Corporation Tax Act 2009

Old accounting period contracts

566 Introduction

(1) This section and sections 567 to 569 apply if the relevant company was a party to an investment life insurance contract immediately before the beginning of the first accounting period of the company beginning on or after 1 April 2008.

(2) In those sections—

• “the deemed surrender” means the surrender of all the rights under that contract that the relevant company was deemed for the purposes of Chapter 2 of Part 13 of ICTA (life policies etc) to have made immediately before 1 April 2008 under paragraph 6(1) of Schedule 13 to FA 2008 for an amount equal to the carrying value of the contract at that time as recognised for accounting purposes,

• “the first accounting period” means the first accounting period of the company beginning on or after that date, and

• “the old contract” means the contract mentioned in subsection (1).

567 Gains on deemed surrenders to be brought into account on related transactions

(1) Any gain which arose under Chapter 2 of Part 13 of ICTA (life policies etc) as a result of the deemed surrender (“the deemed gain”) is to be brought into account by the relevant company as a non-trading credit for the accounting period in which there is a related transaction (so far as not previously brought into account under this section).

(2) But if the relevant company is still a party to the old contract immediately after the related transaction, only the relevant fraction of the deemed gain which would otherwise be brought into account under subsection (1) is to be so brought into account.

(3) “The relevant fraction” is—

where—

• P is the amount payable as a result of the related transaction, and

• SAR is the amount which would have been payable on a surrender of all the rights under the old contract immediately before the related transaction.

568 Restriction on credits on old contracts: fair value accounting cases

(1) This section applies if—

(a) at all times since the old contract was made the rights conferred by it have been in the beneficial ownership of the relevant company,

(b) the company brings into account credits and debits in respect of the old contract on the basis of fair value accounting, and

(c) the old contract cost exceeds the fair value of the contract immediately before the beginning of the first accounting period.

(2) In subsection (1)(c) “the old contract cost” means—

(a) if section 541 of ICTA applied on the deemed surrender, the amount specified in section 541(1)(b)(i) of that Act, less the amount or value of any relevant capital payments (as defined in section 541(5)(a) of that Act), and

(b) if section 543 of that Act applied on the deemed surrender, the amount specified in section 543(1)(a)(i) of that Act, less the amount or value of any relevant capital payments (as defined in section 543(3) of that Act).

(3) No amount is to be brought into account as a credit in relation to the old contract by the relevant company as a result of section 562 except so far as the total of—

(a) the amount of the credit, and

(b) the amount of any other credits which have previously arisen in relation to the old contract as a result of that section,

is greater than the excess mentioned in subsection (1)(c).

569 Restriction on debits on old contracts: non-fair value accounting cases

(1) This section applies where—

(a) the relevant company brings into account credits and debits in respect of the old contract otherwise than on the basis of fair value accounting, and

(b) the carrying value of the old contract, as recognised for accounting purposes immediately before the beginning of the first accounting period, exceeds its fair value at that time.

(2) No amount is to be brought into account as a debit in relation to the old contract by the relevant company as a result of section 562 except so far as the total of—

(a) the amount of the debit, and

(b) the amount of any other debits which have previously arisen in relation to the contract as a result of that section,

is greater than the excess mentioned in subsection (1)(b).