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Finance Act 2012

Section 30: Abolition of Relief for Equalisation Reserves: Lloyd’s Corporate Members Etc.


1.Section 30 repeals section 47 of the Finance Act 2009 (FA) 2009.  The repeal is not effective in relation to transitional provisions being made under this section which are capable of having effect after the date of the repeal.

Details of the Section

2.Subsection (1) provides that regulations made by the Treasury under section 47 of FA 2009 that revoke previous regulations made under that section may include provisions corresponding to the provisions made by section 26(4) to (8) and 27 subject to any modifications specified in the regulations.

3.Subsection (2) repeals section 47 of FA 2009.

4.Subsection (3) provides that the repeal shall have effect for accounting periods ending on or after a date specified in a Treasury order.  Different days may be specified for different cases.

5.Subsection (4) provides that the repeal of section 47 of FA 2009 shall not affect any transitional or savings provisions made under section 47 in so far as those transitional or savings provisions are capable of having effect after the date specified in a Treasury order.

Background Note

6.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.

7.Section 47 FA 2009 provided a power to apply similar treatment to Lloyd’s corporate and partnership members.  The power was used in 2009 to make regulations (The Lloyd’s Underwriters (Equalisation Reserves) (Tax) Regulations 2009 (SI 2009/2039)) to allow Lloyd’s corporate and partnership members to calculate and hold an equivalent reserve for tax purposes only.  Therefore, as with general insurance companies, amounts transferred into an equivalent reserve were made tax deductible and transfers out were treated as taxable receipts of the member’s business.

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  As a result of the European Union Solvency II Directive that requirement will be withdrawn.

9.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.

10.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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