Finance Act 2003

Valid from 10/07/2003

Transfers of business U.K.

18 (1) In the Taxes Act 1988, after section 444A insert— U.K.

“444AA Transfers of business: deemed periodical return

(1) This section applies where an insurance business transfer scheme has effect to transfer the whole of the long-term business of one person (“the transferor”).

(2) Where the last period covered by a periodical return of the transferor ends otherwise than immediately before the transfer, there is to be deemed for the purposes of corporation tax to be a periodical return of the transferor covering the period—

(a) beginning immediately after the last period ending before the transfer which is covered by an actual periodical return of the transferor, and

(b) ending immediately before the transfer,

containing such entries as would have been included in an actual periodical return of the transferor covering that period (and so making that period a period of account of the transferor).

(3) Where the last period covered by a periodical return of the transferor (whether or not by virtue of subsection (2) above) ends immediately before the transfer, there is to be deemed for the relevant purpose to be a periodical return of the transferor—

(a) covering the time of the transfer, and

(b) containing such entries as would have been included in an actual periodical return covering the time of the transfer,

(and so making the time of the transfer a period of account of the transferor for the relevant purpose).

(4) Where the last period covered by a periodical return of the transferor ends after the transfer, the periodical return covering that period is to be ignored for all purposes of corporation tax other than the relevant purpose.

(5) In this section “the relevant purpose” means determining for the purposes of section 83(2B) of the Finance Act 1989 whether a transfer is brought into account as part of total expenditure.

(6) For the purposes of this section “insurance business transfer scheme” includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State).”.

(2) Sub-paragraph (1) has effect in relation to insurance business transfer schemes (within the meaning of section 444AA of the Taxes Act 1988) taking place on or after 1st January 2003 unless the accounting period of the transferor which ends with the day of the transfer began before that date.

19 (1) In the Taxes Act 1988, after section 444AA (inserted by paragraph 18(1)) insert— U.K.

“444AB Transfers of business: charge on transferor retaining assets

(1) This section applies where, immediately after an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to one or more others (“the transferee” or “the transferees”), the transferor—

(a) does not carry on long-term business, but

(b) holds assets which, immediately before the transfer, were assets of its long-term insurance fund.

(2) The transferor shall be charged to tax under Case VI of Schedule D in respect of the taxable amount as if it had been received by the transferor during the accounting period beginning immediately after the day of the transfer.

(3) If the transferor was charged to tax on the profits of its life assurance business under Case I of Schedule D for the accounting period ending with the day of the transfer, the taxable amount is the whole of the previously untaxed amount.

(4) Otherwise, the taxable amount is the non-BLAGAB fraction of the previously untaxed amount.

(5) The previously untaxed amount is the lesser of—

(a) the fair value of such of the assets held by the transferor immediately after the transfer as were assets of its long-term insurance fund immediately before the transfer, and

(b) the amount by which the fair value of the assets of the transferor’s long-term insurance fund immediately before the transfer exceeds the amount of the relevant pre-transfer liabilities.

(6) In subsection (5) above “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.

(7) Subject to subsection (8) below, the amount of the relevant pre-transfer liabilities is the aggregate of the amounts shown in column 1 of lines 14 and 49 of Form 14 in the periodical return of the transferor covering the period of account ending immediately before the transfer.

(8) If the amount of the liabilities transferred exceeds the value of the assets so transferred, as brought into account for the first period of account of the transferee (or any of the transferees) ending after the transfer, the amount of the relevant pre-transfer liabilities is the amount arrived at by deducting the excess from the aggregate of the amounts shown as mentioned in subsection (7) above.

(9) For the purposes of subsection (4) above the non-BLAGAB fraction of the previously untaxed amount is the fraction of which—

(a) the numerator is the amount of the liabilities transferred, apart from those which are liabilities of basic life assurance and general annuity business, and

(b) the denominator is the amount of the liabilities transferred.

(10) References in this section to assets held by the transferor after the transfer do not include any held on trust for the transferee or any of the transferees.

(11) For the purposes of this section “insurance business transfer scheme” includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State).”.

(2) Sub-paragraph (1) has effect in relation to insurance business transfer schemes (within the meaning of section 444AB of the Taxes Act 1988) taking place in a period of account of the transferor beginning on or after 1st January 2003.

20 (1) In the Taxes Act 1988, after section 444AB (inserted by paragraph 19(1)) insert— U.K.

“444AC Transfers of business: modification of s.83(2) FA 1989

(1) This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

(2) If—

(a) the element of the transferee’s line 15 figure representing the transferor’s long-term insurance fund, exceeds

(b) the amount of the liabilities to policy holders and annuitants transferred to the transferee,

the excess is not to be regarded as other income of the transferee for the purposes of section 83(2)(d) of the Finance Act 1989.

(3) In this section and section 444AD “the element of the transferee’s line 15 figure representing the transferor’s long-term insurance fund” means so much of—

(a) the amount which is brought into account by the transferee as other income in the period of account of the transferee in which the transfer takes place, as represents

(b) the assets transferred to the transferee.

444AD Transfers of business: modification of s.83(2B) FA 1989

(1) This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

(2) If the transferor and the transferee jointly elect, section 83(2B) of the Finance Act 1989 does not apply to the transferor by reason of the transfer as respects so much of the value of the assets to which it would otherwise so apply as does not exceed the amount specified in subsection (4) below.

(3) An election under subsection (2) above—

(a) is irrevocable, and

(b) is to be made by notice to an officer of the Board no later than the end of the period of 28 days beginning with the day following that on which the transfer takes place;

and a copy of the notice containing the election must accompany the tax return of the transferee for the first accounting period ending after the transfer.

Paragraphs 54 to 60 of Schedule 18 to the Finance Act 1998 (claims and elections for corporation tax purposes) do not apply to such an election.

(4) The amount referred to in subsection (2) above is the amount by which—

(a) the fair value of the assets of the long-term insurance fund of the transferee immediately after the transfer, is greater than

(b) the element of the transferee’s line 15 figure representing the transferor’s long-term insurance fund.

(5) In subsection (4) above “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.

444AE Transfers of business: modification of s.83ZA FA 1989

(1) This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

(2) If a contingent loan made to the transferor (within the meaning of subsection (1) of section 83ZA of the Finance Act 1989) is transferred to the transferee, that section has effect as if—

(a) the contingent loan had become repayable by the transferor immediately before the transfer, and

(b) the contingent loan were made to the transferee immediately after the transfer.”.

(2) In section 431(2) of the Taxes Act 1988, after the definition of “basic life assurance and general annuity business” insert—

““brought into account” has the meaning given by section 83A of the Finance Act 1989;”.

(3) This paragraph has effect in relation to insurance business transfer schemes taking place on or after 1st January 2003.

(4) If 30th September 2003 is later than the end of the period specified in subsection (3)(b) of section 444AD of the Taxes Act 1988 (inserted by sub-paragraph (1)), an election under subsection (2) of that section may be made no later than that date.

21 (1) In the Taxation of Chargeable Gains Act 1992 (c. 12), after section 211 insert— U.K.

“211ZA Transfers of business: transfer of unused losses

(1) This section applies where—

(a) an insurance business transfer scheme has effect to transfer business consisting of or including basic life assurance and general annuity business from one person (“the transferor”) to another (“the transferee”) or more than one others (“the transferees”), and

(b) the transferor has relevant unused losses.

(2) For the purposes of subsection (1)(b) above the transferor has relevant unused losses if—

(a) BLAGAB allowable losses accrue to the transferor in the accounting period ending with the day of the transfer or have so accrued in any earlier accounting period, and

(b) they are not deducted from chargeable gains accruing to the transferor in that accounting period and have not been deducted from chargeable gains so accruing in any previous accounting period.

(3) Subject as follows—

(a) for the purposes of ascertaining the transferor’s total profits for any accounting period after that in which the transfer takes place, the relevant unused losses are deemed not to have accrued to the transferor, but

(b) (instead) they are treated as accruing to the transferee (in accordance with subsection (4) below).

(4) The losses treated as accruing to the transferee under subsection (3)(b) above shall be deemed to be BLAGAB allowable losses accruing to the transferee in the accounting period of the transferee in which the transfer takes place.

(5) But those losses are not allowable as a deduction from chargeable gains accruing before the transfer takes place.

(6) For the purposes of section 210A (ring-fencing of losses), the shareholders' share of those losses is to be taken to be the same proportion as would be the shareholders' share of them if they had remained losses of the transferor.

(7) If only part of the transferor’s basic life assurance and general annuity business is transferred, subsection (3) above applies as if the references to the relevant unused losses were to such part of the relevant unused losses as is appropriate.

(8) If the transfer is to more than one others, subsection (3)(b) above applies as if the reference to the relevant unused losses being treated as accruing to the transferee were to such part of the relevant unused losses as is appropriate being treated as accruing to each of the transferees.

(9) Any question arising as to the operation of subsection (7) or (8) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and the transferee (or the one of the transferees concerned) shall be entitled to appear and be heard or to make representations in writing.

(10) In this section “BLAGAB allowable losses” means allowable losses referable to the transferor’s basic life assurance and general annuity business.”.

(2) Sub-paragraph (1) has effect in relation to insurance business transfer schemes taking place on or after 1st January 2003.

22 (1) In section 431 of the Taxes Act 1988 (interpretative provisions relating to insurance companies), after subsection (2) insert— U.K.

“((2ZA)) Subsections (2ZB) and (2ZC) below apply where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

((2ZB)) If the transfer takes place otherwise than on the last day of a period of account of the transferor, references to—

(a) opening liabilities of the transferor,

(b) opening values or net values of assets of the transferor, or

(c) the opening amount of the investment reserve of the transferor,

for the period of account, so far as relating to the business transferred, are to the part of those liabilities or values, or that reserve, which bears to the whole the proportion A/C.

((2ZC)) If the transfer takes place otherwise than on the first day of a period of account of the transferee, references to—

(a) closing liabilities of the transferee,

(b) closing values or net values of assets of the transferee, or

(c) the closing amount of the investment reserve of the transferee,

for the period of account, so far as relating to the business transferred, are to the part of those liabilities or values, or that reserve, which bears to the whole the proportion B/C.

(>(2ZD)) For the purposes of subsection (2ZC) above—

(a) closing liabilities of the transferee are to be taken not to relate to the business transferred to the extent that they are liabilities which, immediately before the transfer, were reinsured by the transferor with the transferee, but

(b) closing liabilities of the transferee are to be taken to relate to the business transferred to the extent that they are liabilities which, immediately before the transfer, were reinsured by the transferee with the transferor if the business transferred consists of or includes that reinsurance business.

((2ZE)) In subsections (2ZB) and (2ZC) above—

A is the number of days in the period beginning with the period of account and ending with the day of the transfer,

B is the number of days in the period beginning with the day of the transfer and ending with the period of account, and

C is one-half of the number of days in the period of account.”.

(2) Sub-paragraph (1) has effect in relation to insurance business transfer schemes taking place on or after 1st January 2003 unless the accounting period of the transferor which ends with the day of the transfer began before that date.

23 (1) Section 442A of the Taxes Act 1988 (investment return treated as accruing in respect of reinsured risk) is amended as follows. U.K.

(2) In subsection (1), for “over the period of” substitute “ while the risk remains reinsured by the company under ”.

(3) After subsection (3) insert—

“(3A) Where a transfer of the reinsurance arrangement from one insurance company (“the transferor”) to another (“the transferee”) is effected by novation or an insurance business transfer scheme, for the purpose of calculating the investment return to be treated as accruing to the transferee in respect of the policy or contract after the transfer, the references to the company in subsection (3)(a), (b) and (c) above include (as well as the transferee)—

(a) the transferor, and

(b) any insurance company from which the reinsurance arrangement was transferred on an earlier transfer effected by novation or an insurance business transfer scheme.”.

(4) In subsection (4), omit “to the company”.

(5) This paragraph has effect in relation to transfers of reinsurance arrangements taking place on or after 1st January 2003.

24 (1) Section 444A of the Taxes Act 1988 (transfers of business: losses etc) is amended as follows. U.K.

(2) In subsection (3), insert at the end “ if the conditions in paragraphs (a) and (b) of section 343(1) are satisfied in relation to the business transferred (construing references to an event as to the transfer). ”.

(3) After that subsection insert—

“((3ZA)) Where subsection (3) above has effect, sections 343(2), (4), (5) and (7) to (12) and 344 apply in relation to the business in which the loss arose construing—

(a) references to the predecessor and the successor as to (respectively) the transferor and the transferee, and

(b) references to section 343(3) as to subsection (3) of this section,

except that nothing in section 343(8) to (10) and (12) applies in relation to the transferee.”.

(4) This paragraph has effect in relation to insurance business transfer schemes taking place on or after 1st January 2003 unless the accounting period of the transferor which ends with the day of the transfer, or the accounting period of the transferee during which the transfer takes place, began before that date.