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Finance Bill
Schedule 33 — Insurance companies

    388

 

which the policy holders or annuitants are not eligible to

participate in surplus, and

                    (b)                   an account is concerned wholly or partly with participating

business if it relates wholly or partly to other policies or

contracts.”.

5

          (2)      In paragraph 2 of Schedule 11 to the Finance Act 1996 (c. 8) (loan

relationships: special provisions for insurers), after sub-paragraph (2)

insert—

                           “(2A)                  Where an insurance company stands in the position of a debtor as

respects a debt under a contingent loan made to the company

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(within the meaning of section 83ZA(1) of the Finance Act 1989),

the debt is to be regarded for the purposes of this Chapter as not

arising from a transaction for the lending of money.”.

          (3)      This paragraph has effect in relation to contingent loans made to an

insurance company in a period of account beginning on or after 1st January

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2003.

  4       (1)      In section 83AA of the Finance Act 1989 (c. 26) (amounts added to long-term

insurance fund of a company in excess of company’s loss), omit—

              (a)             subsections (3) to (5),

              (b)             subsection (6)(a),

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              (c)             subsection (7)(b) and the word “and” before it, and

              (d)             in subsection (10), the definitions of “the relevant accounting period”

and “the transferor company”.

          (2)      Sub-paragraph (1) has effect for periods of account beginning on or after 1st

January 2003.

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  5       (1)      In section 83AB(1)(c) of the Finance Act 1989 (treatment of surplus where

there is a subsequent transfer of business from company etc)—

              (a)             omit sub-paragraph (i), and

              (b)             in sub-paragraph (ii), for “that section” substitute “section 83AA

above”.

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          (2)      Sub-paragraph (1) has effect for periods of account beginning on or after 1st

January 2003.

  6       (1)      In section 88 of the Finance Act 1989 (corporation tax: policy holders’ share

of profits), after subsection (3) insert—

              “(3A)                In subsection (3) above “income and gains of the company’s life

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assurance business” means the aggregate of—

                    (a)                   income and chargeable gains referable to the company’s

basic life assurance and general annuity business, and

                    (b)                   profits of the company chargeable under Case VI of Schedule

D under sections 436, 439B and 441 of the Taxes Act 1988

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(pension business, life reinsurance business and overseas life

assurance business).

              (3B)                In subsection (3A)(a) above (and section 89(1B) below) “chargeable

gains referable to the company’s basic life assurance and general

annuity business”, in relation to an accounting period, means the

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chargeable gains so far as referable to that business accruing to the

company in the accounting period after deducting—

 

 

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Schedule 33 — Insurance companies

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                    (a)                   any allowable losses so referable accruing to the company in

the accounting period, and

                    (b)                   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

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company.”.

          (2)      Section 89 of that Act (meaning of policy holders’ share of profits) is

amended as follows.

          (3)      In subsection (1), for the words after “references to” substitute—

                    “(a)                      in a case where there are no Case I profits of the company for

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the period in respect of its life assurance business, the amount

of the relevant profits, and

                    (b)                      in any other case, the amount arrived at in accordance with

subsection (1A) below.”.

          (4)      After that subsection insert—

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              “(1A)                An amount is arrived at in accordance with this subsection by—

                    (a)                   deducting from any profits of the company for the period

chargeable under Case VI of Schedule D under sections 436,

439B and 441 of the Taxes Act 1988 (as reduced by any losses

under those sections and any charges on income referable to

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any category of business other than basic life assurance and

general annuity business) so much of the Case I profits of the

company for the period in respect of its life assurance

business as does not exceed the amount of any profits of the

company for the period so chargeable, and

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                    (b)                   deducting any remaining Case I profits of the company for

the period in respect of its life assurance business from any

BLAGAB profits of the company for the period.

              (1B)                For the purposes of this section, the BLAGAB profits of a company

for an accounting period are the income and chargeable gains

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referable to the company’s basic life assurance and general annuity

business reduced by the aggregate amount of—

                    (a)                   any non-trading deficit on the company’s loan relationships,

                    (b)                   expenses of management falling to be deducted under

section 76 of the Taxes Act 1988, and

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                    (c)                   charges on income,

                              so far as referable to the company’s basic life assurance and general

annuity business.”.

          (5)      In subsection (2), for “subsection (1)” substitute “subsections (1) and (1A)”.

          (6)      In section 76(2B) of the Taxes Act 1988 (expenses of management: relevant

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income)—

              (a)             in paragraph (a), for “of the company’s life assurance business for

that accounting period; and” substitute “for that accounting period

which are referable to the company’s basic life assurance and general

annuity business;”, and

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              (b)             after paragraph (b) insert “and

                           “(c)                             profits of the company for that accounting period

which are chargeable under Case VI of Schedule D

under section 436, 439B or 441.”.

 

 

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Schedule 33 — Insurance companies

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          (7)      In—

              (a)             section 434(6A)(b) of the Taxes Act 1988 (franked investment

income), and

              (b)             the second sentence of section 434A(3) of that Act (computation of

losses and limitation on relief),

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                   for “88” substitute “89”.

          (8)      In section 434A(2)(a)(i) of the Taxes Act 1988 (computation of losses and

limitation on relief), for “for the period, otherwise than in accordance with

those provisions, the profits or losses of the company’s life assurance

business” substitute “, otherwise than in accordance with those provisions,

10

the relevant profits (within the meaning of section 88(1) of the Finance Act

1989) of the company for the period”.

          (9)      In section 437(1A) of the Taxes Act 1988 (general annuity business), for

“profits for any accounting period of a company’s life assurance business”

substitute “relevant profits (within the meaning of section 88(1) of the

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Finance Act 1989) of an insurance company for any accounting period”.

          (10)     In paragraph 16(1) of Schedule 7 to the Finance Act 1991 (c. 31) (transitional

relief for old general annuity contracts), for “profits for any accounting

period of an insurance company’s life assurance business” substitute

“relevant profits (within the meaning of section 88(1) of the Finance Act

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1989) of an insurance company for any accounting period”.

          (11)     Section 89(1B) of the Finance Act 1989 (c. 26) (inserted by sub-paragraph (4))

has effect for the purposes of section 210A of the Taxation of Chargeable

Gains Act 1992 (c. 12) (inserted by paragraph 14(1)) in relation to any

accounting period of a company if it is necessary under that section to

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determine the company’s BLAGAB profits for the period.

          (12)     But, subject to that, this paragraph has effect for accounting periods ending

on or after 9th April 2003.

  7       (1)      In section 89(7) of the Finance Act 1989 (which defines Case I profits for the

purposes of determining the policy holders’ share of relevant profits and the

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shareholders’ share of income), in the definition of “Case I profits”, insert at

the end “and adjusted in respect of losses in accordance with section 76(2C)

and (2D) of the Taxes Act 1988;”.

          (2)      Sub-paragraph (1) has effect for accounting periods beginning on or after 1st

January 2003.

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          (3)      But section 76(2C) of the Taxes Act 1988, as it applies by virtue of sub-

paragraph (1), has effect as if the reference in it to the amount which would

fall, in the case of a company, to be set off under section 393 of that Act were

to only so much of that amount as is attributable to losses incurred in the

accounting period of the company in which 31st December 2002 is included

40

or any later accounting period.

  8       (1)      In section 76(1) of the Taxes Act 1988 (expenses of management), for the

words after paragraph (d) substitute—

                    “(e)                      expenses of management may be deducted for any

accounting period only from so much of the income and

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gains of that accounting period referable to basic life

assurance and general annuity business as remains after any

deduction falling to be made by virtue of paragraph 4(2) of

Schedule 11 to the Finance Act 1996 (non-trading deficits on

loan relationships).”.

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Schedule 33 — Insurance companies

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          (2)      In section 87(6)(b) of the Finance Act 1989 (management expenses), omit “,

disregarding section 76(1)(e) of that Act (as set out in subsection (2) above),”.

          (3)      In paragraph 4 of Schedule 11 to the Finance Act 1996 (c. 8) (non-trading

deficits on loan relationships)—

              (a)             in sub-paragraph (2), omit “net” (in both places), and

5

              (b)             in sub-paragraph (16), omit the definition of “net income and gains”.

          (4)      This paragraph has effect for accounting periods beginning on or after 1st

January 2003 except those ending before 9th April 2003.

  9       (1)      In section 432D of the Taxes Act 1988 (section 432B apportionment: value of

non-participating funds), after “value of assets” (in each place) insert “or as

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other income”.

          (2)                                 Sub-paragraph (1) has effect for periods of account beginning on or after 1st

January 2003.

  10      (1)      Section 432E of the Taxes Act 1988 (apportionment of receipts brought into

account: participating funds) is amended as follows.

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          (2)      In subsection (1), for “subsection (2)” substitute “subsections (2) and (2A)”.

          (3)      In subsection (2), omit—

              (a)             paragraph (a), and

              (b)             in paragraph (b), the words “in any other case,”.

          (4)      After subsection (2) insert—

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              “(2A)                In a case where an amount is taken into account under subsection (2)

of section 83 of the Finance Act 1989 by virtue of subsection (2B) of

that section, the amount determined under subsection (2) above is

increased byequation: times[over[times[char[C],char[A],char[S]],times[char[A],char[S]]],char[x],char[R],

char[P]]

                              where—

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                                      CAS and AS have the same meanings as in subsection (2) above;

and

                                      RP is the amount taken into account under subsection (2) of

section 83 of the Finance Act 1989 by virtue of subsection (2B)

of that section.”.

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

January 2003; but sub-paragraph (3) does not have effect in relation to any

periods of account ending before 9th April 2003.

  11      (1)      In section 804B(7) of the Taxes Act 1988 (double taxation relief: insurance

companies carrying on more than one category of business)—

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              (a)             in paragraph (a), for “that net amount which is referable by virtue of

section 432E to that category” substitute “the investment income

taken into account in that determination which would be referable to

that category by virtue of section 432E if the investment income were

the only amount included in the net amount”, and

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              (b)             in paragraph (b), for “net amount” substitute “investment income”.

          (2)      Section 804C of the Taxes Act 1988 (insurance companies: allocation of

expenses etc in computations under Case I of Schedule D) is amended as

follows.

 

 

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Schedule 33 — Insurance companies

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          (3)      In subsections (4) and (5), for “relevant amount” substitute “relevant

income”.

          (4)      For subsection (13) substitute—

              “(13)                For the purposes of the operation of this section in relation to any

income or gain in respect of which credit falls to be allowed under

5

any arrangements, the amount of the income or gain that is referable

to a category of insurance business is the same fraction of the income

and gain as the fraction of the foreign tax that is attributable to that

category of business in accordance with section 804B.”.

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

10

January 2003 except those ending before 9th April 2003.

  12      (1)      In section 76(2B)(b) of the Taxes Act 1988 (expenses of management), for “the

franked investment income of, and foreign income dividends arising to, the

company” substitute “distributions received by the company from

companies resident in the United Kingdom”.

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          (2)      In section 434(3A) of the Taxes Act 1988 (franked investment income etc), for

“The policy holders’ share of the franked investment income from

investments held in connection with a company’s” substitute “So 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”.

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          (3)      In section 441(1) and (2) of the Taxes Act 1988 (overseas life assurance

business), omit “and section 441A”.

          (4)      In section 89(2)(b) of the Finance Act 1989 (c. 26) (policy holders’ share of

profits), for “franked investment income arising in the period which is”

substitute “distributions received from companies resident in the United

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Kingdom in the period which are”.

          (5)      Apart from sub-paragraph (3), this paragraph has effect in relation to

distributions on or after 9th April 2003.

Rate of tax on policy holders’ share of life assurance profits

  13      (1)      The Finance Act 1989 is amended as follows.

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          (2)      In section 88(1) (corporation tax rate on policy holders’ share of relevant

profits of companies carrying on life assurance business to be basic rate of

income tax)—

              (a)             omit “and section 88A”, and

              (b)             for “basic” substitute “lower”.

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          (3)      Omit section 88A (cases where tax rate already is lower rate).

          (4)      In section 89(1) (meaning of “policy holders’ share of profits”)—

              (a)             for “sections 88 and 88A” substitute “section 88”, and

              (b)             omit “or, as the case may be, basic life assurance and general annuity

business”.

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          (5)      The Taxes Act 1988 is amended as follows.

          (6)      In section 438B(5) (income or gains arising from property investment LLP)—

              (a)             omit paragraph (b) and the word “and” before it, and

              (b)             for “section 88 of that Act” substitute “that section”.

 

 

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Schedule 33 — Insurance companies

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          (7)      Section 755A (controlled foreign companies: chargeable profits and

creditable tax apportioned to company carrying on life assurance business)

is amended as follows.

          (8)      In subsection (3), for “88A(1)” substitute “88(1)”.

          (9)      For subsection (11) substitute—

5

              “(11)                For the purposes of this section the policy holders’ part of any

BLAGAB apportioned profit is—

                    (a)                   where subsection (11A) below applies, the whole of that

profit, and

                    (b)                   in any other case, the relevant fraction (within the meaning of

10

subsection (11B) below) of that profit.

              (11A)                This subsection applies if—

                    (a)                   the UK company’s life assurance business is mutual business,

                    (b)                   the policy holders’ share of the UK company’s relevant

profits for the relevant accounting period is equal to all those

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profits, or

                    (c)                   the policy holders’ share of the UK company’s relevant

profits for the relevant accounting period is more than its

BLAGAB profits for that period.

              (11B)                The relevant fraction for the purposes of subsection (11)(b) above is

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the fraction arrived at by dividing—

                    (a)                   the policy holders’ share of the UK company’s relevant

profits for the relevant accounting period, by

                    (b)                   the UK company’s BLAGAB profits for that period.

              (11C)                In subsections (11A) and (11B) above—

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                    (a)                   references to the policy holders’ share of the UK company’s

share of the relevant profits are to be construed in accordance

with sections 88(3) and 89 of the Finance Act 1989, and

                    (b)                   references to the UK company’s BLAGAB profits are to be

construed in accordance with section 89(1B) of that Act.”.

30

          (10)     In paragraph 5(6)(b) of Schedule 28AA (provision not at arm’s length), omit

“or 88A”.

          (11)     This paragraph has effect for the financial year 2003 and subsequent

financial years.

Chargeable gains

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  14      (1)      In the Taxation of Chargeable Gains Act 1992 (c. 12), after section 210

insert—

       “210A  Ring-fencing of losses

              (1)             Section 8(1) has effect in relation to insurance companies subject to

the provisions of this section.

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              (2)             Non-BLAGAB allowable losses accruing to an insurance company

are not allowable as a deduction from the policy holders’ share of the

BLAGAB chargeable gains accruing to the company.

 

 

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Schedule 33 — Insurance companies

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              (3)             BLAGAB allowable losses accruing to an insurance company are

allowable as a deduction from non-BLAGAB chargeable gains

accruing to the company as permitted by the following provisions of

this section (and not otherwise).

              (4)             They are allowable as a deduction from only so much of non-

5

BLAGAB chargeable gains accruing to the company in an accounting

period as exceeds the aggregate of—

                    (a)                   non-BLAGAB allowable losses accruing to the company in

the accounting period, and

                    (b)                   non-BLAGAB allowable losses previously accruing to the

10

company which have not been allowed as a deduction from

chargeable gains accruing in any previous accounting period.

              (5)             And they are allowable as a deduction from non-BLAGAB

chargeable gains accruing to the company in an accounting period

only to the extent that they do not exceed the permitted amount for

15

the accounting period.

              (6)             The permitted amount for the first accounting period of an insurance

company in relation to which this section has effect is the aggregate

of—

                    (a)                   the amount by which shareholders’ share for that accounting

20

period of BLAGAB allowable losses accruing to the company

in the accounting period exceeds the shareholders’ share of

BLAGAB chargeable gains so accruing, and

                    (b)                   the shareholder’s share for the immediately preceding

accounting period of BLAGAB allowable losses previously

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accruing to the company which have not been allowed as a

deduction from chargeable gains accruing in that

immediately preceding accounting period or any earlier

accounting period.

              (7)             The permitted amount for any subsequent accounting period of the

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company is arrived at by—

                    (a)                   deducting from the permitted amount for the immediately

preceding accounting period the amount of any BLAGAB

allowable losses allowed as a deduction from non-BLAGAB

chargeable gains accruing to the company in the immediately

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preceding accounting period, and

                    (b)                   adjusting the result in accordance with subsection (8) or (9)

below.

              (8)             If the BLAGAB chargeable gains accruing to the company in the

subsequent accounting period exceed the BLAGAB allowable losses

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so accruing, the amount arrived at under subsection (7)(a) above is

reduced by a fraction of which—

                    (a)                   the denominator is the BLAGAB allowable losses accruing to

the company in any previous accounting period which have

not been allowed as a deduction from chargeable gains

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accruing to the company in any previous accounting period,

and

 

 

 
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