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Finance Bill
Schedule 33 — Insurance companies

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              (2)             Any amounts which are allocated to policy holders or annuitants in

respect of a period of account are allowed as a deduction in

calculating the profits for the period of account.

              (3)             For the purposes of subsection (2) above, an amount is allocated to

policy holders or annuitants if (but only if)—

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                    (a)                   bonus payments are made to them,

                    (b)                   reversionary bonuses are declared in their favour, or

                    (c)                   a reduction is made in the premiums payable by them.

              (4)             Where an amount is allocated to policy holders or annuitants for the

purposes of subsection (2) above, the amount of the allocation is—

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                    (a)                   in the case of bonus payments, the amount of the payments,

                    (b)                   in the case of declared reversionary bonuses, the amount of

the liabilities assumed by the company in consequence of the

declaration, and

                    (c)                   in the case of a reduction in premiums, the amount of the

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liabilities assumed by the company in consequence of the

reduction.

       82A            Calculation of profits: policy holders’ tax

              (1)             Tax expended on behalf of policy holders or annuitants is allowed as

a deduction in calculating the profits to the extent (but only to the

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extent) that regulations made by the Treasury so provide.

              (2)             The regulations may include provision for tax so expended to be so

allowed even if it is not brought into account.

              (3)             The regulations—

                    (a)                   may make different provision for different cases, and

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                    (b)                   may include provision having effect in relation to periods of

account during which they are made.

       82B            Unappropriated surplus on valuation

              (1)             This section applies in relation to a period of account of the insurance

company (“the period of account in question”) where—

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                    (a)                   at the end of the period of account in question the company

has an unappropriated surplus on valuation as shown in the

return deposited with the Financial Services Authority under

section 9.6 of the Prudential Sourcebook (Insurers) (an

“unappropriated surplus”), and

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                    (b)                   the company has not made an election in accordance with

Rule 4.1(6) of the Prudential Sourcebook (Insurers) covering

the period of account in question.

              (2)             Where the company did not have an unappropriated surplus at the

end of the period of account immediately preceding the period of

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account in question, so much of the unappropriated surplus at the

end of the period of account in question as is required to meet the

duty of fairness is allowed as a deduction in calculating the profits

for the period of account in question.

              (3)             Where the company did have an unappropriated surplus at the end

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of that immediately preceding period of account—

 

 

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Schedule 33 — Insurance companies

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                    (a)                   if so much of the unappropriated surplus at the end of the

period of account in question as is required to meet the duty

of fairness exceeds so much of the unappropriated surplus at

the end of that immediately preceding period of account as

was required to meet that duty, the excess is allowed as a

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deduction in calculating the profits for the period of account

in question, but

                    (b)                   if so much of the unappropriated surplus at the end of that

immediately preceding period of account as was required to

meet the duty of fairness exceeds so much of the

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unappropriated surplus at the end of the period of account in

question as is required to meet that duty, the excess is to be

taken into account as a receipt of the period of account in

question.

              (4)             In arriving for the purposes of this section at the amount of the

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unappropriated surplus which is or was required to meet the duty of

fairness there is to be deducted the aggregate of amounts which—

                    (a)                   for periods of account ending before 14th March 1989 (and

the first notional period of account, within the meaning of

section 82 above as originally enacted) have been excluded,

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by virtue of section 433 of the Taxes Act 1988, as being

reserved for policy holders or annuitants, and

                    (b)                   have not before that date either been allocated to or expended

on behalf of policy holders or annuitants or been treated as

profits of an accounting period on ceasing to be so reserved.

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              (5)             References in this section to the company’s duty of fairness are to the

company’s duty to treat its policy holders and annuitants fairly with

regard to terminal bonuses.”.

          (2)      In section 83A(1) of the Finance Act 1989 (c. 26) (meaning of “brought into

account”), for “83” substitute “82A”.

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          (3)      In section 436(3)(a) of the Taxes Act 1988 (pension business: separate charge

on profits)—

              (a)             for “82 and 83” substitute “82 and 82B to 83AB”, and

              (b)             omit the words after “modifications”.

          (4)      In sections 439B(3)(a) and 441(4)(a) of the Taxes Act 1988 (life reinsurance

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business and overseas life insurance business: separate charge on profits)—

              (a)             for “82(1), (2) and (4) and 83” substitute “82 and 82B to 83AB”, and

              (b)             omit “and in particular with the omission of the words “and any

amounts of tax which are expended on behalf of” in section 82(1)(a)”.

          (5)      This paragraph has effect for periods of account beginning on or after 1st

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January 2003.

          (6)      In relation to the first period of account of an insurance company beginning

on or after that date, section 82B of the Finance Act 1989 (inserted by sub-

paragraph (1)) applies as if the references in it to so much of the

unappropriated surplus at the end of the immediately preceding period of

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account as was required to meet the company’s duty of fairness were to any

amount included in the closing liabilities of the period of account by virtue

of section 82(1)(b) of that Act as originally enacted.

 

 

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Schedule 33 — Insurance companies

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  2       (1)      Section 83 of the Finance Act 1989 (receipts etc to be taken into account in

Case I computations) is amended as follows.

          (2)      For subsection (2) substitute—

              “(2)                There shall be taken into account as receipts of a period of account

amounts (so far as referable to that business) brought into account for

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the period of account as—

                    (a)                   investment income receivable before deduction of tax,

                    (b)                   an increase in the value of non-linked assets,

                    (c)                   an increase in the value of linked assets, or

                    (d)                   other income;

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                              and if amounts (so far as so referable) are brought into account for a

period of account as a decrease in the value of non-linked assets or a

decrease in the value of linked assets they shall be taken into account

as an expense of the period of account.

              (2A)                But subsection (2) above does not require to be taken into account as

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receipts of a period of account so much of the amounts brought into

account as mentioned in paragraphs (a) to (d) of that subsection for

the period of account as—

                    (a)                   is entirely notional because an amount corresponding to it

would fall to be brought into account as an expense (for that

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or any other period of account),

                    (b)                   is exempted by section 444AC(2) of the Taxes Act 1988

(transfers of business), or

                    (c)                   consists of interest paid under section 826 of the Taxes Act

1988 (interest on tax overpaid) in respect of a repayment or

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payment relating to an accounting period of the company

ending before 1st July 1999;

                              but, subject to that, the whole of the amounts so brought into account

for a period of account shall be taken into account as receipts of the

period of account.

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              (2B)                If any assets of the company’s long-term insurance fund are

transferred by the company so that they cease to be assets of that

fund, but the transfer is not brought into account as part of total

expenditure for the period of account in which the transfer takes

place or any earlier period of account, the fair value of the assets at

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the time of the transfer shall be deemed to be brought into account

for the period of account in which the transfer takes place as an

increase in the value of the assets of that fund unless the assets are

excluded from this subsection by—

                    (a)                   subsection (2C) or (2D) below, or

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                    (b)                   section 444AD of the Taxes Act 1988 (transfers of business).

              (2C)                Assets transferred to discharge liabilities in respect of deposits

received from reinsurers or arising out of insurance operations,

debenture loans or amounts borrowed from credit institutions are

included in subsection (2B) above only if the deposits, loans or

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amounts borrowed—

                    (a)                   were brought into account for any period of account, but

                    (b)                   were not taken into account as receipts of the period of

account under subsection (2) above.

 

 

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Schedule 33 — Insurance companies

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              (2D)                Assets are excluded from subsection (2B) above if they are

transferred for at least their fair value and the consideration for their

transfer, when received, forms part of the company’s long-term

insurance fund.

              (2E)                If subsection (2B) above applies in relation to the transfer of all the

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assets of the company’s long term insurance fund in accordance

with—

                  (a)                 an insurance business transfer scheme, or

                  (b)                 a scheme which would be such a scheme but for section

105(1)(b) of the Financial Services and Markets Act 2000 (which

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requires the business transferred to be carried on in an EEA

State),

                         the reference in that subsection to an amount being deemed to be

brought into account for the period of account in which the transfer

takes place is to its being so deemed for the period of account ending

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immediately before the transfer takes place.”.

          (3)      In subsection (3)—

              (a)             for “that business in a case where an amount is” substitute “its life

assurance business in a case where assets are”,

              (b)             after “taken into account” insert “under subsection (2) above”, and

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              (c)             for “that fund within subsection (2)(b) above” substitute “the long-

term insurance fund”.

          (4)      In subsection (4), for paragraph (c) substitute—

                    “(c)                      represents so much of the proceeds of the disposal of an asset

of the long-term insurance fund as does not exceed its fair

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value or an asset acquired for at least its fair value which is

added to that fund.”.

          (5)      In subsection (5), omit paragraph (b) and the word “but” before it.

          (6)      After subsection (6A) insert—

              “(6B)                A contract which reinsures risk in respect of insurances to be made

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only after the making of the contract of reinsurance can constitute a

transfer of business by virtue of subsection (6)(c) above only if a

potential advantage is conferred on the reinsurer by the contract.

              (6C)                For the purposes of subsection (6B) above a potential advantage is

conferred on the reinsurer by the contract if, taking the contract as

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“the actual provision” for the purposes of Schedule 28AA to the

Taxes Act 1988, the effect of making the actual provision instead of

the arm’s length provision (within the meaning of that Schedule)

would have in relation to the reinsurer the effect specified in

paragraph 5(1)(b) of that Schedule.”.

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          (7)      Subsection (8) is amended as follows.

          (8)      After the definition of “demutualisation” insert—

               ““fair value”, in relation to assets, means the amount which would be

obtained from an independent person purchasing them or, if the

assets are money, its amount;”.

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          (9)      In the definition of “total reinsurance”, omit “before the making of the

contract of reinsurance (or, in a case where there are two or more contracts

of reinsurance, the last of them)”.

 

 

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Schedule 33 — Insurance companies

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          (10)     In the sidenote, for “brought” substitute “taken”.

          (11)              Sub-paragraph (6) has effect in relation to contracts of reinsurance made on

or after 9th April 2003; and sub-paragraph (9) has effect in relation to

reinsurance effected by a single contract made on or after that date or by two

or more contracts each of which is made on or after that day.

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          (12)     But, subject to that, this paragraph has effect for periods of account

beginning on or after 1st January 2003.

  3       (1)      In the Finance Act 1989 (c. 26), after section 83 insert—

       “83ZA Contingent loans

              (1)             For the purposes of this section a contingent loan is made to an

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insurance company if—

                    (a)                   a deposit is received by the company from a reinsurer or

arises out of insurance operations of the company,

                    (b)                   a debenture loan is made to the company, or

                    (c)                   an amount is borrowed by the company from a credit

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institution,

                              and the deposit, debenture loan or amount borrowed is taken into

account as a receipt of the company under section 83(2) above.

              (2)             For the purposes of this section the time when a contingent loan is

made to an insurance company is the time when the assets

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constituting the deposit, debenture loan or amount borrowed are

received by the company.

              (3)             For the purposes of this section an insurance company has unrepaid

contingent loan liabilities at any time if—

                    (a)                   one or more contingent loans have been made to the

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company at or before that time, and

                    (b)                   amounts will or may at some later time become repayable by

the company in respect of the contingent loan or contingent

loans.

              (4)             Where, at the end of the period of account of an insurance company

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(“the period of account in question”), the company has unrepaid

contingent loan liabilities—

                    (a)                   subsection (5) below applies if the company did not have

unrepaid contingent loan liabilities at the end of the period of

account immediately preceding the period of account in

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question, and

                    (b)                   subsection (6) below applies if it did.

              (5)             Where this subsection applies, the appropriate amount for the period

of account in question is allowed as a deduction in calculating the

profits of the company for the period of account in question.

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              (6)             Where this subsection applies—

                    (a)                   if the appropriate amount for the period of account in

question exceeds the appropriate amount for the

immediately preceding period of account, the excess is

allowed as a deduction in calculating the profits for the

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period of account in question, but

 

 

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Schedule 33 — Insurance companies

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                    (b)                   if the appropriate amount for the immediately preceding

period of account exceeds the appropriate amount for the

period of account in question, the excess is to be taken into

account as a receipt of the period of account in question.

              (7)             For the purposes of subsections (5) and (6) above the appropriate

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amount for a period of account is the amount of the unrepaid

contingent loan liabilities at the end of the period of account reduced

(but not below nil) by the aggregate of—

                    (a)                   any relevant net transfers to shareholders, and

                    (b)                   any deficiencies of assets over liabilities received on relevant

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transferred business.

              (8)             In subsection (7)(a) above “relevant net transfers to shareholders”

means the aggregate of the positive amounts brought into account as

transfers to non-technical account for—

                    (a)                   the period of account,

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                    (b)                   the period of account in which the relevant contingent loan

was made to the company, and

                    (c)                   any period of account falling between the periods of account

mentioned in paragraphs (a) and (b) above,

                              as reduced in accordance with subsection (9) below.

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              (9)             The reduction to be made from the positive amount brought into

account as a transfer to non-technical account for any of the periods

of account mentioned in subsection (8) above is so much of the

positive amount as does not exceed 12% of the amount allocated to

policy holders as bonuses in relation to the period of account.

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              (10)            In subsection (7)(b) above “deficiencies of assets over liabilities

received on relevant transferred business” means any amount by

which, on an insurance business transfer scheme having effect to

transfer long-term business from a person (“the transferor”) to the

company which has taken place since the time when the relevant

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contingent loan was made to the company—

                    (a)                   the amount of the liabilities to policy holders and annuitants

transferred to the company, exceeded

                    (b)                   the element of the company’s line 15 figure representing the

transferor’s long-term insurance fund.

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              (11)            In subsections (8) and (10) above “the relevant contingent loan”

means—

                    (a)                   if amounts will or may at some later time become repayable

by the company in respect of only one contingent loan, that

contingent loan, and

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                    (b)                   if amounts will or may at some later time become repayable

by the company in respect of more than one contingent loan,

whichever of those contingent loans was made to the

company first.

              (12)            In subsection (10)(b) above “the element of the company’s line 15

45

figure representing the transferor’s long-term insurance fund”

means so much of the amount brought into account by the company

 

 

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Schedule 33 — Insurance companies

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as other income in the period of account in which the transfer took

place as represents the assets transferred to the company.

              (13)            Where in a period of account of an insurance company—

                    (a)                   an amount becomes repayable under a contingent loan made

to the company, and

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                    (b)                   the amount repayable is brought into account as other

expenses for the period of account,

                              so much of the amount repayable as does not exceed the amount

specified in subsection (14) below is allowed as a deduction in

calculating the profits of the company for the period of account.

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              (14)            The amount referred to in subsection (13) above is the amount

arrived at by deducting from the amount taken into account as a

receipt of the company under section 83(2) above in relation to the

contingent loan the aggregate of any amounts which—

                    (a)                   have become repayable in respect of the contingent loan in

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any earlier period of account, and

                    (b)                   have been allowed as a deduction in calculating the profits of

the company for any such period.

              (15)                            The references in subsections (8), (12) and (13) above to an amount

being brought into account—

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                    (a)                   in a case where the amount taken into account as a receipt of

the company under section 83(2) above in relation to the

contingent loan or loans in question is an amount brought

into account in an account concerned wholly with non-

participating business, are to its being brought into account

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in that account or in any other account concerned wholly

with non-participating business, and

                    (b)                   in a case where the amount so taken into account is an

amount brought into account in an account concerned wholly

or partly with participating business, are to its being brought

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into account in that account or in any other account

concerned wholly or partly with participating business.

              (16)            Where—

                    (a)                   a transfer to another fund brought into account for a period

of account as other expenditure in any account concerned

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wholly with non-participating business is brought into

account as other income in an account concerned wholly or

partly with participating business, or

                    (b)                   a transfer to another fund brought into account for a period

of account as other expenditure in any account concerned

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wholly or partly with participating business is brought into

account as other income in an account concerned wholly with

non-participating business,

            subsection (8) above has effect as if it were a positive amount brought into

account as transfers to non-technical account for that period of account in the

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account in which it is brought into account as other expenditure.

              (17)            For the purposes of subsections (15) and (16) above—

                    (a)                   an account is concerned wholly with non-participating

business if it relates exclusively to policies or contracts under

 

 

 
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