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Finance Act 2012

Section 29: Transfer of Whole Or Part of the Business


1.Section 29 provides rules to deal with the transfer of the whole or part of an insurance business where the transferor has receipts arising to it under the rules applying in respect of the abolition of relief for equalisation reserves.

Details of the Section

2.Subsection (1) provides that a transferor and transferee may jointly elect for receipts arising under section 26(4) to be treated in accordance with this section where an insurance company transfers the whole or part of the business to another insurance company under an insurance business transfer scheme.

3.Subsection (2) provides that if the transfer is of the whole of the business or substantially the whole of the business, section 26(6) will not apply.   Instead, the receipt which would have arisen in the transfer year under section 26(4) had there been no transfer is apportioned between the transferor and transferee.  Any future receipts which would have arisen under section 26(4) are treated as receipts of the transferee and not the transferor.  Section 26(6) will apply to any subsequent cessation of business by the transferee.

4.Subsection (3) provides for a transfer of a part of a business which does not amount to substantially the whole of the business. The receipt arising under section 26(4) in the transfer year is apportioned between the transferor and transferee.   Also, future receipts arising under section 26(4) are apportioned between the transferor and the transferee.  Section 26(6) will apply to any subsequent cessation of business by the transferee.

5.Subsection (4) provides that the appropriate portion of the receipt for the purposes of subsection (3) shall be determined on a just and reasonable basis.

6.Subsection (5) provides that an apportionment under subsection (2)(b) or (3)(a) is to be made by reference to the number of days in the calendar year falling before and after the transfer date.

7.Subsection (6) provides that a receipt arising under section 26(4) which is treated as a receipt of the transferee is treated as a receipt of the transferee’s business which consists of or includes the transferred business.

8.Subsection (7) requires that an election under this section be made in writing to an officer of Revenue and Customs within 28 days from the end of the day on which the transfer of business takes place.  Any such election is irrevocable.   The election must be accompanied by an explanation of any determinations of issues made for the purposes of this section.

9.Subsection (8) defines “the transferred business” and the “transfer year”.

10.Subsection (9) provides that this section will apply to the transferee in the capacity of transferor in respect of subsequent transfers of business by the transferee

Background Note

11.There is currently a regulatory requirement for general insurance companies (but not members of Lloyd’s) to maintain equalisation reserves in respect of certain lines of business.  From 1996, amounts transferred into equalisation reserves were made tax deductible and transfers out were treated as taxable receipts of the company’s business.

12.The relief currently available is dependent on the regulatory requirement for general insurance companies to maintain equalisation reserves.  As a result of the European Union Solvency II Directive that requirement will be withdrawn.

13.An informal consultation took place between April and August 2011 with an industry working group.   Both the Association of British Insurers and Lloyd’s, representing general insurance companies and corporate and partnership members at Lloyd’s, have been included in the consultation process.

14.Taking into account these discussions, the Government has decided to repeal the legislation that allows tax relief for equalisation reserves. The Government has also decided to introduce a transitional period for the release of built-up reserves that involves spreading that release in equal instalments over a six year period commencing from the date that the Solvency II capital requirements come into force.  Insurers may also elect to have the full remaining balance of the built-up reserve released to tax in any calendar year during the transitional period.

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