2007 No. 2145

Corporation tax

The Insurance Companies (Tax Exempt Business) Regulations 2007

Made23rd July 2007

Laid before the House of Commons24th July 2007

Coming into force14th August 2007

The Treasury make the following Regulations in exercise of the powers conferred by sections 460(15) and (16), 461(12) and (13) and 461B(8) and (9) of the Income and Corporation Taxes Act 19881.

Citation, commencement and effect1

1

These Regulations may be cited as the Insurance Companies (Tax Exempt Business) Regulations 2007 and shall come into force on 14th August 2007.

2

Subject to paragraph (3), these Regulations have effect for periods of account ending on or after the date on which these Regulations come into force.

3

Where any part of a company’s business is exempt from corporation tax by virtue of section 460(11), 461(4) or 461B(5) of the Taxes Act 19882, these Regulations have effect for periods of account beginning on or after 1st January 2007 (whenever ending).

Interpretation2

In these Regulations—

“the Taxes Act 1988” means the Income and Corporation Taxes Act 1988;
“tax exempt business” means business which is exempt from corporation tax by virtue of any of the following provisions of the Taxes Act 1988—
1. a
  section 460(11) or (12)3;
2. b
  section 461(4) or (4A)4; and
3. c
  section 461B(5) or (6A)5.

Modifications of the Taxes Act 19883

Where any part of the business of a company is tax exempt business, the Taxes Act 1988 has effect subject to the following modifications.

Modification of section 4314

1

Section 431 (interpretative provisions relating to insurance companies) is modified as follows.

2

In subsection (2), insert at the appropriate places—

“tax exempt life assurance business” has the meaning given by section 431FA;

“tax exempt other business” has the meaning given by section 431FB;

Insertion of sections 431FA and 431FB5

After section 431F (meaning of “basic life assurance and general annuity business”)6 insert—

431FAMeaning of “tax exempt life assurance business”
1
In this Chapter “tax exempt life assurance business” means business which is exempt from corporation tax by virtue of section 460(11) or (12).
2
For the purposes of this Chapter, tax exempt life assurance business shall be treated as not being life assurance business.
431FBMeaning of “tax exempt other business”
1
In this Chapter “tax exempt other business” means business which is exempt from corporation tax by virtue of section 461(4) or (4A) or 461B(5) or (6A).
2
For the purposes of this Chapter, tax exempt other business shall be treated as being neither PHI business nor general insurance business.

Modifications of section 431H6

1

Section 431H (company carrying on life assurance business and other insurance business)7 is modified as follows.

2

For subsection (1) substitute—

1
This section applies in relation to an insurance company which carries on two or more of the following—
a
life assurance business,
b
tax exempt life assurance business,
c
tax exempt other business, and
d
insurance business of any other kind.

3

In subsection (2)—

a

omit the word “and” immediately following paragraph (a),

b

after paragraph (a) insert—

aa
tax exempt life assurance business,
ab
tax exempt other business, and

c

in paragraph (b), for “the” substitute “any”.

Modifications of section 432A7

1

Section 432A (apportionment of income and gains)8 is modified as follows.

2

In subsection (2)—

a

omit the word “and” immediately following paragraph (b), and

b

for paragraph (c) substitute—

c
PHI business,
d
tax exempt life assurance business, and
e
tax exempt other business.

3

In subsection (6)—

a

in the fraction, for the denominator “A + B + C” substitute “A + B + C + D + E”,

b

omit the word “and” immediately following the definition of B, and

c

after the definition of C insert—

D is the aggregate of—
a
the mean of the opening and closing liabilities of the tax exempt life assurance business (but taking that mean to be nil if it would otherwise be below nil), and
b
the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts,
reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category; and
E is the aggregate of—
a
the mean of the opening and closing liabilities of the tax exempt other business (but taking that mean to be nil if it would otherwise be below nil), and
b
the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts,
reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category.

4

In subsection (6A)—

a

in the fraction, for the denominator “A + B + C” substitute “A + B + C + D + E”, and

b

for “and C” substitute “, C, D and E”.

5

In subsection (6B)—

a

in the fraction, for the denominator “A + B + C” substitute “A + B + C + D + E”, and

b

for “and C” substitute “, C, D and E”.

6

After subsection (6B) insert—

6BA
For the purposes of subsection (5) above “the relevant fraction”, in relation to tax exempt life assurance business, is—
$\frac{D}{A + B + C + D + E}$
where A, B, C, D and E have the same meaning as in subsection (6) above.
6BB
For the purposes of subsection (5) above “the relevant fraction”, in relation to tax exempt other business, is—
$\frac{E}{A + B + C + D + E}$
where A, B, C, D and E have the same meaning as in subsection (6) above.

7

In subsection (6C), for “or (6B)” substitute “, (6B), (6BA) or (6BB)”.

8

In subsection (7), for “and (6B)” substitute “, (6B), (6BA) and (6BB)”.

9

In subsection (8ZA), for “and C” substitute “, C, D and E”.

Modifications of section 432AA8

1

Section 432AA (Schedule A business or overseas property business)9 is modified as follows.

2

In subsection (4)—

a

omit the word “and” immediately following paragraph (b), and

b

after paragraph (c) insert—

d
tax exempt life assurance business; and
e
tax exempt other business.

Modifications of section 432C9

1

Section 432C (section 432B apportionment: non-participating funds)10 is modified as follows.

2

In subsection (5), in the definition of B, after “PHI business” (in both places) insert “, tax exempt life assurance business or tax exempt other business”.

3

In subsection (9), in the definition of D—

a

for “or PHI business” substitute “, PHI business, tax exempt life assurance business or tax exempt other business”, and

b

for “either” substitute “any”.

Modifications of section 44010

1

Section 440 (transfers of assets etc)11 is modified as follows.

2

In subsection (4)—

a

after paragraph (a) insert—

b
assets which are linked solely to tax exempt life assurance business;

b

in paragraph (e), for “either” substitute “any”.

Modification of section 440A11

1

Section 440A (securities)12 is modified as follows.

2

In subsection (2)(a)—

a

omit the word “or” immediately following sub-paragraph (i), and

b

after sub-paragraph (ii) insert—

iii
tax exempt life assurance business, or
iv
tax exempt other business,

Modifications of section 755A12

1

Section 755A (treatment of chargeable profits and creditable tax apportioned to company carrying on life assurance business)13 is modified as follows.

2

In subsection (4), for the words from “as is referable” to the end substitute—

as is referable to—
a
gross roll-up business,
b
tax exempt life assurance business, or
c
tax exempt other business,
carried on by the UK company.

3

In subsection (6)(c), for “gross roll-up business” substitute “a category of business specified in paragraphs (a) to (c) of subsection (4) above”.

4

In subsection (13)—

a

omit the word “or” immediately following paragraph (a), and

b

after paragraph (ba) insert—

bb
tax exempt life assurance business, or
bc
tax exempt other business,

Modification of section 212 of the Taxation of Chargeable Gains Act 199213

1

Where any part of the business of a company is tax exempt life assurance business, section 212 of the Taxation of Chargeable Gains Act 1992 (annual deemed disposal of holdings of unit trusts)14 is modified as follows.

2

In subsection (2), after “gross roll-up business” insert “or tax exempt life assurance business”.

Modification of paragraph 3A of Schedule 11 to the Finance Act 199614

1

Where any part of the business of a company is tax exempt business, paragraph 3A of Schedule 11 to the Finance Act 1996 (loan relationships: special provisions for insurers)15 is modified as follows.

2

In sub-paragraph (5), after “(6B)” insert “, (6BA), (6BB)”.

Modification of section 255 of the Capital Allowances Act 200115

1

Where any part of the business of a company is tax exempt business, section 255 of the Capital Allowances Act 2001 (apportionment of allowances and charges)16 is modified as follows.

2

In subsection (1), for “and PHI business” substitute “, PHI business, tax exempt life assurance business and tax exempt other business”.

Frank RoyAlan CampbellTwo of the Lords Commissioners of Her Majesty’s Treasury23rd July 2007

EXPLANATORY NOTE

(This note is not part of the Regulations)

Where a friendly society has converted into an insurance company, or has transferred tax exempt life or endowment business or other tax exempt business to such a company, sections 460, 461 and 461B of the Income and Corporation Taxes Act 1988 (c. 1: “ICTA 1988”) provide for the tax exemption to be preserved. These Regulations modify the enactments relating to corporation tax in order to take into account such tax exempt business.

Regulation 1 provides for citation, commencement and effect. The power to make retrospective provision is conferred by sections 460(16), 461(13) and 461B(9) of ICTA 1988.

Regulation 2 defines terms used in the Regulations.

Regulation 3 introduces the modifications of ICTA 1988. Regulations 2 to 12 make technical modifications to the provisions of ICTA 1988.

Regulation 13 modifies section 212 of the Taxation of Chargeable Gains Act 1992 (c. 12).

Regulation 14 modifies paragraph 3A of Schedule 11 to the Finance Act 1996 (c. 8).

Regulation 15 modifies section 255 of the Capital Allowances Act 2001 (c. 2).

These Regulations, together with legislation in FA 2007 (c. 11), are part of the outcome of a continuing consultation process. A draft regulatory impact assessment was included as part of a consultation document, “Life Assurance Company Taxation – A Technical Consultative Document”, which was published by Her Majesty’s Revenue and Customs in May 2006. This is available at www.hmrc.gov.uk/consultations.