Finance Act 2008

Financing-arrangement-funded transfers U.K.

1 (1) FA 1989 is amended as follows. U.K.

(2) In section 83(2A) (amounts not to be taken into account as receipts of a period of account where profits computed in accordance with Case I of Schedule D), after paragraph (ab) insert—

“(ac) consists of amounts brought into account as mentioned in section 83YC(5) below;”.

(3) After section 83YB insert—

“83YC FAFTS: charge in relevant period of account

(1) This section applies where an insurance company makes a financing-arrangement-funded transfer to shareholders (a “FAFTS”) in relation to a non-profit fund.

(2) A company makes a FAFTS in relation to a non-profit fund if—

(a) the company enters into a relevant financing arrangement in relation to a non-profit fund in a period of account (see subsection (4) below),

(b) a positive amount is brought into account by the company as a transfer to non-technical account from the non-profit fund for that or any subsequent period of account (“the relevant period of account”), and

(c) the positive amount so brought into account for the relevant period of account exceeds the non-FAFTS surplus (see subsection (8) below).

(3) The amount of that excess is to be treated for the purposes of section 83(2) as brought into account by the company for the relevant period of account as an increase in the value of assets.

(4) For the purposes of this section and section 83YD a company enters into a relevant financing arrangement in relation to a non-profit fund in a period of account if—

(a) the loan condition (see subsection (5) below), or

(b) the reinsurance condition (see subsection (6) below),

is met.

(5) The loan condition is met if credits in respect of a money debt which is to any extent referable to the company's life assurance business (a “relevant money debt”) are brought into account in relation to a non-profit fund as part of total income for the period of account.

(6) The reinsurance condition is met if—

(a) in the period of account the company enters into a financial reinsurance arrangement relating to any liabilities (see subsection (7) below), and

(b) the reinsurance of the liabilities would (but for section 83YF(2)) be taken into account in calculating profits of the company's life assurance business in accordance with the provisions of Case I of Schedule D for the period of account;

and such liabilities are referred to in this section and section 83YD as “relevant liabilities”.

(7) For the purposes of this section the company enters into a financial reinsurance arrangement if—

(a) it enters into a contract of insurance under which liabilities of the company to policy holders or annuitants (or both) in respect of a non-profit fund are reinsured,

(b) the reinsured liabilities are to reduce over time,

(c) the contract is a financing arrangement within the meaning of paragraph 9(3) of Appendix 9.4 to the Prudential Sourcebook (Insurers), and

(d) the premiums which, immediately after entering into the contract, the company is liable to pay under the contract are an insubstantial proportion of the amount of the reinsured liabilities at that time.

(8) For the purposes of this section the “non-FAFTS surplus” is—

(a) the amount shown in line 39 of Form 58 in relation to the non-profit fund in the periodical return for the relevant period of account, reduced (but not to below nil) by

(b) so much of the aggregate of the relevant outstanding debt amount (see subsection (9) below) and the relevant outstanding reinsurance amount (see subsection (10) below) as is untaxed (see subsection (11) below).

(9) The “relevant outstanding debt amount” is the total amount of the credits brought into account by the company in relation to the non-profit fund as part of total income—

(a) for the relevant period of account, or

(b) for any earlier period of account,

in respect of relevant money debts to the extent that they have not been repaid before the end of the relevant period of account.

(10) The “relevant outstanding reinsurance amount” is the total of the amounts which would (but for section 83YF(2)) be taken into account in calculating profits of the company's life assurance business in accordance with the provisions of Case I of Schedule D—

(a) for the relevant period of account, or

(b) for any earlier period of account,

in respect of the reinsurance of relevant liabilities to the extent that they have not ceased to be reinsured before the end of the relevant period of account.

(11) The aggregate of the relevant outstanding debt amount and the relevant outstanding reinsurance amount is “untaxed” to the extent that it exceeds the difference between—

(a) the aggregate of the amounts treated as brought into account in the case of the company by the operation of subsection (3) above for periods of account of the company earlier than the relevant period of account, and

(b) the aggregate of the amounts which are the relevant amount for the relevant period of account or earlier periods of account of the company under section 83YD.

83YD FAFTS: deduction in subsequent periods of account

(1) This section applies where section 83YC(3) has operated in the case of the company for one or more periods of account.

(2) The relevant amount (see subsection (4) below) is to be treated for the purposes of section 83(2) as brought into account by the company as a decrease in the value of assets for any subsequent period of account in relation to which the condition in subsection (3) below is met.

(3) That condition is that—

(a) a payment made by the company in respect of a relevant money debt is brought into account for the period of account as part of total expenditure in the revenue account for the non-profit fund without being deductible under section 82(2)(b) of the Finance Act 1996, or

(b) relevant liabilities are recaptured (that is, cease to be reinsured under a financial reinsurance arrangement) during the period of account.

(4) For the purposes of subsection (2) above “the relevant amount” is an amount equal to so much of the aggregate of—

(a) the payments made and brought into account as mentioned in paragraph (a) of subsection (3) above, and

(b) the liabilities recaptured as mentioned in paragraph (b) of that subsection,

as, when added to the aggregate of the amounts which are the relevant amount for each earlier period of account of the company in relation to which this section has applied, does not exceed the taxed amount (see subsection (6) below).

(5) But the making of payments or recapture of liabilities is to be left out of account under paragraph (a) or (b) of subsection (4) above to the extent that it relates to refinancing; and for this purpose a payment or recapture of liabilities relates to refinancing if—

(a) the company enters into a relevant financing arrangement in relation to the non-profit fund (in any period of account), and

(b) it is reasonable to assume that the making of the payments or the recapture of the liabilities is connected with its doing so.

(6) For the purposes of subsection (4) above “the taxed amount” is the aggregate of the amounts treated as brought into account in the case of the company by the operation of section 83YC(3) above for earlier periods of account.

83YE Regulations: apportionment and redefining “financial reinsurance arrangement”

(1) The Treasury may by regulations make provision for determining what parts of amounts within sections 83YC(3) and 83YD(2)—

(a) are referable to life assurance business, or

(b) are referable to gross roll-up business.

(2) The Treasury may by regulations make provision amending section 83YC(7).

(3) Regulations under subsection (2) above may include incidental, supplementary, consequential, transitional and savings provisions and may amend or repeal any enactment.

(4) Regulations under this section—

(a) may make provision in relation to periods of account current when they are made, and

(b) if made before 1 January 2009, may make provision in relation to periods of account beginning on or after 1 January 2008 which have ended before they are made.

83YF Financial reinsurance arrangements: further provision

(1) This section applies where the company has entered into a financial reinsurance arrangement for the purposes of section 83YC.

(2) Any reduction in the company's liabilities as a result of it doing so is not to be taken into account in calculating profits of the company's life assurance business in accordance with the provisions of Case I of Schedule D.

(3) Any increase in the company's liabilities as a result of the reduction over time of the liabilities reinsured under the contract of reinsurance is not to be taken into account in calculating profits of the company's life assurance business in accordance with the provisions of Case I of Schedule D otherwise than in accordance with section 83YD.”

(4) Omit section 83ZA (contingent loans).

2 U.K. In ICTA, for section 444AE substitute—

“444AE Transfers of business: FAFTS

(1) Where an insurance business transfer scheme has effect to transfer the relevant financing arrangements entered into in relation to a non-profit fund of an insurance company (“the transferor”) to another person (“the transferee”), after the transfer—

(a) they are to be treated for the purposes of sections 83YC and 83YD of the Finance Act 1989 as having been entered into by the transferee, but

(b) the references in those sections to earlier periods of account of the transferee include earlier periods of account of the transferor.

(2) But if the insurance business transfer scheme has effect—

(a) to transfer some but not all of the relevant financing arrangements entered into in relation to the non-profit fund of the transferor, or

(b) to transfer all of those relevant financing arrangements but not all to one person,

any calculation required by virtue of section 83YC or 83YD in relation to a period of account of the transferor, or of the transferee or any of the transferees, ending after the transfer is to be made on a just and reasonable basis.

(3) Subsection (4) below applies where—

(a) relevant financing arrangements have been entered into in relation to a non-profit fund of an insurance company (“the old company”), and

(b) as a result of any transaction other than an insurance business transfer scheme, another insurance company (“the new company”) becomes the debtor in respect of the money debt, or the cedant, under the financial reinsurance arrangements.

(4) Where this subsection applies, after the transaction—

(a) the relevant financing arrangements are to be treated for the purposes of sections 83YC and 83YD as having been entered into by the new company, but

(b) the references in those sections to earlier periods of account of the new company include earlier periods of account of the old company, and

(c) the transaction is not to be regarded as causing the condition in section 83YD(3) to be met in relation to the old company.

(5) But if the transaction has effect—

(a) to transfer some but not all of the relevant financing arrangements entered into in relation to the non-profit fund of the old company, or

(b) to transfer all of those relevant financing arrangements but not all to one person,

any calculation required by virtue of section 83YC or 83YD in relation to a period of account of the old company, or of the new company or any of the new companies, ending after the transaction is to be made on a just and reasonable basis.

(6) Expressions used in this section and section 83YC or 83YD have the same meanings here as there.”

3 U.K. In consequence of paragraphs 1 and 2, omit—

(a) paragraph 2(2A) of Schedule 11 to FA 1996,

(b) paragraph 3 of Schedule 33 to FA 2003,

(c) paragraph 8 of Schedule 11 to FA 2006, and

(d) paragraph 1 of Schedule 10 to FA 2007.

4 (1) The amendments made by paragraphs 1 to 3 have effect in relation to periods of account beginning on or after 1 January 2008. U.K.

(2) Where, at the end of the last period of account of an insurance company before the first beginning on or after 1 January 2008 (“the initial period of account”) the company has unrepaid contingent loan liabilities, sections 83YC and 83YD of FA 1989, as inserted by paragraph 1, have effect as follows.

(3) Those sections have effect as if—

(a) the amount of the unrepaid contingent loan liabilities, so far as relating to a non-profit fund, were credits in respect of a money debt brought into account in relation to a non-profit fund as part of total income for the initial period of account, and

(b) any amount by which—

for any period of account beginning on or after 1 January 2008 is to be included in the relevant amount for the period of account for the purposes of section 83YD(2).

(4) For the purposes of sub-paragraph (2), subsection (3) of section 83ZA of FA 1989 applies for determining whether the company has unrepaid contingent loan liabilities; and for the purposes of sub-paragraph (3)(a) the amount of the unrepaid contingent loan liabilities is the amount given by subsection (7) of that section for the period of account preceding the initial period of account.

(5) In sub-paragraph (3)(b)—

• AA is the amount which would have been allowable for the period of account by virtue of subsection (13) of section 83ZA of FA 1989, and

• R is the amount which would have been taken into account as a receipt of the period of account under subsection (6)(b) of that section (on the assumption that there were no reduction under subsection (7)(a) of that section [F1 in respect of amounts brought into account as transfers to non-technical account for periods of account beginning on or after 1 January 2008]).

(6) Where by virtue of sub-paragraph (3)(b) an amount (“the contingent loan amount”) is included in the relevant amount for a period of account for the purposes of subsection (2) of section 83YD of FA 1989 by reason of any repayment of a money debt, a payment brought into account as mentioned in subsection (3)(a) of that section in respect of the money debt for the period of account does not form part of the relevant amount for that period of account for those purposes except to the extent that it exceeds the contingent loan amount.

Textual Amendments

F1 Words in Sch. 17 para. 4(5) inserted (with effect in accordance with Sch. 23 para. 4(2) of the amending Act) by Finance Act 2009 (c. 10), Sch. 23 para. 4(1)