the company’s life assurance business in accordance with the provisions of Case I of Schedule D for the period of account;

and such liabilities are referred to in this section and section 83YD as “relevant liabilities”.

(7)For the purposes of this section the company enters into a financial reinsurance arrangement if—

(a)it enters into a contract of insurance under which liabilities of the company to policy holders or annuitants (or both) in respect of a non-profit fund are reinsured,

(b)the reinsured liabilities are to reduce over time,

(c)the contract is a financing arrangement within the meaning of paragraph 9(3) of Appendix 9.4 to the Prudential Sourcebook (Insurers), and

(d)the premiums which, immediately after entering into the contract, the company is liable to pay under the contract are an insubstantial proportion of the amount of the reinsured liabilities at that time.

(8)For the purposes of this section the “non-FAFTS surplus” is—

(a)the amount shown in line 39 of Form 58 in relation to the non-profit fund in the periodical return for the relevant period of account, reduced (but not to below nil) by

(b)so much of the aggregate of the relevant outstanding debt amount (see subsection (9) below) and the relevant outstanding reinsurance amount (see subsection (10) below) as is untaxed (see subsection (11) below).

(9)The “relevant outstanding debt amount” is the total amount of the credits brought into account by the company in relation to the non-profit fund as part of total income—

(a)for the relevant period of account, or

(b)for any earlier period of account,

in respect of relevant money debts to the extent that they have not been repaid before the end of the relevant period of account.

(10)The “relevant outstanding reinsurance amount” is the total of the amounts which would (but for section 83YF(2)) be taken into account in calculating profits of the company’s life assurance business in accordance with the provisions of Case I of Schedule D—

(a)for the relevant period of account, or

(b)for any earlier period of account,

in respect of the reinsurance of relevant liabilities to the extent that they have not ceased to be reinsured before the end of the relevant period of account.

(11)The aggregate of the relevant outstanding debt amount and the relevant outstanding reinsurance amount is “untaxed” to the extent that it exceeds the difference between—

(a)the aggregate of the amounts treated as brought into account in the case of the company by the operation of subsection (3) above for periods of account of the company earlier than the relevant period of account, and

(b)the aggregate of the amounts which are the relevant amount for the relevant period of account or earlier periods of account of the company under section 83YD.

83YDFAFTS: deduction in subsequent periods of account

(1)This section applies where section 83YC(3) has operated in the case of the company for one or more periods of account.

(2)The relevant amount (see subsection (4) below) is to be treated for the purposes of section 83(2) as brought into account by the company as a decrease in the value of assets for any subsequent period of account in relation to which the condition in subsection (3) below is met.

(3)That condition is that—

(a)a payment made by the company in respect of a relevant money debt is brought into account for the period of account as part of total expenditure in the revenue account for the non-profit fund without being deductible under section 82(2)(b) of the Finance Act 1996, or

(b)relevant liabilities are recaptured (that is, cease to be reinsured under a financial reinsurance arrangement) during the period of account.

(4)For the purposes of subsection (2) above “the relevant amount” is an amount equal to so much of the aggregate of—

(a)the payments made and brought into account as mentioned in paragraph (a) of subsection (3) above, and

(b)the liabilities recaptured as mentioned in paragraph (b) of that subsection,

as, when added to the aggregate of the amounts which are the relevant amount for each earlier period of account of the company in relation to which this section has applied, does not exceed the taxed amount (see subsection (6) below).

(5)But the making of payments or recapture of liabilities is to be left out of account under paragraph (a) or (b) of subsection (4) above to the extent that it relates to refinancing; and for this purpose a payment or recapture of liabilities relates to refinancing if—

(a)the company enters into a relevant financing arrangement in relation to the non-profit fund (in any period of account), and

(b)it is reasonable to assume that the making of the payments or the recapture of the liabilities is connected with its doing so.

(6)For the purposes of subsection (4) above “the taxed amount” is the aggregate of the amounts treated as brought into account in the case of the company by the operation of section 83YC(3) above for earlier periods of account.

83YERegulations: apportionment and redefining “financial reinsurance arrangement”

(1)The Treasury may by regulations make provision for determining what parts of amounts within sections 83YC(3) and 83YD(2)—

(a)are referable to life assurance business, or

(b)are referable to gross roll-up business.

(2)The Treasury may by regulations make provision amending section 83YC(7).

(3)Regulations under subsection (2) above may include incidental, supplementary, consequential, transitional and savings provisions and may amend or repeal any enactment.

(4)Regulations under this section—

(a)may make provision in relation to periods of account current when they are made, and

(b)if made before 1 January 2009, may make provision in relation to periods of account beginning on or after 1 January 2008 which have ended before they are made.

83YFFinancial reinsurance arrangements: further provision

(1)This section applies where the company has entered into a financial reinsurance arrangement for the purposes of section 83YC.

(2)Any reduction in the company’s liabilities as a result of it doing so is not to be taken into account in calculating profits of the company’s life assurance business in accordance with the provisions of Case I of Schedule D.

(3)Any increase in the company’s liabilities as a result of the reduction over time of the liabilities reinsured under the contract of reinsurance is not to be taken into account in calculating profits of the company’s life assurance business in accordance with the provisions of Case I of Schedule D otherwise than in accordance with section 83YD.”

(4)Omit section 83ZA (contingent loans).

2In ICTA, for section 444AE substitute—

“444AETransfers of business: FAFTS

(1)Where an insurance business transfer scheme has effect to transfer the relevant financing arrangements entered into in relation to a non-profit fund of an insurance company (“the transferor”) to another person (“the transferee”), after the transfer—

(a)they are to be treated for the purposes of sections 83YC and 83YD of the Finance Act 1989 as having been entered into by the transferee, but

(b)the references in those sections to earlier periods of account of the transferee include earlier periods of account of the transferor.

(2)But if the insurance business transfer scheme has effect—

(a)to transfer some but not all of the relevant financing arrangements entered into in relation to the non-profit fund of the transferor, or

(b)to transfer all of those relevant financing arrangements but not all to one person,

any calculation required by virtue of section 83YC or 83YD in relation to a period of account of the transferor, or of the transferee or any of the transferees, ending after the transfer is to be made on a just and reasonable basis.

(3)Subsection (4) below applies where—

(a)relevant financing arrangements have been entered into in relation to a non-profit fund of an insurance company (“the old company”), and

(b)as a result of any transaction other than an insurance business transfer scheme, another insurance company (“the new company”) becomes the debtor in respect of the money debt, or the cedant, under the financial reinsurance arrangements.

(4)Where this subsection applies, after the transaction—

(a)the relevant financing arrangements are to be treated for the purposes of sections 83YC and 83YD as having been entered into by the new company, but

(b)the references in those sections to earlier periods of account of the new company include earlier periods of account of the old company, and

(c)the transaction is not to be regarded as causing the condition in section 83YD(3) to be met in relation to the old company.

(5)But if the transaction has effect—

(a)to transfer some but not all of the relevant financing arrangements entered into in relation to the non-profit fund of the old company, or

(b)to transfer all of those relevant financing arrangements but not all to one person,

any calculation required by virtue of section 83YC or 83YD in relation to a period of account of the old company, or of the new company or any of the new companies, ending after the transaction is to be made on a just and reasonable basis.

(6)Expressions used in this section and section 83YC or 83YD have the same meanings here as there.”

3In consequence of paragraphs 1 and 2, omit—

(a)paragraph 2(2A) of Schedule 11 to FA 1996,

(b)paragraph 3 of Schedule 33 to FA 2003,

(c)paragraph 8 of Schedule 11 to FA 2006, and

(d)paragraph 1 of Schedule 10 to FA 2007.

4(1)The amendments made by paragraphs 1 to 3 have effect in relation to periods of account beginning on or after 1 January 2008.

(2)Where, at the end of the last period of account of an insurance company before the first beginning on or after 1 January 2008 (“the initial period of account”) the company has unrepaid contingent loan liabilities, sections 83YC and 83YD of FA 1989, as inserted by paragraph 1, have effect as follows.

(3)Those sections have effect as if—

(a)the amount of the unrepaid contingent loan liabilities, so far as relating to a non-profit fund, were credits in respect of a money debt brought into account in relation to a non-profit fund as part of total income for the initial period of account, and

(b)any amount by which—

for any period of account beginning on or after 1 January 2008 is to be included in the relevant amount for the period of account for the purposes of section 83YD(2).

(4)For the purposes of sub-paragraph (2), subsection (3) of section 83ZA of FA 1989 applies for determining whether the company has unrepaid contingent loan liabilities; and for the purposes of sub-paragraph (3)(a) the amount of the unrepaid contingent loan liabilities is the amount given by subsection (7) of that section for the period of account preceding the initial period of account.

(5)In sub-paragraph (3)(b)—

• AA is the amount which would have been allowable for the period of account by virtue of subsection (13) of section 83ZA of FA 1989, and

• R is the amount which would have been taken into account as a receipt of the period of account under subsection (6)(b) of that section (on the assumption that there were no reduction under subsection (7)(a) of that section).

(6)Where by virtue of sub-paragraph (3)(b) an amount (“the contingent loan amount”) is included in the relevant amount for a period of account for the purposes of subsection (2) of section 83YD of FA 1989 by reason of any repayment of a money debt, a payment brought into account as mentioned in subsection (3)(a) of that section in respect of the money debt for the period of account does not form part of the relevant amount for that period of account for those purposes except to the extent that it exceeds the contingent loan amount.

Expenses: fronting reinsurance commissions etc

5(1)Section 76 of ICTA (expenses of insurance companies) is amended as follows.

(2)In subsection (7), in Step 2, omit “or” at the end of paragraph (b) and insert at the end “or

(d)required to be deducted by subsection (9A) below.”

(3)After subsection (9) insert—

“(9A)The amount required to be deducted at paragraph (d) of Step 2 is the total of the amounts (if any) arrived at under subsection (9C) below in relation to the fronting reinsurance contracts (if any) made by the company.

(9B)A fronting reinsurance contract is a contract of reinsurance forming part of a fronting reinsurance arrangement; and a fronting reinsurance arrangement is an arrangement under which the company—

(a)enters into a contract constituting term assurance with a person, and

(b)reinsures all, or substantially all, of the liabilities under that contract with a reinsurer which—

(i)does not meet the BLAGAB group reinsurance conditions in paragraph 1(3) of Schedule 19ABA to this Act, and

(ii)is connected with that person or with a person entitled to commission from the company in respect of the contract.

(9C)The amount referred to in subsection (9A) above in relation to any fronting reinsurance contract made by the company is the relevant reinsurance fraction of so much of the amount found at Step 1 as relates to policies and contracts which are relevant reinsured policies and contracts in relation to the fronting reinsurance contract.

(9D)For the purposes of subsection (9C) above “the relevant reinsurance fraction” is—

(9E)For the purposes of subsections (9B) and (9C) above policies and contracts are relevant reinsured policies and contracts in relation to a fronting reinsurance contract if—

(a)they are attributable to the company’s basic life assurance and general annuity business, and

(b)any or all of the risks under them are reinsured under the fronting reinsurance contract.”

(4)The amendments made by this paragraph have effect in relation to policies and contracts made on or after 9 October 2007.

(5)For the purposes of the operation of Step 6 in section 76(7) of ICTA in relation to an accounting period of an insurance company beginning on or after 9 October 2007, the adjusted amount of the acquisition expenses (within the meaning of section 86(6) of FA 1989) of the company for any earlier accounting period which is relevant for those purposes (a “relevant earlier accounting period”) is to be arrived at as if the amendments made by this paragraph had effect in relation to policies and contracts whenever made.

(6)And for those purposes, if the relevant earlier accounting period is a period which began before 1 April 2004 the amount which would be required to be deducted for that period at paragraph (d) of Step 2 by the subsection (9A) inserted by sub-paragraph (3) is to be treated as an amount to be deducted from the amount treated as the expenses of management of the company for that period under section 75 of ICTA as it applied in relation to the relevant earlier accounting period by virtue of section 76 of that Act.

(7)In the application of the subsection (9C) inserted by sub-paragraph (3) by virtue of sub-paragraph (6) the reference to Step 1 is to be read as a reference to section 75 (as it so applied).

6(1)Section 85 of FA 1989 (charge of certain receipts of BLAGAB under Case VI) is amended as follows.

(2)In subsection (2), for paragraph (b) substitute—

“(b)any sum received under a reinsurance contract, except for reinsurance commissions, however described, (but subject to subsection (2ZA) below) and any sum calculated to any extent by reference to expenses of the company brought into account at Step 1 in section 76(7) of the Taxes Act 1988; or”.

(3)In paragraph (f) of that subsection, after “Scheme” insert “, or from another insurance company,”.

(4)After that subsection insert—

“(2ZA)The reference in subsection (2)(b) above to reinsurance commissions does not include so much of the relevant reinsurance fraction (see subsection (9D) of section 76 of the Taxes Act 1988) of any reinsurance commissions received from the reinsurer under a fronting reinsurance contract (within the meaning of subsection (9B) of that section) as does not exceed the amount arrived at under subsection (9C) of that section in relation to the contract.”

(5)The amendments made by this paragraph have effect in relation to accounting periods beginning on or after 9 October 2007.

Structural assets

7In section 83XA of FA 1989 (structural assets), omit—

(a)subsections (10) and (11), and

(b)in subsection (15), “or (10)”.

8(1)In section 431(2) of ICTA (interpretative provisions relating to insurance companies), in the definition of “free assets amount”, after “long-term business” insert “, other than any structural assets (within the meaning of section 83XA of the Finance Act 1989),”.

(2)The amendment made by sub-paragraph (1) has effect for periods of account beginning on or after 1 January 2007.

Deposit back arrangements

9(1)In paragraph 3A of Schedule 11 to FA 1996 (apportionments), after sub-paragraph (2) insert—

“(2A)If any debits or credits relate to liabilities arising from deposit back arrangements, they are (subject to sub-paragraph (2B)) referable to the category of long-term business which comprises the business reinsured by the arrangements under which the deposit back arrangements are made.

(2B)If the business reinsured is not all of the same category of long-term business, the debits and credits for any period of account are referable to the categories of business in the same proportions as the mean of the proportions at the beginning and end of the period of account of the liabilities reinsured by the arrangements which are liabilities of the categories of business.”;

and, in sub-paragraph (4), after “(2)” insert “, (2A)”.

(2)In section 431(2) of ICTA (interpretative provisions relating to insurance companies), after the definitions of “contract of insurance” and “contract of long-term insurance” insert—

““deposit back arrangements” means arrangements by which an amount is deposited by the reinsurer under a contract of reinsurance with the cedant;”;

and, in the definition of “liabilities”, omit the words following paragraph (b).

(3)The amendments made by this paragraph have effect in relation to periods of account beginning on or after 1 January 2008 and ending on or after 12 March 2008.

Foreign business assets

10(1)In ICTA, in subsection (2) of section 431 (interpretative provisions about insurance companies), for the definition of “foreign currency assets” substitute—

““foreign business assets”, in relation to an insurance company, means assets, other than linked assets, which either—

(a)are shown in the records of the company as being primarily attributable to liabilities of the company’s foreign business, or

(b)are attributable, under the law of a country or territory outside the United Kingdom, to a permanent establishment of the company in that country or territory through which it carries on foreign business;

and for this purpose “foreign business” means overseas life assurance business or life reinsurance business to the extent that it consists of the reinsurance of overseas life assurance business;”.

(2)After that section insert—

“431ZAElection that assets not be foreign business assets

(1)An insurance company may, in its company tax return for the first accounting period of the company beginning on or after 1 January 2008 in which any of the assets of the company’s long-term insurance fund would (apart from this section) be foreign business assets, elect that none of the assets of the company’s long-term insurance fund are to be regarded for the purposes of this Act as being foreign business assets.

(2)The election has effect for that accounting period and all subsequent accounting periods of the company.

(3)An election under subsection (1) is irrevocable.”

(3)In ICTA—

(a)in section 432A(4A),

(b)in section 432C(3), (4), (5), (7), (8) and (9),

(c)in section 432E, in subsection (3)(a), in subsection (4), in the definition of A, and in subsection (4A),

(d)in section 440(4), and

(e)in section 804B(3A),

for “currency” substitute “business”.

(4)In section 432E of ICTA—

(a)in subsection (3)(b), and

(b)in subsection (4), in the definition of B,

omit “and foreign currency assets”.

(5)In paragraph 19(4)(b) of Schedule 7 to FA 2007, omit sub-paragraph (ii) (and the “and” before it).

(6)The amendments made by this paragraph have effect in relation to periods of account beginning on or after 1 January 2008.

(7)But an insurance company may, in its company tax return for an accounting period beginning on or after 1 January 2007 but before 1 January 2008, elect that the amendments made by this paragraph have effect in relation to that accounting period.

Foreign currency assets

11(1)In section 431(2) of ICTA (interpretative provisions about insurance companies), in the definition of “foreign currency assets”, for “three months” substitute “one year”.

(2)The amendment made by sub-paragraph (1) has effect in relation to periods of account beginning on or after 1 January 2007 but before 1 January 2008.

Derivative contracts

12(1)Schedule 26 to FA 2002 (derivative contracts) is amended as follows.

(2)In sub-paragraph (2) of paragraph 41, for “paragraphs 42 and 43” substitute “the following paragraphs”.

(3)After that paragraph insert—

“Application of section 103(3)(c) of the Finance Act 1996

41ASection 103(3)(c) of the Finance Act 1996 has effect for the purposes of this Schedule as for the purposes of Chapter 2 of Part 4 of that Act.”

(4)Omit paragraph 42 (and the heading before it).

(5)After that paragraph insert—

“Mutual trading and non-life mutual business

43Paragraphs (a) and (b) of section 103(3) of the Finance Act 1996 have effect for the purposes of this Schedule as for the purposes of Chapter 2 of Part 4 of that Act.”

(6)The amendments made by sub-paragraphs (2) and (3) have effect in relation to periods of account beginning on or after 1 January 2007.

(7)The amendments made by sub-paragraphs (4) and (5) have effect in relation to periods of account beginning on or after 1 January 2008 and ending on or after 12 March 2008.

Apportionments

13In section 210A of TCGA 1992 (ring fencing of losses), after subsection (10) insert—

“(10A)But where the BLAGAB profits for an accounting period are nil, the policy holders' share of the chargeable gains or allowable losses accruing in the accounting period—

(a)if there are Case I profits of the accounting period in respect of its life assurance business, is nil, and

(b)otherwise, is such proportion of the chargeable gains or allowable losses as is just and reasonable;

and for this purpose there are Case I profits if there are profits computed in accordance with the provisions applicable to Case I of Schedule D after making adjustments in respect of losses in accordance with section 85A(4) of the Finance Act 1989.”

14In section 755A of ICTA (treatment of chargeable profits and creditable tax apportioned to life assurance company), after subsection (11B) insert—

“(11BA)But where the BLAGAB profits for the relevant accounting period are nil, the relevant fraction—

(a)if there are Case I profits of the accounting period in respect of its life assurance business, is nil, and

(b)otherwise, is such fraction as is just and reasonable;

and for this purpose there are Case I profits if there are profits computed in accordance with the provisions applicable to Case I of Schedule D after making adjustments in respect of losses in accordance with section 85A(4) of the Finance Act 1989.”

15The amendments made by paragraphs 13 and 14 have effect in relation to accounting periods beginning on or after 1 January 2008 and ending on or after 12 March 2008.

UK distributions received by insurance companies

16(1)In ICTA, after section 95 insert—

“95ZATaxation of UK distributions received by insurance companies

(1)If the total amount of relevant distributions received by a company in an accounting period exceeds £50,000, those distributions are to be taken into account in calculating for corporation tax purposes the profits of the company in that period (and accordingly section 208 does not apply in relation to those distributions).

(2)A company (“company A”) receives a “relevant distribution” if—

(a)it receives a distribution made by a company resident in the United Kingdom (“company B”),

(b)the value of the shares or stock in respect of which the distribution is made (“the holding”) is materially reduced by reason of the distribution,

(c)a profit on the sale of the holding (to anyone other than company B) would be taken into account in calculating company A’s profits in respect of relevant insurance business, and

(d)either—

(i)the holding amounts to, or is an ingredient in a holding amounting to, 10% of all holdings of the same class in company B, or

(ii)the period between the acquisition by company A of the holding and that company first taking steps to dispose of the holding does not exceed 30 days.

(3)In this section “relevant insurance business” means any kind of insurance business other than life assurance business.

(4)Section 177(7) of TCGA 1992 (provision supplementing provision corresponding to subsection (2)(d)(i) above) applies for the purposes of subsection (2)(d)(i).

(5)Section 731(4) below (interpretation of “taking steps to dispose of securities”) applies for the purposes of subsection (2)(d)(ii) as if the reference to the securities were to the holding.”

(2)The amendment made by sub-paragraph (1) has effect in relation to distributions made on or after 1 April 2008.

Clarification of scope of ICTA s.432A

17(1)Section 432A of ICTA (apportionment of income and gains) is amended as follows.

(2)In subsection (1)—

(a)for “This” substitute “Subject to section 432B, this”,

(b)in paragraph (a), after “income” insert “or losses”, and

(c)in paragraph (b), insert at the end “in accordance with the provisions of the 1992 Act”.

(3)After that subsection insert—

“(1ZA)In subsection (1)(a) above “income” means—

(a)income chargeable under Schedule A in respect of any separate Schedule A businesses treated as carried on by the company under section 432AA,

(b)income chargeable under Schedule A in respect of distributions treated by section 121(1)(a) of the Finance Act 2006 as profits of a Schedule A business carried on by the company,

(c)income chargeable under Case V of Schedule D in respect of any overseas property business treated as carried on by the company under section 432AA,

(d)other income of the company chargeable under Case V of Schedule D,

(e)distributions received by the company from companies resident in the United Kingdom,

(f)credits in respect of any creditor relationships (within the meaning of Chapter 2 of Part 4 of the Finance Act 1996) of the company,

(g)credits in respect of any derivative contracts (within the meaning of Schedule 26 to the Finance Act 2002) of the company,

(h)any income of the company chargeable under Case III of Schedule D in respect of annuities and other annual payments within paragraph (b) of Case III of Schedule D as substituted by section 18(3A),

(i)any credits brought into account by the company under Part 3 of Schedule 29 to the Finance Act 2002 (intangible fixed assets), and

(j)any income of the company chargeable under Case VI of Schedule D, other than profits of the company chargeable under section 436A (gross roll-up business).

(1ZB)In subsection (1)(a) above “losses” means—

(a)losses in respect of any separate Schedule A businesses treated as carried on by the company under section 432AA,

(b)losses in respect of any overseas property businesses treated as carried on by the company under that section,

(c)debits in respect of any creditor relationships (within the meaning of Chapter 2 of Part 4 of the Finance Act 1996) of the company,

(d)debits in respect of any derivative contracts (within the meaning of Schedule 26 to the Finance Act 2002) of the company,

(e)any debits brought into account by the company under Part 2 of Schedule 29 to the Finance Act 2002 (intangible fixed assets), and

(f)any losses of the company computed in the same way as profits chargeable under Case VI of Schedule D, other than any losses of gross roll-up business.

(1ZC)For determining as mentioned in subsection (1) above what parts of income or gains arising from the assets of the company’s long-term insurance fund are referable to PHI business (to the extent that it would not be the case by virtue of subsections (1ZA) and (1ZB))—

(a)“income” also includes profits shown in the technical account, and

(b)“losses” also includes losses so shown.”

(4)In subsection (1A), for “, all of the income and gains or losses referred to in subsection (1) above is” substitute—

“(a)all of the income and losses referred to in paragraph (a) of subsection (1) above, and

(b)all of the gains and losses referred to in paragraph (b) of that subsection,

are”.

(5)In subsection (3), after “Income” insert “or losses”.

(6)After that subsection insert—

“(3A)Amounts falling within—

(a)section 442A,

(b)section 85(2C) of the Finance Act 1989, or

(c)section 85A of that Act,

are directly referable to basic life assurance and general annuity business.”

(7)In subsection (4A), after “Income” insert “or losses”.

(8)In subsection (5), for “income, gains or losses” substitute “income and losses referred to in paragraph (a) of subsection (1) above, and any gains and losses referred to in paragraph (b) of that subsection,”.

(9)In subsection (7)—

(a)in paragraph (a), for “income, gains or losses” substitute “income and losses referred to in paragraph (a) of subsection (1) above, and gains and losses referred to in paragraph (b) of that subsection,” and insert at the end “and”,

(b)in paragraph (b), for “arising from the assets is, and gains or losses accruing on the disposal of the assets are,” substitute “and losses arising from the assets, and gains and losses accruing on the disposal of the assets, are”, and

(c)omit paragraph (c) and the “and” before it.

(10)In consequence of the preceding provisions, omit the provisions specified in sub-paragraph (11).

(11)The provisions mentioned in sub-paragraph (10) are—

(a)section 432AB(2) of ICTA,

(b)section 502H of that Act,

(c)paragraph 3 of Schedule 11 to FA 1996,

(d)paragraph 19(4) of Schedule 12 to FA 1997,

(e)paragraphs 36(1) and (3) and 138(2) and (3) of Schedule 29 to FA 2002,

(f)paragraph 19(4) of Schedule 9 to F(No.2)A 2005, and

(g)paragraphs 13(2) and 44 of Schedule 7, and paragraph 5 of Schedule 8, to FA 2007.

(12)The amendments made by this paragraph have effect in relation to accounting periods beginning on or after 1 January 2008.

“BLAGAB profits” etc

18(1)In section 431 of ICTA (interpretative provisions relating to insurance companies), after subsection (2YA) insert—

“(2YB)“BLAGAB profits”, in relation to an accounting period of an insurance company, means the company’s BLAGAB income and gains for the period reduced (but not below nil) by the company’s BLAGAB deductions for the period.

(2YC)“BLAGAB income and gains”, in relation to an accounting period of an insurance company, means the aggregate of—

(a)income chargeable for the period under Schedule A or Case III, V or VI of Schedule D so far as referable (in accordance with section 432A) to the company’s basic life assurance and general annuity business, and

(b)chargeable gains so far as so referable accruing to the company in the period, but (subject to section 210A of the 1992 Act) after deducting—

(i)any allowable losses so referable and so accruing, and

(ii)so far as they have not been allowed as a deduction from chargeable gains in any previous accounting period, any allowable losses so referable previously accruing to the company.

(2YD)“BLAGAB deductions”, in relation to an accounting period of an insurance company, means the aggregate of—

(a)amounts falling in respect of any non-trading deficits on the company’s loan relationships to be brought into account in the period in accordance with paragraph 4 of Schedule 11 to the Finance Act 1996, and

(b)the expenses deduction given by Step 8 in section 76(7) for the period.”

(2)In section 755A(11C) of that Act (treatment of chargeable profits and creditable tax apportioned to company carrying on life assurance business), omit paragraph (b) and the “and” before it.

(3)In section 85A of FA 1989 (excess adjusted Case I profits), for subsections (6) and (7) substitute—

“(6)“The relevant income” means—

(a)the company’s BLAGAB income and gains for the accounting period and distributions received by the company in the accounting period from companies resident in the United Kingdom so far as referable (in accordance with section 432A of the Taxes Act 1988) to the company’s basic life assurance and general annuity business (but excluding any amount within this section), and

(b)profits of the company chargeable under Case VI of Schedule D under section 436A of the Taxes Act 1988 (gross roll-up business) for the accounting period.”

(4)In section 88 of that Act (meaning of “policy holders' share of profits”), for subsections (3) to (3B) substitute—

“(3)For the purposes of subsection (1) above the relevant profits of a company for an accounting period consist of the aggregate of—

(a)the company’s BLAGAB profits for the period, and

(b)profits of the company chargeable under Case VI of Schedule D under section 436A of the Taxes Act 1988 (gross roll-up business) for the period.”

(5)Omit—

(a)section 89(1B) of FA 1989,

(b)in section 210A(10)(a) of TCGA 1992, “(within the meaning of section 89(1B) of the Finance Act 1989)”,

(c)paragraph 21(2) of Schedule 8 to FA 1995,

(d)paragraph 2(1) of Schedule 11, and paragraph 56 of Schedule 14, to FA 1996,

(e)paragraph 6(1) of Schedule 33 to FA 2003,

(f)in paragraph 9(2) of Schedule 7 to FA 2004, paragraphs (a) to (c) and the words from”; and, in consequence of” to the end, and

(g)paragraphs 58 and 67(2) of Schedule 7, and paragraphs 15(3) and 16(2) of Schedule 8, to FA 2007.

(6)The amendments made by this paragraph have effect in relation to accounting periods beginning on or after 1 January 2008.

Abolition of “inherited estates” apportionment rules

19(1)Chapter 1 of Part 12 of ICTA (insurance companies) is amended as follows.

(2)In section 431(2ZB) and (2ZC) (interpretative provisions), insert “or” at the end of paragraph (b) and omit paragraph (d) and the “or” before it.

(3)In section 432A (apportionment of income and gains), omit—

(a)in subsection (6), paragraph (b) of the definition of A (but not the “and” following it),

(b)in subsection (8), paragraph (b) and the “and” before it, and

(c)subsections (8A) and (8B).

(4)In section 432B (apportionment of receipts brought into account), omit subsections (4) to (12).

(5)The amendments made by this paragraph have effect in relation to periods of account beginning on or after 1 January 2007.

Insurance special purpose vehicles

20In section 431A of ICTA (powers to amend), after subsection (2) insert—

“(2A)The Treasury may by order make provision as to the application of the Corporation Tax Acts in relation to insurance special purpose vehicles.

(2B)An order under subsection (2A) above may in particular contain provision—

(a)making amendments of any provision of the Corporation Tax Acts, or

(b)making provision for the life assurance provisions of the Corporation Tax Acts to have effect in relation to any specified description of insurance special purpose vehicles subject to specified modifications or exceptions.

(2C)An order under subsection (2A) above—

(a)may make provision having effect in relation to accounting periods current when it is made, and

(b)if it is made in consequence of, or otherwise in connection with, provision made by any enactment or instrument, may make provision having effect in relation to the same times as that enactment or instrument.”

Group relief: gross profits to exclude relevant profits

21(1)In section 434A of ICTA (computation of losses and limitation on relief), insert at the end—

“(4)For the purposes of section 403, where the surrendering company is an insurance company which is charged to tax under the I minus E basis in respect of its life assurance business for the surrender period, the company’s gross profits of that period do not include its relevant profits (within the meaning of section 88 of the Finance Act 1989) for that period; and expressions used in this subsection and section 403 have the same meaning here as there.”

(2)The amendment made by sub-paragraph (1) has effect in relation to accounting periods beginning on or after 1 January 2008.

Charges on income

22(1)In section 434A(3) of ICTA (limitation on relief), after paragraph (a) (before the “or” at the end) insert—

“(aa)(where the company’s life assurance business is not mutual business) in respect of any amount which is a charge on income for the purposes of corporation tax,”.

(2)The amendment made by sub-paragraph (1) has effect in relation to periods of account beginning on or after 1 January 2008 and ending on or after 12 March 2008.

Remediation of contaminated land

23(1)Schedule 22 to FA 2001 (remediation of contaminated land) is amended as follows.

(2)In paragraph 14 (entitlement to land remediation tax credit)—

(a)in sub-paragraph (7), omit “or (13)”, “and charges on income” and “and charges”,

(b)in sub-paragraph (8), omit “or (13)”, and

(c)in sub-paragraph (9)—

(i)for “Step 6” substitute “Step 7”, and

(ii)omit “or (13)”, in the first place.

(3)In paragraph 17 (restriction on losses carried forward), omit—

(a)in sub-paragraph (3)(b), “or (13)”, “and charges on income” and “and charges”, and

(b)in sub-paragraph (4), “or (13)”.

(4)In paragraph 21 (provision in respect of I minus E basis), for the words after “where” substitute “an insurance company is charged to tax under the I minus E basis in respect of its life assurance business for any accounting period.”

(5)In paragraph 22(2) (entitlement to relief: I minus E basis), for “is entitled to relief for that accounting period in respect of its qualifying expenditure” substitute “may treat the amount of its qualifying expenditure as expenses payable which fall to be brought into account for that accounting period at Step 1 in section 76(7) of the Taxes Act 1988”.

(6)In paragraph 24 (entitlement to life assurance company tax credit), omit—

(a)in sub-paragraph (3), “or (13)”, in the first place, and

(b)in sub-paragraph (2)(b), “or (13)”, “and charges on income” and “and charges”.

(7)In paragraph 27(1) (restriction on carrying forward expenses payable)—

(a)in paragraph (a), omit “or (13)”, and

(b)in paragraph (b), omit “for the next accounting period”.

(8)The amendments made by this paragraph have effect in relation to accounting periods beginning on or after 1 January 2008.

Repeal of ICTA s.56(4)

24(1)In section 56 of ICTA (transactions in deposits and debts), omit subsection (4) (which relates to section 76(2) computations and is spent).

(2)In consequence of sub-paragraph (1), in section 164 of FA 1996, omit subsection (4) (which amends section 56(4) of ICTA).

Partnership returns

25In section 12AE(2) of TMA 1970 (partnership returns: alternative methods for bringing amounts into charge to tax), for “84(2) or (3)” substitute “84(1)”.

Overseas life assurance business

26(1)Section 431D of ICTA (meaning of “overseas life assurance business”) is amended as follows.

(2)In subsections (2) and (4), for “Board” substitute “Commissioners”.

(3)In subsection (3), for “Board” substitute “Commissioners for Her Majesty’s Revenue and Customs”.

27(1)In section 476(3) of ITTOIA 2005 (foreign policies), omit—

(a)“as a result of section 431D(1)(a) of ICTA (business with a non-UK resident policy holder)”, and

(b)“as a result of section 431D(1) of ICTA”.

(2)In consequence of sub-paragraph (1), omit paragraph 78 of Schedule 7 to FA 2007.

(3)The amendments made by this paragraph have effect as if they were made by Schedule 7 to FA 2007 (see section 38(2) of that Act).

Trades in I minus E

28(1)In section 53 of ICTA (farming and market gardening and managing land on commercial basis for profit), insert at the end—

“(5)The preceding provisions of this section do not apply in relation to—

(a)farming or market gardening by an insurance company on land which is an asset of the company’s long-term insurance fund, or

(b)the occupation by an insurance company of land which is such an asset for a purpose other than farming or market gardening.”

(2)In section 55 of ICTA (mines, quarries etc), insert at the end—

“(3)Subsection (1) does not apply in relation to any concern carried on by an insurance company on land which is an asset of the company’s long-term insurance fund.”

(3)In section 432AB(5) (losses from Schedule A business etc), for “section 392A or 392B” substitute “sections 392A and 503, or section 392B,”.

(4)The amendments made by this paragraph have effect in relation to accounting periods beginning on or after 1 January 2008.

Controlled foreign companies

29(1)In paragraph 4(1A) of Schedule 25 to ICTA (controlled foreign companies), for “436, 439B or 441” substitute “436A”.

(2)The amendment made by sub-paragraph (1) has effect in relation to accounting periods beginning on or after 1 January 2008.

Offshore income gains

30(1)In section 757 of ICTA (disposals to which Chapter 5 of Part 17 of that Act applies), after subsection (1) insert—

“(1A)But this Chapter does not apply to disposals of assets of an insurance company’s long-term insurance fund.”

(2)The amendment made by sub-paragraph (1) has effect in relation to disposals made in accounting periods beginning on or after 1 January 2008.

Transfers of business

31(1)In section 444AB(6) of ICTA (transfer schemes transferring whole of business), for the words after “means” substitute “the period of account of the transferor ending, or treated by section 444AA(2) as ending, immediately before the transfer date.”

(2)The amendment made by sub-paragraph (1) has effect in relation to transfers of business taking place on or after 1 July 2008.

32(1)In section 444ABB(1A)(b)(ii) of ICTA (retained assets), for “liabilities” substitute “mathematical reserves (as determined in accordance with section 1.2 of the Insurance Prudential Sourcebook)”.

(2)The amendment made by sub-paragraph (1) has effect in relation to transfers of business taking place on or after 1 July 2008.

33(1)In section 444ABD(1) of ICTA (transferor’s period of account including transfer), for “liabilities” substitute “mathematical reserves (as determined in accordance with section 1.2 of the Insurance Prudential Sourcebook)”.

(2)The amendment made by sub-paragraph (1) has effect in relation to transfers of business with a transfer date after 21 March 2007.

Periodical return

34In section 431(2) of ICTA, in the definition of “periodical return”, insert at the end “(and does not include the Forms mentioned in Rule 9.3(5))”.

Repeal of section 737D of ICTA

35(1)In ICTA, omit section 737D (power to provide that manufactured payments are to be treated as income eligible for relief under section 438).

(2)In consequence of sub-paragraph (1), omit—

(a)section 83(1) of FA 1995,

(b)section 139(6) of FA 2006, and

(c)paragraph 175 of Schedule 1 to ITA 2007.

R&D relief

36In paragraph 12 of Schedule 12 to FA 2002 (insurance companies treated as large companies), for the words following paragraph (b) substitute “the company does not qualify as a small or medium-sized enterprise for the purposes of Parts 1 to 3 of this Schedule or Schedule 20 to the Finance Act 2000.”

Section 89(7) of FA 1989

37(1)In section 89(7) of FA 1989 (policy holders' share of profits), for “in respect of losses in accordance with section 85A(4)” substitute “in accordance with section 85A(4) in respect of losses incurred in an accounting period in which 31 December 2002 is included or any later accounting period.”

(2)The amendment made by sub-paragraph (1) has effect in relation to accounting periods beginning on or after 1 January 2008 and ending on or after 15 May 2008.

(3)But that amendment does not have effect (and is to be treated as never having had effect) in relation to a company if a relevant determination is made in proceedings commenced by the company before 15 May 2008 and is not reversed on an appeal or further appeal.

(4)A relevant determination is a determination that losses incurred in an accounting period earlier than that in which 31 December 2002 was included are to be taken into account for the purposes of section 89 of FA 1989 in arriving at Case I profits for accounting periods—

(a)beginning on or after 1 January 2003, and

(b)ending on or before 31 December 2006.

Commencement of Schedule 9 to FA 2007

38(1)Paragraph 17 of Schedule 9 to FA 2007 (transfers: commencement) is amended as follows.

(2)In sub-paragraph (2), for “9, 10(3) to (5),” substitute “10(5),”.

(3)In sub-paragraph (3)—

(a)after “effect” insert “(a)”, and

(b)insert at the end “and

(b)in relation to periods of account ending after 30 June 2008 where the transfer of business or demutualisation concerned took place on or after 21 March 2007 and before 1 July 2008.”

(4)After sub-paragraph (4) insert—

“(4A)The amendment made by paragraph 9 has effect in relation to contracts entered into in a period of account beginning on or after 1 January 2008.”

(5)Insert at the end—

“(6)The amendments made by paragraph 10(3) and (4) have effect in relation to assets transferred on or after 1 January 2008.”

Commencement of Business Transfer Schemes Order

39(1)In article 1(5) of the Insurance Business Transfer Schemes (Amendment of the Corporation Tax Acts) Order 2008 (S.I. 2008/381), for “other” substitute “earlier”.

(2)In article 29(2), for ““assuming the transferor had continued to carry on the business transferred after the transfer”” substitute ““assuming that the transferor had continued to carry on the business transferred””.

(3)The amendments made by this paragraph are to be treated as always having had effect.

Gross roll-up business

40(1)In section 436A(6) of ICTA (gross roll-up business: separate charge on profits), omit “under subsection (4) above”.

(2)The amendment made by sub-paragraph (1) has effect in relation to periods of account beginning on or after 1 January 2008 and ending on or after 12 March 2008.

Repeal of spent provision

41In section 88(5) of FA 1989 (policy holders' share of profits), omit the words after “January 1990”.