The Insurance Companies (Corporation Tax Acts) (Amendment) Order 2005

Amendment of Chapter 1 of Part 12 of the Income and Corporation Taxes Act 1988

6.—(1) Amend section 432B(1) (apportionment of receipts brought into account) as follows.

(2) After subsection (3) insert—

“(4) The following provisions of this section have effect where sections 432C and 432D—

(a) apply in relation to any account for a fund in which shareholders' excess assets are held, and

(b) apply in relation to that account in relation to any period of account beginning on or after 1st January 2005 and ending before 1st October 2006.

(5) The part of the amount brought into account as income which is referable in accordance with section 432C to any category of business apart from—

(a) basic life assurance and general annuity business, and

(b) overseas life assurance business,

is reduced by the relevant fraction of the shareholders' excess income.

(6) The part of the amount brought into account as the increase or decrease in the value of assets or as other income which is referable in accordance with section 432D to any category of business apart from basic life assurance and general annuity business is reduced or increased as follows.

(7) The part of that amount is—

(a) reduced by the relevant fraction of the shareholders' excess gains, or

(b) increased by the relevant fraction of the shareholders' excess losses,

as the case may be.

(8) But no such reduction or increase is made if, in relation to the fund in question, an election in accordance with Rule 9.10(c) of the Prudential Sourcebook (Insurers) has effect for the period of account.

(9) For the purposes of this section—

“the relevant fraction”, in relation to a category of business, is the fraction of which—

(a)

the numerator is the section 83 net amount referable to the category; and

(b)

the denominator is the section 83 net amount referable to all categories of business apart from basic life assurance and general annuity business;

“the section 83 net amount” means the net amount (before giving effect to subsections (5) to (7) above) to be taken into account in accordance with section 83(2) of the Finance Act 1989(2) (that is to say, the aggregate amount to be taken into account as receipts reduced by the aggregate amount to be taken into account as expenses);

“shareholders' excess gains” means the amount by which—

(a)

the investment gains referable to basic life assurance and general annuity business in accordance with section 432A for the period of account exceeds

(b)

those gains that would be so referable if section 432A(6) were amended in accordance with subsection (10) below;

“shareholders' excess income” means the amount by which—

(a)

the investment income referable to basic life assurance and general annuity business in accordance with section 432A for the period of account exceeds

(b)

the amount that would be so referable if section 432A(6) were amended in accordance with subsection (10) below;

“shareholders' excess losses” means the amount by which—

(a)

the investment losses referable to basic life assurance and general annuity business in accordance with section 432A for the period of account exceeds

(b)

the amount that would be so referable if section 432A(6) were amended in accordance with subsection (10) below.

(10) For the purposes of the definitions of “shareholders' excess gains”, “shareholders' excess income” and “shareholders' excess losses”, the amendments of section 432A(6) mentioned in those definitions are—

(a) in paragraph (a)(ii) the insertion after “the mean of” of “the appropriate parts of”;

(b) in paragraph (a)(ii) the insertion after “assets” of—

“(and for this purpose the definition of “appropriate part” in subsection (8)(a) below applies in relation to the shareholders' excess assets as it applies in relation to the free assets amount)”; and

(c) in paragraph (b) the substitution for sub-paragraph (ii) of—

“(ii) the numerators that would be given by that paragraph in relation to the other categories of business if this subsection applied in relation to any category of business.”.

(11) For the purposes of subsection (9)—

(a) the amount of a company’s investment gains is the greater of LG + NTC − NTD and nil where—

(i) LG is the amount of chargeable gains accruing from disposals of assets of the company’s long-term insurance fund in the period of account after deducting the aggregate of allowable losses so accruing in the period of account and any previous period of account to which section 8(1)(b) of the Taxation of Chargeable Gains Act 1992 (company’s total profits to include chargeable gains) applies;

(ii) NTC is the amount of non-trading credits for the period given by paragraph 2(1) of Schedule 11 to the Finance Act 1996(3) which arise to the company from increases in the fair value of the company’s loan relationships or from related transactions; and

(iii) NTD is the amount of non-trading debits given by that paragraph which arise to the company from decreases in the fair value of the company’s loan relationships or from related transactions;

(b) “investment income” means the aggregate of—

(i) the non-trading credits for the period given by paragraph 2(1) of Schedule 11 to the Finance Act 1996(4) which do not arise to the company from increases in the fair value of the company’s loan relationships or from related transactions;

(ii) income falling with Schedule A; and

(iii) income falling within Case V of Schedule D; and

(c) the amount of a company’s investment losses is the greater of LA + NTD − NTC and nil where—

(i) LA is the amount of the company’s allowable losses accruing from disposals of assets of the company’s long-term insurance fund in the period of account after deducting chargeable gains so accruing; and

(ii) NTC and NTD have the same meanings as they have in relation to a company’s investment gains.”.

(1)

Section 432B was inserted by paragraph 4 of Schedule 6 to the Finance Act 1990. There are amendments which are not relevant for present purposes.

(2)

1989 c. 26. Section 83 was substituted by paragraph 16(1) of Schedule 8 to the Finance Act 1995 and amended by articles 54, 56 and 60(1) of S.I. 2001/3629, paragraph 2 of Schedule 33 to the Finance Act 2003 and article 8 of S.I. 2004/3266.

(3)

1996 c. 8.

(4)

1996 c. 8.