Income and Corporation Taxes Act 1988

Insurance companies: general U.K.

Modifications etc. (not altering text)

C3 See 1989 ss.82-92 for changes made by Finance Act 1989 and 1990 ss.41-48 for changes made by Finance Act 1990.

431 Interpretative provisions relating to insurance companies. U.K.

(1) M1 This section has effect for the interpretation of this Chapter.

(2) M2 Unless the context otherwise requires—

• “annuity business” means the business of granting annuities on human life;

• “general annuity business” means any annuity business which is not pension business [F1 or overseas life assurance business], and “pension business” shall be construed in accordance with subsections (3) and (4) below;

• “annuity fund” means, where an annuity fund is not kept separately from the life assurance fund of an insurance company, such part of the life assurance fund as represents the liability of the company under its annuity contracts, as stated in its periodical returns;

• [F2 “basic life assurance business” means life assurance business other than general business, pension business and overseas life assurance business;

• [F3 “basic life assurance and general annuity business” means life assurance business other than pension business and overseas life assurance business;]

• “closing” and “opening”, in relation to a period of account, refer respectively to the position at the end and at the beginning of the period and, in relation to an accounting period, refer respectively to the position at the end and at the beginning of the period of account in which the accounting period falls;

• “closing liabilities” includes liabilities assumed at the end of the period of account concerned in consequence of the declaration of reversionary bonuses or a reduction in premiums;

• [F4 “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI;]

• “industrial assurance business” has the same meaning as in the M3 Insurance Companies Act 1982;]

• “insurance company” means a company to which Part II of the Insurance Companies Act 1982 applies;

• [F5 “investment reserve”, in relation to an insurance company, means the excess of the value of the assets of the company’s long term business fund over the liabilities of the long term business;

• “liabilities”, in relation to an insurance company, means the liabilities of the company estimated as for the purposes of its periodical return (excluding any that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the company’s insurance business);]

• “life assurance business” includes annuity business;

• [F6 “linked assets” means assets of an insurance company which are identified in its records as assets by reference to the value of which benefits provided for under a policy or contract are to be determined;

• “long term business” has the meaning given by section 1(1) of the Insurance Companies Act 1982;

• “long term business fund” means the fund maintained by an insurance company in respect of its long term business or, where the company carried on both ordinary long term business and industrial assurance business, either or both (as the context may require) of the two funds so maintained;]

• “offshore income gain” has the same meaning as in Chapter V of Part XVII;

• [F7 “ordinary long term business” and “ordinary life assurance business” means respectively long term business and life assurance business that is not industrial assurance business;

• “overseas life assurance business”—

  (a)

  in the case of life assurance business other than reinsurance business, means business with a policy holder or annuitant not residing in the United Kingdom the policy or contract for which was effected at or through a branch or agency outside the United Kingdom where life assurance business is carried on; and

  (b)

  in the case of reinsurance business, means business the contract for which was effected at or through a branch or agency outside the United Kingdom where none, or no significant part, of the reinsurance business carried on relates to life assurance business with policy holders or annuitants residing in the United Kingdom;

• “overseas life assurance fund” shall be construed in accordance with Schedule 19AA;]

• “overseas life insurance company” means an insurance company [F8 not resident in]the United Kingdom but carrying on life assurance business through a branch or agency in the United Kingdom; and

• “periodical return”, in relation to an insurance company, means a return deposited with the Secretary of State under Part II of the Insurance Companies Act 1982.

• [F9 “UK distribution income” has the meaning given by section 444D(4);]

• [F10 “policy holders’ fraction” and “shareholders’ fraction” shall be construed in accordance with section 89of the Finance Act 1989.]

• [F11 “value”, in relation to assets of an insurance company, means the value of the assets as taken into account for the purposes of the company’s periodical return;

• “with-profits liabilities” means liabilities in respect of policies or contracts under which the policy holders or annuitants are eligible to participate in surplus;]

[F12 (2A) Linked assets shall be taken to be linked solely to long term business of a particular category if, and only if, all (or all but an insignificant proportion) of the policies or contracts providing for the benefits concerned are policies or contracts the effecting of which constitutes the carrying on of business of that category.]

(3) M4 Subject to section 439, any division to be made between general annuity business, pension business and other life assurance business shall be made on the principle of—

(a) referring to pension business any premiums falling within subsection (4) below, together with the incomings, outgoings and liabilities referable to those premiums and the policies and contracts under which they are or have been paid;

(b) allocating to general annuity business all other annuity business [F13 that is not overseas life assurance business];

and references to “pension fund” and “general annuity fund” shall be construed accordingly, whether or not any such funds are kept separate from the insurance company’s life assurance fund.

(4) The premiums to be referred to pension business are those payable under contracts falling within one or other of the following descriptions, that is to say—

(a) M5 any contract with an individual who is, or would but for an insufficiency of profits or gains be, chargeable to income tax in respect of relevant earnings (as defined in section 623(1) and (2)) from a trade, profession, vocation, office or employment carried on or held by him (being a contract approved by the Board under section 620), or any substituted contract within the meaning of section 622(3);

(b) M6 any contract (including a contract of insurance) entered into for the purposes of, and made with the persons having the management of, an exempt approved scheme as defined in Chapter I of Part XIV, being a contract so framed that the liabilities undertaken by the insurance company under the contract correspond with liabilities against which the contract is intended to secure the scheme;

(c) M7 any contract made under approved personal pension arrangements within the meaning of Chapter IV of Part XIV;

(d) any annuity contract entered into for the purposes of—

(i) M8 a scheme which is approved or is being considered for approval under Chapter I of Part XIV;

[F14 (ii) a scheme which is a relevant statutory scheme for the purposes of Chapter I of Part XIV;] or

(iii) a fund to which section 608 applies,

being a contract which is F15 . . . made with the persons having the management of the scheme or fund (or those persons and a member of or contributor to the scheme or fund) and by means of which relevant benefits as defined by section 612(1) [F16 and falling within section 431AA](but no other benefits) are secured;

(e) any annuity contract F17 . . . which is entered into in substitution for a contract within paragraph (d) above [F18 and by means of which relevant benefits as defined by section 612(1) and falling within section 431AA (but no other benefits) are secured];

(f) M9 any contract with the trustees or other persons having the management of a scheme approved under section 620 or, subject to subsection (5) below, of a superannuation fund which was approved under section 208 of the 1970 Act, being a contract which—

(i) was entered into for the purposes only of that scheme or fund or, in the case of a fund part only of which was approved under section 208, for the purposes only of that part of that fund, and

(ii) (in the case of a contract entered into or varied after 1st August 1956) is so framed that the liabilities undertaken by the insurance company under the contract correspond with liabilities against which the contract is intended to secure the scheme or fund (or the relevant part of the fund).

(5) [F19 Subsection (4)(f) ] above shall not apply to premiums payable under a contract where the fund in question was approved under section 208 of the 1970 Act unless—

(a) immediately before 6th April 1980 premiums paid under the contract with the trustees or other persons having the management of the fund fell within section 323(4) of that Act (premiums referable to pension business); and

(b) the terms on which benefits are payable from the fund have not been altered since that time; and

(c) section 608 applies to the fund.

(6) M10 In subsections (3) to (5) above “premium” includes any consideration for an annuity.

Textual Amendments

F1 1990 s.41and Sch.6 para.1(2)(a)on and after 1January 1990subject to the commencement provisions of paras.11and 12.

F2 S. 431(2): definitions inserted by Finance Act 1990 (c. 29), Sch. 6 para. 1(2)

F3 In s. 431(2): definition of "basic life assurance and general annuity business" inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 para. 2

F4 S. 431(2): definition of "foreign income dividends" inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 4

F5 S. 431(2): definitions inserted by Finance Act 1990 (c. 29), Sch. 6 para. 1(2)

F6 S. 431(2): definitions inserted by Finance Act 1990 (c. 29), Sch. 6 para. 1(2)

F7 S. 431(2): definitions inserted by Finance Act 1990 (c. 29), Sch. 6 para. 1(2)

F8 S. 431(2): words in the definition of "overseas life insurance company" substituted (27.7.1993 as mentioned in s. 103(3)(4) of the amending Act) by 1993 c. 34, s. 103(1)(3)(4)

F9 S. 431(2): definition of "UK distribution income" inserted (27.7.1993 with effect in relation to accounting periods beginning after 31.12.1992) by 1993 c. 34, s. 99(2)(3)

F10 1989 s.84and Sch.8 para.1—with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).Repealed by 1990 s.132and Sch.19 Part IV—repeal deemed always to have had effect.

F11 S. 431(2): definitions inserted by Finance Act 1990 (c. 29), Sch. 6 para. 1(2)

F12 S. 431(2A) inserted by Finance Act 1990 (c. 29), Sch. 6 para. 1(3)

F13 1990 s.41and Sch.6 para.1(4)on and after 1January 1990subject to the commencement provisions of paras.11and 12.

F14 1989 s.75and Sch.6 paras.2and 18(1)—deemed to have come into force on 14March 1989.Previously

“a statutory scheme as defined by section 612(1);”.

F15 Words in s. 431(4)(d) repealed (with effect in accordance with s. 143(5) of the repealing Act) by Finance Act 1994 (c. 9), s. 143(2)(a), Sch. 26 Pt. 5(20), Note

F16 Words in s. 431(4)(d) inserted (with effect in accordance with s. 143(5) of the amending Act) by Finance Act 1994 (c. 9), s. 143(2)(b)

F17 Words in s. 431(4)(e) repealed (with effect in accordance with s. 143(5) of the repealing Act) by Finance Act 1994 (c. 9), s. 143(3)(a), Sch. 26 Pt. 5(20), Note

F18 Words in s. 431(4)(e) inserted (with effect in accordance with s. 143(5) of the amending Act) by Finance Act 1994 (c. 9). s. 143(3)(b)

F19 Words in s. 431(5) substituted (retrospectively) by Finance Act 1994 (c. 9), Sch. 17 para. 4

Modifications etc. (not altering text)

C4 S. 431(2) modified (31.7.1992 with effect as mentioned in reg. 1 of the modifying S.I.) by S.I. 1992/1655, regs. 1, 5 (as amended (31.12.1993) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111), regs. 1, 5, 6; and as further amended (19.3.1997) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1997 (S.I. 1997/471), regs. 1, 6)

C5 For application of definition see—1975 (No.2) s.58(10)—disposal of shares and securities.1988 Sch.19 para.5(3)—distributable income.

Marginal Citations

M1 Source—1970 s.323(1); 1973 s.40(7); 1982 s.58(7)

M2 Source—1970 s.323(2); 1970(F) Sch.5 Pt.III 11(4)

M3 1982 c. 50.

M4 Source—1970 s.323(3); 1970(F) Sch.5 Pt.III 11(5); 1981 s.41

M5 Source—1970 s.323(4)(a); 1970(F) Sch.5 Part III 11(3); 1978 s.26(5)

M6 Source—1970 s.323(4)(aa); 1970(F) Sch.5 Part III 11(1)

M7 Source—1970 s.323(4)(ab); 1987 (No.2) s.39(3)

M8 Source—1970 s.323(4)(ac), (ad); 1987 (No.2) Sch.3 16

M9 Source—1970 s.323(4)(b)

M10 Source—1970 s.323(4)

Yn ddilys o 21/07/2008

[F20 431ZA Election that assets not be foreign business assets U.K.

(1) An insurance company may, in its company tax return for the first accounting period of the company beginning on or after 1 January 2008 in which any of the assets of the company's long-term insurance fund would (apart from this section) be foreign business assets, elect that none of the assets of the company's long-term insurance fund are to be regarded for the purposes of this Act as being foreign business assets.

(2) The election has effect for that accounting period and all subsequent accounting periods of the company.

(3) An election under subsection (1) is irrevocable.]

Textual Amendments

F20 S. 431ZA inserted (with effect in accordance with Sch. 17 para. 10(6)(7) of the amending Act) by Finance Act 2008 (c. 9), Sch. 17 para. 10(2)

[F21 431A Amendment of Chapter etc. U.K.

Where it is expedient to do so in consequence of the exercise of any power under the M11 Insurance Companies Act 1982, the Treasury may by order amend the provisions of this Chapter and any other provision of the Tax Acts so far as relating to insurance companies.]

Textual Amendments

F21 S. 431A inserted (1.1.1990) by Finance Act 1990 (c. 29), Sch. 6 paras. 2, 11(2) (with Sch. 6 para. 12)

Marginal Citations

M11 1982 c. 50.

[F22 431AA Relevant benefits for purposes of section 431(4)(d) and (e). U.K.

(1) Subsection (2) below applies where—

(a) section 431(4)(d)(i) applies, or

(b) section 431(4)(e) applies and the contract within section 431(4)(d) was entered into for the purposes of a scheme falling within section 431(4)(d)(i).

(2) In such a case, relevant benefits fall within this section if they correspond with benefits that could be provided by a scheme approved under Chapter I of Part XIV, and for this purpose—

(a) a hypothetical scheme (rather than any particular scheme) is to be taken, and

(b) benefits provided by a scheme directly (rather than by means of an annuity contract) are to be taken.

(3) Subsection (4) below applies where—

(a) subsection 431(4)(d)(ii) applies, or

(b) section 431(4)(e) applies and the contract within section 431(4)(d) was entered into for the purposes of a scheme falling within section 431(4)(d)(ii).

(4) In such a case, relevant benefits fall within this section if they correspond with benefits that could be provided by a scheme which is a relevant statutory scheme for the purposes of Chapter I of Part XIV, and for this purpose—

(a) a hypothetical scheme (rather than any particular scheme) is to be taken, and

(b) benefits provided by a scheme directly (rather than by means of an annuity contract) are to be taken.

(5) Subsection (6) below applies where—

(a) section 431(4)(d)(iii) applies, or

(b) section 431(4)(e) applies and the contract within section 431(4)(d) was entered into for the purposes of a fund falling within section 431(4)(d)(iii).

(6) In such a case, relevant benefits fall within this section if they correspond with benefits that could be provided by a fund to which section 608 applies, and for this purpose—

(a) a hypothetical fund (rather than any particular fund) is to be taken, and

(b) benefits provided by a fund directly (rather than by means of an annuity contract) are to be taken.]

Textual Amendments

F22 S. 431AA inserted (with application in accordance with s. 143(5) of the amending Act) by Finance Act 1994 (c. 9), s. 143(4)

432 Separation of different classes of business. U.K.

(1) M12 Where an insurance company carries on life assurance business in conjunction with insurance business of any other class, the life assurance business shall, for the purposes of the Corporation Tax Acts, be treated as a separate business from any other class of business carried on by the company.

(2) Where an insurance company carries on both ordinary life assurance business and [F23 industrial assurance] business, the business of each such class shall, for the purposes of the Corporation Tax Acts, be treated as though it were a separate business, and section 76 [F23 and where appropriate the provisions of this chapter] shall apply separately to each such class of business.

Textual Amendments

F23 1990 s.41and Sch.6 para.3(a), (b)on and after 1January 1990subject to the commencement provisions of paras.11and 12.Previously

“industrial life assurance”

in subs.(2)line 2.

Marginal Citations

M12 Source—1970 s.307

[F24 432A Apportionment of income and gains. U.K.

(1) This section has effect where—

(a) an insurance company carries on in any period both ordinary long term business and industrial assurance business, or life assurance business and other long term business, or more than one class of life assurance business, and

(b) it is necessary for the purposes of the Corporation Tax Acts to determine in relation to the period what parts of—

(i) income arising from the assets of the company’s long term business fund, or

(ii) gains or losses accruing on the disposal of such assets, are referable to any of the categories of business in question.

(2) The classes of life assurance business referred to in subsection (1) above are—

(a) pension business;

F25 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) overseas life assurance business; and

F25 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F26 (e) basic life assurance and general annuity business.]

(3) Income arising from, and gains or losses accruing on the disposal of, assets linked solely to ordinary long term business, industrial assurance business, life assurance business, long term business other than life assurance business, pension business or [F27 basic life assurance and general annuity business] shall be referable to the category of business concerned.

(4) Income arising from, and gains or losses accruing on the disposal of, assets of the overseas life assurance fund (and no other assets) shall be referable to overseas life assurance business.

(5) There shall be referable to any category of business (apart from overseas life assurance business) the relevant fraction of any income, gains or losses not directly referable to any of the appropriate categories of business.

(6) For the purposes of subsection (5) above “the relevant fraction”, in relation to a category of business, is the fraction of which—

(a) the numerator is the aggregate of—

(i) the mean of the opening and closing liabilities of the category, reduced by the mean of the opening and closing values of any assets directly referable to the category, and

(ii) the mean of the appropriate parts of the opening and closing amounts of the investment reserve; and

(b) the denominator is the aggregate of—

(i) the mean of the opening and closing liabilities of the long term business, reduced by the mean of the opening and closing values of any assets directly referable to any of the appropriate categories of business, and

(ii) the mean of the opening and closing amounts of the investment reserve.

(7) For the purposes of subsections (5) and (6) above—

(a) references to appropriate categories of business—

(i) where the category of business in question is ordinary long term business or industrial assurance business, are references to those categories of business;

(ii) where the category of business in question is life assurance business or long term business other than life assurance business, are references to those categories of business; and

(iii) where the category of business in question is pension business, [F28 or basic life assurance and general annuity business], are references to [F29 those categories of business]; and

(b) income, gains or losses are directly referable to a category of business if referable to the category by virtue of subsection (3) above and assets are directly referable to a category of business if income arising from the assets is, and gains or losses accruing on the disposal of the assets are, so referable.

(8) In subsection (6) above “appropriate part”, in relation to the investment reserve, means—

(a) where all of the liabilities of the long term business are linked liabilities, the part of that reserve which bears to the whole the same proportion as the amount of the liabilities of the category of business in question bears to the whole amount of the liabilities of the long term business,

(b) where any of the liabilities of the long term business are not linked liabilities but none (or none but an insignificant proportion) are with-profits liabilities, the part of that reserve which bears to the whole the same proportion as the amount of the liabilities of the category of business in question which are not linked liabilities bears to the whole amount of the liabilities of the long term business which are not linked liabilities, and

(c) in any other case, the part of that reserve which bears to the whole the same proportion as the amount of the with-profits liabilities of the category of business in question bears to the whole amount of the with-profits liabilities of the long term business;

and in this subsection “linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.

(9) Where the category of business in question is a class of life assurance business, for the purposes of this section—

(a) “liabilities” does not include liabilities of the overseas life assurance business; and

(b) assets of the overseas life assurance fund and liabilities of the overseas life assurance business shall be left out of account in determining the investment reserve.

F30 (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F24 1990 s.41 and Sch. 6 para. 4 on and after 1 January 1990 subject to the commencement provisions of paras.11 and 12

F25 S. 432A(2)(b)(d) repealed (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), ss. 48, 123, Sch. 7 paras. 3(1), 18, Sch. 19 Pt. V, Note 3

F26 S. 432A(2)(e) added (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 3(1), 18

F27 Words in s. 432A(3) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 3(2), 18

F28 Words in s. 432A(7)(a)(iii) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 3(3)(a), 18

F29 Words in s. 432A(7)(a)(iii) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 3(3)(b), 18

F30 S. 432A(10) repealed (27.7.1993 with effect in relation to accounting periods beginning on or after 1.1.1993 ) by 1993 c. 34, ss. 91(2)(a), 213, Sch. 23 Pt.III (8), note

Modifications etc. (not altering text)

C6 S. 432A modified (3.5.1994) by Finance Act 1994, (c. 9), Sch. 18 para 1(4), s. 169

C7 S. 432A modified by S.I. 1992/1655, reg. 8, as amended (with effect in accordance with reg. 1(2)(3) of the amending instrument) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111), reg. 7, 1(1)

C8 S. 432A modified by S.I. 1992/1655, reg. 7, as amended (with effect in accordance with reg. 1(2)(3) of the amending instrument) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111), reg. 5, 1(1)

C9 S. 432A modified (31.7.1992 with effect as mentioned in reg. 1 of the amending S.I.) by S.I. 1992/1655, regs. 1, 6(1), 7(1), 8(1)

C10 Definition employed for purposes of 1990 s. 46 — annual deemed disposal of holdings of unit trusts etc. by insurance companies

C11 S. 432A(8)(9) applied (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 212(6), 289, (with ss. 60, 101(1), 171, 201(3))

432B [F31 Apportionment of receipts brought into account. U.K.

(1) This section and sections 432C to 432E have effect where it is necessary in accordance with section 83 of the Finance Act 1989 to determine what parts of any items brought into account in the revenue account prepared for the purposes of the M13 Insurance Companies Act 1982 are referable to life assurance business or any class of life assurance business.

(2) Where in addition to the revenue account prepared for the purposes of the Insurance Companies Act 1982 in respect of the whole of any business carried on by a company there are prepared for the purposes of that Act revenue accounts relating to parts of the business, amounts referred to in sections 432C to 432E shall, so far as they relate to those parts, be ascertained by reference to the latter accounts rather than by reference to the former.

(3) Sections 432C and 432D apply where the business with which an account is concerned (“the relevant business”) relates exclusively to policies or contracts under which the policy holders or annuitants are not eligible to participate in surplus; and section 432E applies where the relevant business relates wholly or partly to other policies or contracts. ]

Textual Amendments

F31 1990 s.41 and Sch.6 para.4 on and after 1 January 1990 subject to the commencement provisions of paras.11 and 12.

Modifications etc. (not altering text)

C12 S. 432B modified by S.I. 1992/1655, reg. 9, as amended (with effect in accordance with reg. 1(2)(3) of the amending instrument) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111), reg. 8, 1(1)

C13 ss. 432B-432E excluded (31.7.1992 with effect as mentioned in reg. 1 of the amending S.I.) by S. I. 1992/1655, regs. 1,10

C14 S. 432B modified (31.7.1992 with effect as mentioned in reg. 1 of the amending S.I.) by S.I. 1992/1655, regs. 1, 9(1)

Marginal Citations

M13 1982 c. 50.

432C [F32 Section 432B apportionment: income of non-participating funds. U.K.

(1) To the extent that the amount brought into account as income is attributable to assets linked solely to life assurance business, pension business or [F33 basic life assurance and general annuity business], it shall be referable to the category of business concerned.

(2) To the extent that that amount is attributable to assets of the overseas life assurance fund, it shall be referable to overseas life assurance business.

(3) There shall be referable to any category of business (apart from overseas life assurance business) the relevant fraction of so much of the amount brought into account as income as is not directly referable to any of the appropriate categories of business.

(4) For the purposes of subsection (3) above “the relevant fraction”, in relation to a category of business, is the fraction of which—

(a) the numerator is the mean of the opening and closing liabilities of the relevant business so far as referable to the category, reduced by the mean of the opening and closing values of any assets of the relevant business directly referable to the category; and

(b) the denominator is the mean of the opening and closing liabilities of the relevant business, reduced by the mean of the opening and closing values of any assets of the relevant business directly referable to any of the appropriate categories of business.

(5) For the purposes of subsections (3) and (4) above—

(a) references to appropriate categories of business—

(i) where the category of business in question is life assurance business, are references to that category of business and long term business other than life assurance business; and

(ii) where the category of business in question is pension business, [F34 or basic life assurance and general annuity business], are references to [F35 those categories of business]; and

(b) the part of the amount brought into account as income which is directly referable to a category of business is the part referable to the category by virtue of subsection (1) above and assets are directly referable to a category of business if such part of the amount brought into account as income as is attributable to them is so referable.

(6) Where the category of business in question is a class of life assurance business, for the purposes of this section “liabilities” does not include liabilities of the overseas life assurance business. ]

Textual Amendments

F32 1990 s.41 and Sch.6 para.4 on and after 1 January 1990 subject to the commencement provisions of paras.11 and 12.

F33 Words in s. 432C(1) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 3(4), 18

F34 Words in s. 432C(5)(a)(ii) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 3(5)(a), 18

F35 Words in s. 432C(5)(a)(ii) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 3(5)(b), 18

Modifications etc. (not altering text)

C15 Ss. 432B-432E excluded (31.7.1992 with effect as mentioned in reg. 1 of the amending S.I.) by S.I. 1992/1655, regs. 110

432D [F36 Section 432B apportionment: value of non-participating funds. U.K.

(1) To the extent that the amount brought into account as the increase or decrease in the value of assets is attributable to assets linked solely to life assurance business, pension business or [F37 basic life assurance and general annuity business], or to assets of the overseas life assurance fund which are linked solely to overseas life assurance business, it shall be referable to the category of business concerned.

(2) There shall be referable to any category of business the relevant fraction of the amount brought into account as the increase or decrease in the value of assets except so far as the amount is attributable to assets which are directly referable to any of the appropriate categories of business.

(3) Subsections (4) and (5) (but not (6)) of section 432C shall apply for the purposes of this section as if—

(a) each of the references to a subsection of that section were a reference to the corresponding subsection of this section, and

(b) in subsection (5)—

(i) a reference to overseas life assurance business were included after each of the references to pension business in paragraph (a)(ii), and

(ii) each of the references in paragraph (b) to income were a reference to the increase or decrease in the value of assets. ]

Textual Amendments

F36 1990 s.41 and Sch.6 para.4 on and after 1 January 1990 subject to the commencement provisions of paras.11 and 12.

F37 Words in s. 432D(1) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 3(6), 18

Modifications etc. (not altering text)

C16 Ss. 432B-432E excluded (31.7.1992 with effect as mentioned in reg. 1 of the amending S.I.) by S. I. 1992/1655, regs. 1,10

432E [F38 Section 432B apportionment: participating funds. U.K.

(1) The part of the net amount of the items referred to in subsection (1) of section 83 of the Finance Act 1989 (that is to say the income referred to in paragraph (a) of that subsection increased or reduced by the increase or reduction in the value referred to in paragraph (b)) which is referable to a particular category of business shall be—

(a) the amount determined in accordance with subsection (2) below, or

(b) the amount determined in accordance with subsection (3) below,

whichever is the greater.

(2) For the purposes of subsection (1) above there shall be determined the amount which is such as to secure—

(a) in a case where the relevant business is mutual business, that

,and

(b) in any other case, that

where—

• S is the surplus of the relevant business;

• AS is so much of that surplus as is allocated to persons entitled to the benefits provided for by the policies or contracts to which the relevant business relates;

• CAS is so much of the surplus so allocated as is attributable to policies or contracts of the category of business concerned; and

• CS is so much of the surplus of the relevant business as would remain if the relevant business were confined to business of the category concerned.

(3) For the purposes of subsection (1) above there shall also be determined the aggregate of—

(a) the applicable percentage of what is left of the mean of the opening and closing liabilities of the relevant business so far as referable to the category of business concerned after deducting from it the mean of the opening and closing values of any assets of the relevant business linked solely to that category of business, and

(b) the part of the net amount mentioned in subsection (1) above that is attributable to assets linked solely to that category of business.

(4) For the purposes of subsection (3) above “the applicable percentage”, in any case, is such percentage as may be determined for that case by or in accordance with an order made by the Treasury.

(5) Where the part of the net amount referable to a particular category or categories of business (“the subsection (3) category or categories”) is the amount determined in accordance with subsection (3) above, the amount determined in accordance with subsection (2) above in relation to any other category (“the relevant category”) shall be reduced by—

where—

• X is the excess of the amount determined in accordance with subsection (3) above in the case of the subsection (3) category (or each of them) over the amount determined in its case (or the case of each of them) in accordance with subsection (2) above;

• Y is so much of the surplus of the relevant business as is allocated to persons entitled to the benefits provided for by policies or contracts of the relevant category; and

• Z is so much of the surplus of the relevant business as is allocated to persons entitled to the benefits provided for by policies or contracts of the category (or each of the categories) which is not a subsection (3) category.

(6) Where the category of business concerned is overseas life assurance business—

(a) if the part of the income brought into account that is attributable to assets of the overseas life assurance fund not linked solely to overseas life assurance business is greater than the amount arrived at under subsection (3)(a) above, this section shall have effect as if that part of that income were the amount so arrived at; and

(b) the amount which, apart from this paragraph, would be the part of the net amount referable to that category of business shall be—

(i) reduced by the part of the net amount attributable to distributions of companies resident in the United Kingdom relating to assets of the company’s overseas life assurance fund, and

(ii) increased by the amount which is income of the relevant business by virtue of section 441A.

Textual Amendments

F38 1990 s.41 and Sch.6 para.4 on and after 1 January 1990 subject to the commencement provisions of paras.11 and 12.

Modifications etc. (not altering text)

C17 Ss. 432B-432E excluded (31.7.1992 with effect as mentioned in reg. 1 of the amending S.I.) by S.I. 1992/1655, regs. 1,10

C18 For orders see Part III Vol.5 (under

“Life assurance apportionment of participating funds: applicable percentage”).

433 Profits reserved for policy holders and annuitants. U.K.

M14 Where the profits of an insurance company in respect of its life assurance business are, for the purposes of this Act, computed in accordance with the provisions of this Act applicable to Case Iof Schedule D, such part of those profits as belongs or is allocated to, or is reserved for, or expended on behalf of, policy holders or annuitants shall be excluded in making the computation, but if any profits so excluded as being reserved for policy holders or annuitants cease at any time to be so reserved and are not allocated to or expended on behalf of policy holders or annuitants, those profits shall be treated as profits of the company for the accounting period in which they ceased to be so reserved. F39

Textual Amendments

F39 Repealed by 1989 ss.84and 187and Schs.8 para.2and 17 Part IV —deemed to have come into force on 14March 1989.For effect see s.84(6).

Marginal Citations

M14 Source—1970 s.309

434 Franked investment income etc. U.K.

(1) M15 Section 208 shall not prevent franked investment income of [F40 , or foreign income dividends arising to,] a company resident in the United Kingdom which carries on life assurance business from being taken into account as part of the profits in computing trading income in accordance with the provisions applicable to Case I of Schedule D.

(2) In ascertaining for the purposes of section 393 or [F41 393A(1)] whether and to what extent a company has incurred a loss on its life assurance business, any profits derived from the investments of its life assurance fund (including franked investment income of [F42 , and foreign income dividends arising to,] a company so resident) shall be treated as part of the profits of that business.

[F43 (3) Subject to sections 437 and 438, the [F44 policy holders’ share] of the franked investment income from investments held in connection with a company’s life assurance business shall not be used under Chapter V of Part VI to frank distributions made by the company and, accordingly, for the purposes of that Chapter (other than the application of franked investment income under section 241), in relation to any unrelieved income of a company falling within subsection (1) above, the surplus of franked investment income for any accounting period means the aggregate of—

(a) the [F44 policy holders’ share] of that franked investment income [F45 from investments held in connection with the company’s life assurance business]; and

(b) the amount determined under section 241(3) on the basis that the reference therein to franked investment income is a reference [F46 to that income excluding the amount within paragraph (a) above].

(3A) The policy holders’ [F47 share] of the franked investment income from investments held in connection with a company’s life assurance business shall be left out of account in determining, under subsection (7) of section 13, the franked investment income forming part of the company’s profits for the purposes of that section.]

[F48 (3B) The policy holders’ share of foreign income dividends received in respect of investments held in connection with a company’s life assurance business shall be left out of account in determining, under subsection (7) of section 13, the foreign income dividends forming part of the company’s profits for the purposes of that section.

(3C) The policy holders’ share of any income or chargeable gain arising in respect of investments held in connection with a company’s life assurance business shall be left out of account in ascertaining any foreign source profit of the company for the purposes of Chapter VA of Part VI.

(3D) The policy holders’ share of foreign income dividends received in respect of investments held in connection with a company’s life assurance business shall be left out of account in ascertaining, for the purposes of sections 246F(1) and (3) and Schedule 13, the amount of the foreign income dividends received by the company.]

(4) M16 Subject to subsection (5)below, the specified part shall be, in the case of any unrelieved income, the same fraction of it as the fraction which, on a computation of the profits of the company in respect of its life assurance business in accordance with the provisions applicable to Case Iof Schedule D (whether or not the company is in fact charged to tax under that Case for the relevant accounting period or periods),would be connoted by the words in section 433 “such part of those profits as belongs or is allocated to, or is reserved for, or expended on behalf of, policy holders or annuitants”. F49

(5) If the income exceeds the profits as computed in accordance with the provisions applicable to Case Iof Schedule D other than section 433, the specified part shall be that fraction of the income so far as not exceeding the profits, together with the amount of the excess. F49

(6) M17 For the purposes of section 239 the profits charged to corporation tax for any accounting period (as defined in subsection (6) of that section) shall be reduced by deducting [F50 the policy holders’ share of the relevant profits].

[F51 (6A) For the purposes of this section—

(a) “the policy holders’ share” of any franked investment income is so much of that income as is not the shareholders’ share within the meaning of section 89 of the Finance Act 1989, F52 . . .

[F53 (aa) “the policy holders’ share” of any foreign income dividends is so much of the income they represent as is not the shareholders’ share within the meaning of that section,

(ab) “the policy holders’ share” of any income (other than franked investment income) is so much of that income as is not the shareholders’ share within the meaning of that section,

(ac) “the policy holders’ share” of any chargeable gain is so much of that gain as is equal to the amount that, if the gain were income, would not be the shareholders’ share within the meaning of that section, and]

(b) “the policy holders’ share of the relevant profits” has the same meaning as in section 88 of that Act.]

(7) M18 For the purposes of subsection [F54 (3)] above “unrelieved income” means income which has not been excluded from charge to tax by virtue of any provision and against which [F55 disregarding relief under section 242] no relief has been allowed by deduction or set-off.

(8) M19 Where subsection (3) or (6) above would deny to a company any relief to which it would have been entitled if it had been charged to tax in respect of its life assurance business under Case I of Schedule D, corresponding relief shall be afforded to the company by repayment of, or set-off against, corporation tax or by payment of tax credit comprised in franked investment income from investments held in connection with that business.

Textual Amendments

F40 Words in s. 434(1) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 5(2)

F41 Words in s. 434(2) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 73(3)-(5), Sch. 15 para.15

F42 Words in s. 434(2) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 5(3)

F43 1989 s.84and Sch.8 para.3(1),and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).Previously

“(3) Any such part of the franked investment income from investments held in connection with a company's life assurance business as is specified in subsection (4) below (“the specified part”) shall not be used under Chapter V of Part VI to frank distributions made by the company.”.

F44 1990 s.45(4)(a).Previously

“policy holders' fraction”.

F45 1990 s.45(4)(b).

F46 1990 s.45(4)(c).Previously

“only to the shareholders' fraction of that income.”.

F47 1990 s.45(5).Previously

“fraction”.

F48 S. 434(3B)-(3D) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 5(4)

F49 Repealed by 1989 ss.84and 187and Sch.8 para.3(2)and Sch.17 Part IVwith respect to accounting periods beginning on or after 1January 1990.

F50 1990 s.45(6).Previously

“therefrom [the policyholders' fraction thereof (1989 s.84and Sch.8 para.3(3),and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).Previously

“such fraction thereof as is equal to the fraction of the profits of the company in respect of its life assurance business which under section 433 is excluded from the computation of those profits or would be so excluded if the profits were computed in accordance with the provisions applicable to Case I of Schedule D.”.)].”.

F51 1990 s.45(7).

F52 Word at the end of s. 434(6A)(a) repealed (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 5(5), Sch. 26 pt. 5(16)

F53 S. 434(6A)(aa)-(ac) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para 5(5)

F54 1989 s.84and Sch.8 para.3(4),and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).Previously

“(4).”

F55 1989 s.84and Sch.8 paras.3(4), 4,respectively and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).

Modifications etc. (not altering text)

C19 S. 434 amended (27.7.1993) by 1993 c. 34, s. 78(6)(11)

C20 S. 434(2) restricted (retrospectively) by Finance (No. 2) Act 1992 (c. 48), s. 65(2)(a)(5)(6)

Marginal Citations

M15 Source—1970 s.308(1), (2)

M16 Source—1970 s.310(6)

M17 Source—1972 Sch.18 2(4); 1987 (No.2) s.75(1)(b)

M18 Source—1970 s.310(7); 1984 s.18(5)

M19 Source—1972 Sch.18 2(5)

[F56 434A Limitations on loss relief and group relief. U.K.

(1) In the case of a company carrying on life assurance business, no relief shall be allowable

[F57 (a) under Chapter II (loss relief) or Chapter IV (group relief) of Part X, or

(b) under Chapter II of Part II of the Finance Act 1993 so far as it has effect in relation to losses treated as non-trading losses for the purposes of section 160 of the Finance Act 1994,]

against the policy holders’ [F58 share] of the relevant profits for any accounting period.

(2) For the purposes of subsection (1) above, [F58 “the policy holders’ share of the relevant profits” has the same meaning as in section 88 of the Finance Act 1989.]]

Textual Amendments

F56 1989 s.84and Sch.8 paras.3(4), 4,respectively and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).

F57 Words in s. 434A(1) substituted (3.5.1994) by Finance Act 1994 (c. 9), s. 176(1)

F58 1990 s.45(8).Previously

“fraction”

and

“the relevant profits of a company for an accounting period are the total profits of its life assurance business, less any deduction due under section 76, but before allowing any relief under Chapter II or Chapter IV of Part X”

respectively.

435 Taxation of gains reserved for policy holders and annuitants. U.K.

(1) M20 This section has effect in relation to any accounting period of an insurance company carrying on life assurance business and for the purposes of this section—

(a) the life assurance gains are such part of the amount to be included, in accordance with section 345,in the company’s total profits as is attributable to gains from investments held in connection with the company’s life assurance business;

(b) the policy holders’ share of the life assurance gains or of the relevant reliefs is such fraction thereof as is equal to the fraction of the profits of the company in respect of its life assurance business which, under section 433,is excluded from the computation of those profits or would be so excluded if the profits were computed in accordance with the provisions applicable to Case Iof Schedule D; and

(c) the relevant reliefs are such of the sums to be deducted from or set off against the company’s profits as are deducted from or set off against the life assurance gains.

(2) M21 Corporation tax charged on so much of the policy holders’ share of the life assurance gains as remains after setting against it the amounts referred to in subsection (3)(c)below shall be calculated on the basis of a rate of corporation tax of 30per cent.

(3) For the purposes of this section there shall be ascertained the policy holders’ share and the remainder (“the residual part”)of the life assurance gains and of the relevant reliefs; and—

(a) the residual part of the relevant reliefs shall be set against the residual part of those gains; and

(b) if the residual part of the relevant reliefs exceeds the residual part of those gains, the excess (or so much of it as does not, together with the policy holders’ share of the relevant reliefs, exceed the policy holders’ share of those gains)shall be added to the policy holders’ share of the relevant reliefs; and

(c) the policy holders’ share of the relevant reliefs, with any addition made under paragraph (b)above, shall be set against the policy holders’ share of the life assurance gains. F59

Textual Amendments

F59 Repealed by 1989 ss.84and 187and Schs.8 para.5and 17 Part IV,and subject to s.84(6)has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).

Marginal Citations

M20 Source—1974 s.26(1), (4)

M21 Source—1974 s.26(2), (3); 1987 (No.2) s.75(2), (3)

436 Annuity business and pension business: separate charge on profits. U.K.

(1) M22 Subject to the provisions of this section, profits arising to an insurance company from F60 . . . pension business shall be treated as income within Schedule D, and be chargeable under Case VI of that Schedule, and for that purpose—

(a) [F61 that business] shall be treated separately, and

(b) subject to paragraph (a) above, and to subsection (3) below, the profits therefrom shall be computed in accordance with the provisions of this Act applicable to Case I of Schedule D.

(2) Subsection (1) above shall not apply to an insurance company charged to corporation tax in accordance with the provisions applicable to Case I of Schedule D in respect of the profits of its ordinary life assurance business.

(3) M23 In making the computation referred to in subsection (1) above—

(a) [F62 sections 82 and 83 of the Finance Act 1989]shall apply with the necessary modifications and in particular with the omission of all references to policy holders (other than holders of policies referable to pension business) [F63 and of the words “tax or” in section 82(1)(a)];

(b) no deduction shall be allowed in respect of any expenses of management deductible under section 76; F64

(c) there may be set off against the profits any loss, to be computed on the same basis as the profits, which has arisen from pension business F65 . . .in any previous accounting period or year of assessment;

(d) where the computation in question is of profits arising to an insurance company from pension business—

[F66 (i) group income so far as referable to pension business shall be deducted from the receipts to be taken into account,]

(ii) annuities shall be deductible notwithstanding section 337(2);

and the company shall not be entitled to treat as paid out of profits or gains brought into charge to income tax any part of the annuities paid by the company which is referable to pension business; and

(e) distributions which are not qualifying distributions shall not be taken into account where the computation in question is of the profits arising to an insurance company or overseas life insurance company from F67 . . . pension business.

(4) M24 Section 396 shall not be taken to apply to a loss incurred by a company on its F68 . . . pension business.

(5) M25 Nothing in section 128 or 399(1) shall affect the operation of this section.

Textual Amendments

F60 Words in s. 436(1) repealed (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, 123, Sch. 7 paras. 4(1)(a), 18, Sch. 19 Pt.V Note 3

F61 Words in s. 436(1)(a) substituted (for accounting periods beginning on or after 1. 1. 1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 4(1)(b), 18

F62 1989 s.84and Sch.8 para.6and, subject to s.84(6)deemed to have come into force on 14March 1989.Previously

“section 433”.

F63 1990 s.43(2).Subject to 1989 s.84(6)this amendment has effect with respect to accounting periods beginning on or after 1January 1990.

F64 Words repealed by 1989 ss.87(4)and 187and Sch.17 Part IVwith respect to accounting periods beginning on or after 1January 1990. (See 1989 s.87(5)in relation to straddling periods).

F65 Words in s. 436(3)(c) repealed (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), ss. 48, 123, Sch. 7 paras. 4(2)(a), 18 Sch. 19 Pt. V, Note 3

F66 1990 s.41and Sch.6 para.5on and after 1January 1990subject to the commencement provisions of paras.11and 12.Previously

“(i) group income shall be not be taken into account as part of those profits, and”.

F67 Words in s. 436(3)(e) repealed (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), ss. 48, 123, Sch. 7 paras. 4(2)(b), 18, Sch. 19 Pt. V, Note 3

F68 Words in s. 436(4) repealed (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), ss. 48, 123, Sch. 7 paras. 4(3), 18, Sch. 19 Pt. V, Note 3

Modifications etc. (not altering text)

C21 See also 1989 s.43—certain Sch.D computations involving emoluments.

Marginal Citations

M22 Source—1970 s.312(1); 1970(F) Sch.5 Part III 11(3)

M23 Source—1970 s.312(2), 314(5); 1970(F) Sch.5 Part III 11(6)(a)(b); 1972 Sch.18 5(1)(a)

M24 Source—1970 s.312(3); 1970(F) Sch.5 Part III 11(3)

M25 Source—1985 s.72(7)

437 General annuity business. U.K.

[F69 (1A) In the case of a company carrying on basic life assurance and general annuity business, the new annuities paid in any accounting period by the company shall be regarded as charges on income only to the extent that they do not exceed the income limit for that accounting period.

(1B) Subsection (1A) above shall not apply to an insurance company charged to corporation tax in accordance with the provisions applicable to Case I of Schedule D in respect of the profits of its life assurance business.

(1C) For the purposes of this section—

(a) “new annuity” means any annuity, so far as paid under a contract made by an insurance company in an accounting period beginning on or after 1st January 1992 and so far as referable to the company’s basic life assurance and general annuity business;

(b) “the income limit” for an accounting period of an insurance company is the difference between—

(i) the total amount of the new annuities paid by the company in that accounting period; and

(ii) the total of the capital elements contained in the new annuities so paid; and

(c) the capital element contained in an annuity shall be determined in accordance with Chapter V of Part XIV, but for this purpose—

(i) it is immaterial whether or not an annuitant claims any relief to which he is entitled under that Chapter; and

(ii) where, by virtue of subsection (2) of section 657, section 656 does not apply to an annuity, the annuity shall be treated as containing the capital element that it would have contained apart from that subsection.

(1D) In any case where—

(a) a payment in respect of an annuity is made by an insurance company under a group annuity contract made in an accounting period beginning before 1st January 1992,

(b) the company’s liabilities first include an amount in respect of that annuity in an accounting period beginning on or after that date, and

(c) the company’s liability in respect of that annuity is referable to its basic life assurance and general annuity business,

the payment shall be treated for the purposes of this section, other than this subsection, as if the group annuity contract had been made in an accounting period beginning on or after 1st January 1992 (and, accordingly, as payment of a new annuity).

(1E) In any case where—

(a) a payment in respect of an annuity is made by a reinsurer under a reinsurance treaty made in an accounting period beginning before 1st January 1992,

(b) the reinsurer’s liabilities first include an amount in respect of that annuity in an accounting period beginning on or after that date, and

(c) the reinsurer’s liability in respect of that annuity is referable to its basic life assurance and general annuity business,

the payment shall, as respects the reinsurer, be treated for the purposes of this section, other than this subsection, as if the reinsurance treaty had been made in an accounting period beginning on or after 1st January 1992 (and, accordingly, as payment of a new annuity).

(1F) In this section—

• “group annuity contract” means a contract between an insurance company and some other person under which the company undertakes to become liable to pay annuities to or in respect of such persons as may subsequently be specified or otherwise ascertained under or in accordance with the contract (whether or not annuities under the contract are also payable to or in respect of persons who are specified or ascertained at the time the contract is made);

• “reinsurance treaty” means a contract under which one insurance company is obliged to cede, and another (in this section referred to as a “reinsurer”) to accept, the whole or part of a risk of a class or description to which the contract relates.]

F70 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F70 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F70 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F70 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) A company which is not resident in the United Kingdom but carries on through a branch or agency there any general annuity business shall not be entitled to treat any part of the annuities paid by it which are referable to that business as paid out of profits or gains brought into charge to income tax.

Textual Amendments

F69 S. 437(1A)-(1F) substituted (for accounting periods beginning on or after 1.1.1992) for s. 437(1) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 5, 18

F70 S. 437(2)-(5) repealed (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), ss. 48, 123, Sch. 7 paras. 4(4), 18, Sch. 19 Pt. V, Note 3

438 Pension business: exemption from tax. U.K.

(1) M26 Exemption from corporation tax shall be allowed in respect of income from, and chargeable gains in respect of, investments and deposits of so much of an insurance company’s life assurance fund and separate annuity fund, if any, as is referable to pension business.

(2) M27 The exemption from tax conferred by subsection (1) above shall not exclude any sums from being taken into account as receipts in computing profits or losses for any purpose of the Corporation Tax Acts.

(3) M28 Subject to subsection (6) below, the exclusion by section 208 from the charge to corporation tax of franked investment income shall not prevent such income being taken into account as part of the profits in computing under section 436 income from pension business.

[F71 (3AA) Subject to subsection (6B) below, the exclusion by section 208 from the charge to corporation tax of foreign income dividends shall not prevent such dividends being taken into account as part of the profits in computing under section 436 income from pension business.]

(4) M29 If in the case of any company the income referred to in subsection (1) above includes a distribution in respect of which the company is entitled to a tax credit, the company may, subject to subsections (5) and (6) below, claim to have the amount of that credit paid to it.

(5) If the company is resident in the United Kingdom (so that the distribution and the tax credit in question constitute franked investment income of that company), no franked investment income comprising any tax credit which is paid under subsection (4) above shall, subject to subsection (6) below, be used under Chapter V of Part VI to frank the company’s distributions.

(6) M30 If for any accounting period there is, apart from this subsection, a profit arising to an insurance company from pension business and computed under section 436, and the company so elects as respects all or any part of its [F72 relevant] franked investment income arising in that period, F73 . . . subsections (3) to (5) above shall not apply to the franked investment income to which the election relates.

[F74 (6A) In subsection (6) above “relevant franked investment income” means the shareholders’ share of franked investment income within subsection (1) above, and for this purpose “shareholders’ share” has the same meaning as for the purposes of section 89 of the Finance Act 1989.]

[F75 (6B) If for any accounting period there is, apart from this subsection, a profit arising to an insurance company from pension business and computed under section 436, and the company so elects as respects all or any part of the relevant foreign income dividends arising to it in that period, subsection (3AA) above shall not apply to the foreign income dividends to which the election relates.

(6C) In subsection (6B) above “relevant foreign income dividends” means the shareholders’ share of foreign income dividends within subsection (1) above; and for this purpose “the shareholders’ share” of any foreign income dividends is so much of the income they represent as is the shareholders’ share within the meaning of section 89 of the Finance Act 1989.

(6D) If in the same accounting period both relevant franked investment income and relevant foreign income dividends arise to the company—

(a) only one election may be made under subsections (6) and (6B) above;

(b) the election may be made as regards both relevant franked investment income and relevant foreign income dividends (subject to paragraph (c) below);

(c) the election may not be made as regards relevant foreign income dividends unless the election is made as regards all the company’s relevant franked investment income arising in the period.

(6E) Where an election is made under one or both of subsections (6) and (6B) above, the elected amount must not exceed the amount of the profit which (apart from the election) arises to the company for the accounting period from pension business and is computed under section 436; and the elected amount is—

(a) the amount of franked investment income to which the election relates (where the election is made under subsection (6) alone);

(b) the amount of the foreign income dividends to which the election relates (where the election is made under subsection (6B) alone);

(c) the aggregate amount of the franked investment income and the foreign income dividends to which the election relates (where the election is made under subsections (6) and (6B)).]

(7) An election under [F76 this section] shall be made by notice given to the inspector not later than two years after the end of the accounting period to which the election relates or within such longer period as the Board may by notice allow.

(8) M31 Nothing in sections 431(4)(c) or 643(2) of this Act or section [F77 271(1)(h) of the 1992 Act] shall be construed as affording relief in respect of any sums to be brought into account under this section.

Textual Amendments

F71 S. 438(3AA) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 6(2)

F72 1990 s.45(9).

F73 Words in s. 438(6) repealed (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 6(3), Sch. 26 Pt. 5(16)

F74 1990 s.45(9).

F75 S. 438(6B)-(6E) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 6(4)

F76 Words in s. 438(7) substituted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 6(5)

F77 Words in s. 438(8) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(21) (with ss. 60, 101(1), 171, 201(3))

Modifications etc. (not altering text)

C22 S. 438 modified (3.5.1994) by Finance Act 1994 (c. 9), Sch. 18 para. 1(5)

C23 S. 438 amended (27.7.1993) by 1993 c. 34, s. 78(6)(11)

C24 S. 438(5) amended (27.7.1993) by 1993 c. 34, s. 78(7)

Marginal Citations

M26 Source—1970 s.314(1); 1970(F) Sch.5 Part III 11(3), (6)(c)

M27 Source—1970 s.314(2)

M28 Source—1970 s.314(3)(a); 1970(F) Sch.5 Part III 11(3)

M29 Source—1972 Sch.18 4(1), (2)

M30 Source—1970 s.314(4); 1970(F) Sch.5 Part III 11(3); 1972 Sch.18 4(2)

M31 Source—1987 (No.2) s.39(3)

[438A F78 Pension business: payments on account of tax credits and deducted tax. U.K.

Schedule 19AB shall have effect.]

Textual Amendments

F78 S. 438A inserted (2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49(1); S.I. 1992/1746, art.2

439 Restricted government securities. U.K.

[F79 (1) For the purposes of this Chapter restricted government securities shall be treated as linked solely to pension business.

(2) In this section]

“restricted government securities” means, subject to the following provisions of this section, government securities issued on the condition that, except in such circumstances as may be specified in the conditions of issue, they are to be held by insurance companies against and applied solely towards meeting pension business liabilities.

(6) M32 Subject to subsection (7) below, the following Treasury Stock, namely—

(a) 2 per cent. Index-linked Treasury Stock 1996;

(b) 2 per cent. Index-linked Treasury Stock 2006;

(c) 2 per cent. Index-linked Treasury Stock 2011;

are not restricted government securities for the purposes of this section.

(7) If any of the index-linked stock referred to in subsection (6) above was on 27th March 1982 held by an insurance company against and applied solely towards meeting the liabilities of the company’s pension business, then—

(a) M33 if and so long as the stock continues to be so held by that company, it shall continue to be treated as restricted government securities for the purposes of this section; and

(b) M34 if the stock ceases to be restricted government securities otherwise than by virtue of being actually disposed of or redeemed, on the day on which it so ceases the stock shall be deemed for the purposes of corporation tax, including (subject to subsection (8)below) F80 corporation tax on chargeable gains, to have been disposed of and immediately re-acquired at its market value on that date.

(8) M35 For the purposes of sections 67and 68of the 1979Act (gilt-edged securities)—

(a) in ascertaining the date on which securities were acquired, no account shall be taken of any deemed disposal and reacquisition resulting from subsection (7)(b)above; and

(b) so long as any index-linked stock continues, by virtue of subsection (7)(a)above, to be treated as restricted government securities for the purposes of this section, it shall be regarded as being stock of a different kind from the index-linked stock referred to in subsection (6)above which is not so treated. F80

Textual Amendments

F79 1990 s.41and Sch.6 para.7on and after 1January 1990subject to the commencement provisions of paras.11and 12.Previously

“(1) This section applies where for any accounting period—(a) any division falls to be made between the pension business and any other kind of long-term business of an insurance company, and (b) any of the income or gains or losses of the company for that period relate to restricted government securities; and where this section applies section 431(3) shall have effect subject to the provisions of this section. (2) All income, gains or losses of the company which relate to restricted government securities shall be referred to its pension business. (3) Where the division of the other income, gains or losses of the company is made by reference to the liabilities at any time in the accounting period which are referable to pension business or to two or more kinds of business including pension business, those liabilities shall be treated as reduced by the appropriate amount. (4) In subsection (3) above “the appropriate amount” means—(a) in a case in which the total liabilities of the company at the time in question which are referable to long-term business are less than the market value at that time of the investments and deposits held by the company relating to all such business, such proportion of the market value of the restricted government securities held by the company at that time as those liabilities bear to the market value of those investments and deposits, and (b) in any other case, the market value of the restricted government securities at that time. (5) In this section— “long-term business” has the same meaning as in section 1(1) of the Insurance Companies Act 1982;”.

F80 Repealed by 1990 s.132and Sch.19 Part IV.

Marginal Citations

M32 Source—1982 s.58(1), (3)

M33 Source—1982 s.58(4)

M34 Source—1982 s.58(5)

M35 Source—1982 s.58(6)

[F81 440 Transfers of assets etc. U.K.

(1) If at any time an asset (or a part of an asset) held by an insurance company ceases to be within one of the categories set out in subsection (4) below and comes within another of those categories, the company shall for the purposes of corporation tax be deemed to have disposed of and immediately re-acquired the asset (or part) for a consideration equal to its market value at that time.

(2) Where—

(a) an asset is acquired by a company as part of the transfer to it of the whole or part of the business of an insurance company (“the transfer”) in accordance with a scheme sanctioned by a court under section 49 of the M36 Insurance Companies Act 1982, and

(b) the asset (or part of it) is within one of the categories set out in subsection (4) below immediately before the acquisition and is within another of those categories immediately afterwards,

the transferor shall for the purposes of corporation tax be deemed to have disposed of and immediately re-acquired the asset (or part) immediately before the acquisition for a consideration equal to its market value at that time.

(3) Where, apart from this subsection, section [F82 171 or 173 the 1992 Act] (transfers within a group) would apply to a disposal or acquisition by an insurance company of an asset (or part of an asset) which, immediately before the disposal or (as the case may be) immediately after the acquisition, is within one of the categories set out in paragraphs (a) to (d) subsection (4) below, that section shall not apply to the disposal or acquisition.

(4) The categories referred to in subsections (1) to (3) above are—

[F83 (a) assets linked solely to basic life assurance and general annuity business;]

(b) assets linked solely to pension business;

(c) assets of the overseas life assurance fund;

(d) assets of the long term business fund not within any of the preceding paragraphs;

(e) other assets.

(5) In this section “market value” has the same meaning as in the [F84 1992] Act.]

Textual Amendments

F81 S. 440 substituted by Finance Act 1990 (c. 26, SIF 63:1), s. 41, Sch.6 para. 8on and after 1January 1990subject to the commencement provisions of paras.11and 12.But not to affect the operation of the original s.440before 20March 1990or of subs.(6)and (7)of that section in relation to the disposal of an asset which has not been deemed to be disposed of before the day of the disposal.

F82 Words in s. 440(3) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(22)(a) (with ss. 60, 101(1), 171, 201(3))

F83 S. 440(4)(a) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 6(1), 18

F84 Words in s. 440(5) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(22)(b) (with ss. 60, 101(1), 171, 201(3))

Modifications etc. (not altering text)

C25 S. 440(1) excluded (25.7.1991) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 para. 6(4)

C26 S. 440(2) modified (with effect in accordance with reg. 1 of the modifying S.I.) by The Friendly Societies (Taxation of Transfers of Business) Regulations 1995 (S.I. 1995/171), regs. 4, 5

C27 S. 440(4) modified (31.7.1992 with effect in accordance with reg. 1 of the modifying S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992 (S.I. 1992/1655), regs. 1, 11(1), 12(1) (as amended (31.12.1993 with effect in accordance with reg. 1(2)(3) of the amending S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111), regs. 1(1), 5)

C28 See 1990 s.41and Sch.6 para.12(2)—subs.(d)omitted for period 1January 1990to 19March 1990inclusive.

C29 S. 440(4)(d) excluded (31.7.1992 with effect in accordance with reg. 1 of the modifying S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992 (S.I. 1992/1655), regs. 1, 13 (as substituted (31.12.1993 with effect in accordance with reg. 1(2)(3) of the amending S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111), regs. 1(1), 9)

Marginal Citations

M36 1982 c. 50.

440A [F85 Securities. U.K.

(1) Subsection (2) below applies where the assets of an insurance company include securities of a class all of which would apart from this section be regarded for the purposes of corporation tax on chargeable gains as one holding.

(2) Where this subsection applies—

(a) so many of the securities as are identified in the company’s records as securities by reference to the value of which there are to be determined benefits provided for under policies [F86 or annuity contracts] the effecting of all (or all but an insignificant proportion) of which constitutes the carrying on of [F87 basic life assurance and general annuity business] shall be treated for the purposes of corporation tax as a separate holding linked solely to that business,

(b) so many of the securities as are identified in the company’s records as securities by reference to the value of which there are to be determined benefits provided for under contracts the effecting of all (or all but an insignificant proportion) of which constitutes the carrying on of pension business shall be treated for those purposes as a separate holding linked solely to that business,

(c) so many of the securities as are included in the overseas life assurance fund shall be treated for those purposes as a separate holding which is an asset of that fund,

(d) so many of the securities as are included in the company’s long term business fund but do not fall within any of the preceding paragraphs shall be treated for those purposes as a separate holding which is an asset of that fund (but not of any of the descriptions mentioned in those paragraphs, and

(e) any remaining securities shall be treated for those purposes as a separate holding which is not of any of the descriptions mentioned in the preceding paragraphs.

(3) Subsection (2) above also applies where the assets of an insurance company include securities of a class and apart from this section some of them would be regarded as a 1982 holding, and the rest as a new holding, for the purposes of corporation tax on chargeable gains.

(4) In a case within subsection (3) above—

(a) the reference in any paragraph of subsection (2) above to a separate holding shall be construed, where necessary, as a reference to a separate 1982 holding and a separate new holding, and

(b) the questions whether such a construction is necessary in the case of any paragraph and, if it is, how many securities falling within the paragraph constitute each of the two holdings shall be determined in accordance with paragraph 12 of Schedule 6 to the Finance Act 1990 and the identification rules applying on any subsequent acquisitions and disposals.

(5) Section [F88 105 of the 1992 Act] shall have effect where subsection (2) above applies as if securities regarded as included in different holdings by virtue of that subsection were securities of different kinds.

[F89 (6) In this section—

• “1982 holding” has the same meaning as in section 109 of the 1992 Act;

• “new holding” has the meaning as in section 104(3) of that Act ; and

• “securities” means shares, or securities of a company, and any other assets where they are of a nature to be dealt in without identifying the particular assets disposed or acquired.]

Textual Amendments

F85 See commentary text for s.440 (F588) above.

F86 Words in s. 440A(2)(a) inserted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 6(2)(a), 18

F87 Words in s. 440A(2)(a) substituted (for accounting periods beginning on or after 1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 6(2)(b), 18

F88 Words in s. 440A(5) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(23)(a) (with ss. 60, 101(1), 171, 201(3))

F89 S. 440A(6) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(23)(b) (with ss. 60, 101(1), 171, 201(3))

Modifications etc. (not altering text)

C30 S. 440A(2) modified (31.7.1992 with effect in accordance with reg. 1 of the modifying S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992 (S.I. 1992/1655), regs. 1, 14, 15 (as amended (31.12.1993 with effect in accordance with reg. 1(2)(3) of the amending S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111), regs. 1(1), 5)

C31 S. 440A(2) modified (31.7.1992 with effect in accordance with reg. 1 of the modifying S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1992 (S.I. 1992/1655), regs. 1, 16 (as substituted (31.12.1993 with effect in accordance with reg. 1(2)(3) of the amending S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 1993 (S.I. 1993/3111), regs. 1(1), 10)

C32 See 1990 s.41and Sch.6 para.12(2)—subs.(d)omitted for period 1January 1990to 19March 1990inclusive.

C33 See 1990 s.41and Sch.6 para.12(1), (3), (4), (6), (7)and (10)—application and commencement provisions for

“1982 holdings”

and

“new holdings”.

[F90 441 Overseas life assurance business. U.K.

(1) This section and section 441A shall apply for an accounting period of an insurance company resident in the United Kingdom if during the period the company carries on overseas life assurance business.

(2) Subject to the provisions of this section and section 441A, profits arising to the company from the overseas life assurance business shall be treated as income within Schedule D, and the chargeable under Case VI of that Schedule, and for that purpose—

(a) that business shall be treated separately, and

(b) subject to paragraph (a) above, the profits from it shall be computed in accordance with the provisions of this Act applicable to Case I of Schedule D.

(3) Subsection (2) above shall not apply if the company is charged to corporation tax in accordance with the provisions applicable to Case I of Schedule D in respect of the profits of its life assurance business.

(4) In making the computation referred to in subsection (2) above—

(a) sections 82(1), (2) and (4) and 83 of the Finance Act 1989 shall apply with the necessary modifications and in particular with the omission of the words “tax or” in section 82(1)(a), and

(b) there may be set off against the profits any loss, to be computed on the same basis as the profits, which has arisen from overseas life assurance business in any previous accounting period beginning on or after 1st January 1990.

(5) Section 396 shall not be taken to apply to a loss incurred by a company on overseas life assurance business.

(6) Nothing in section 128 or 399(1) shall affect the operation of this section.

(7) Notwithstanding section 337(2), there shall be deductible in computing the profits arising to a company from overseas life assurance business—

(a) interest payable by the company under a liability of the long term business, so far as referable to overseas life assurance business, and

(b) annuities payable by the company, so far as so referable.

(8) Gains accruing on the disposal by a company of assets of its overseas life assurance fund shall not be chargeable gains. ]]

Textual Amendments

F90 1990 s.42and Sch.7 para.3for accounting periods beginning on or after 1January 1990 (see para.10).Previously

“Foreign life assurance funds.441.—(1) Corporation tax under Cases IV and V on income arising from investments of the foreign life assurance fund of an insurance company shall be computed as in the case mentioned in section 65(4), that is to say, by reference to the amount of income received in the United Kingdom; and this subsection shall apply notwithstanding that that section relates only to income tax. (2) Where any of the following securities, namely—(a) securities issued by the Treasury with the condition that the interest thereon shall not be liable to income tax so long as it is shown, in manner directed by the Treasury, that the securities are in the beneficial ownership of persons who are not ordinarily resident in the United Kingdom; or (b) securities issued by the Treasury with the condition that—(i) so long as the securities are in the beneficial ownership of persons who are not ordinarily resident in the United Kingdom, the interest thereon shall be exempt from income tax, and (ii) so long as the securities are in the beneficial ownership of persons who are neither domiciled nor ordinarily resident in the United Kingdom, neither the capital thereof nor the interest thereon shall be liable to any taxation present or future; or (c) securities to which section 581 applies; for the time being form part of the investments of the foreign life assurance fund of an insurance company, the income arising from those securities, if applied for the purposes of that fund or reinvested so as to form part of that fund, shall not be liable to tax. (3) Where any income arising abroad from the investments of the foreign life assurance fund of an insurance company has been remitted to the United Kingdom and invested, as part of the investments of that fund, in any such securities as are mentioned in subsection (2) above, that income shall not be liable to tax and any tax paid thereon shall, if necessary, be repaid to the company on the making of a claim. (4) Any securities issued by the Treasury in pursuance of the power conferred by section 60(1) of the Finance Act 1940 with a modified form of the condition specified in subsection (2)(b) above shall, save in so far as the terms of the issue otherwise provide, be deemed for the purposes of subsections (2) and (3) above to be such securities as are mentioned in subsection (2) above. (5) Where income arising from the investments of the foreign life assurance fund of an insurance company has been relieved from tax in pursuance of the provisions of this section, a corresponding reduction shall be made—(a) in the relief granted under section 76 in respect of expenses of management; and (b) in any amount on which [in respect of general annuity business only (1989 s.84and Sch.8 para.7,and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).)] the company is chargeable to tax by virtue of section 436. (6) In this section “foreign life assurance fund”—(a) means any fund representing the amount of the liability of an insurance company in respect of its life assurance business with policy holders and annuitants residing outside the United Kingdom whose proposals were made to, or whose annuity contracts were granted by, the company at or through a branch or agency outside the United Kingdom; and (b) where such a fund is not kept separately from the life assurance fund, means such part of the life assurance fund as represents the liability of the company under such policies and contracts, such liability being estimated in the same manner as it is estimated for the purpose of the company's periodical return. (7) Where this section has effect in relation to income arising from investments of any part of an insurance company's life assurance fund, it shall have the like effect in relation to chargeable gains accruing from the disposal of any such investments, and losses so accruing shall not be allowable losses. (8) For the purposes of this section, an offshore income gain accruing to an insurance company carrying on life assurance business shall, if it accrues in respect of investments held in connection with that business, be treated as if it were income from investments held in connection with that business. (9) Where any payment is made by the Export Credits Guarantee Department—(a) under any agreement entered into under arrangements made by the Secretary of State in pursuance of section 11 of the Export Guarantees and Overseas Investment Act 1978, and (b) in respect of any income—(i) which cannot be transferred to the United Kingdom, and (ii) which arises from investments of the foreign life assurance fund of an insurance company, then, to the extent of the payment, this section shall apply in relation to the income as if it had been received in the United Kingdom (and accordingly cannot be received again in the United Kingdom)”.

441A [F91 Section 441: distributions. U.K.

(1) Section 208 shall not apply to a distribution in respect of any asset of an insurance company’s overseas life assurance fund.

(2) Subject to subsection (3) below, an insurance company shall not be entitled under section 231 to a tax credit in respect of such a distribution.

(3) A company shall be entitled to such a tax credit if and to the extent that, were the recipient an individual resident in the territory in which the relevant branch or agency is situated, he would be entitled to the credit under arrangements having effect by virtue of section 788.

(4) For the purposes of subsection (3) above the relevant branch or agency, in the case of a tax credit in respect of a distribution, is—

(a) where the relevant asset is linked solely to overseas life assurance business—

(i) the branch or agency at or through which the company has effected policies or contracts the benefits under which are to be determined by reference to the value of the asset, or

(ii) in a case where there is more than one such branch or agency, the branches to which different parts of it are allocated by the company in accordance with subsection (5) below;

(b) subject to paragraph (a) above, where the management of the relevant asset is under the control of a person whose normal place of work is at a branch or agency, that branch or agency; and

(c) in any other case, the branch or agency to which it is allocated by the company.

(5) Where policies or contracts the benefits under which are to be determined by reference to the value of an asset within subsection (4)(a) above have been effected at or through more than one branch or agency, different parts of the asset shall be allocated to them so as to secure as far as practicable that the part allocated to each is proportionate to the part of the liabilities in respect of those benefits represented by liabilities under policies or contracts effected at or through it.

(6) Where the overseas life assurance business carried on at or through a branch or agency in a territory includes—

(a) reinsurance business which consists of the reinsurance of liabilities of a person resident in another territory, or

(b) retrocession business,

the amount of any tax credit in relation to which the branch or agency is the relevant branch or agency shall be reduced by the proportion which the liabilities of that reinsurance business bear to all the liabilities of the overseas life assurance business carried on at or through the branch or agency.

(7) Where a company is entitled to an amount of tax credit by virtue of this section the company may claim to have that amount paid to it.

(8) No franked investment income shall be used under Chapter V of Part VI of this Act to frank a company’s distributions if the tax credit (or any part of the tax credit) comprised in it is payable to the company under subsection (7) above.

Textual Amendments

F91 See commentary text for s. 441 (F589) above.

Modifications etc. (not altering text)

C34 S. 441A(8) amended (27.7.1993) by 1993 c. 34, s. 78(7)

442 Overseas business of U.K. companies. U.K.

(1) M37 Subsections (2) and (3) below apply where a company resident in the United Kingdom carries on insurance business outside the United Kingdom through a branch or agency and—

(a) that business, or part of it, together with the whole assets of the company used for the purposes of that business or part (or together with the whole of those assets other than cash), is transferred to a company not resident in the United Kingdom;

(b) the business or part is so transferred wholly or partly in exchange for shares, or for shares and loan stock, issued by the transferee company to the transferor company; and

(c) the shares so issued, either alone or taken together with any other shares in the transferee company already held by the transferor company, amount in all to not less than one quarter of the ordinary share capital of the transferee company.

(2) In making any computation in accordance with the provisions of this Act applicable to Case I of Schedule D of the profits or losses of the transferor company for the accounting period in which the transfer occurs, there shall be disregarded any profit or loss in respect of any asset transferred which, apart from this subsection, would fall to be taken into account in making that computation.

(3) Where by virtue of subsection (2) above any profit or loss is disregarded in making any computation otherwise than for the purposes of section 76(2) the profit or loss shall be treated for the purposes of the [F92 1992 Act]as a chargeable gain or allowable loss accruing to the transferor company on the transfer.

(4) Where at any time a company resident in the United Kingdom—

(a) which carries on insurance business wholly outside the United Kingdom, and

(b) the whole or part of whose ordinary share capital is beneficially owned by one or more companies resident in the United Kingdom,

ceases to be resident in the United Kingdom, the profits or losses of the company in respect of that business for the accounting period ending at that time shall be computed for tax purposes without regard to the whole, or, as the case may be, a corresponding part of any profit or loss in respect of any asset which, apart from this subsection, would fall to be calculated in accordance with section 100(1)(b) and taken into account in making that computation.

Textual Amendments

F92 Words in s. 442(3) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(24) (with ss. 60, 101(1), 171, 201(3))

Modifications etc. (not altering text)

C35 S. 442(3) excluded (retrospectively) by Income and Corporation Taxes Act 1970 (c. 10), s. 269C(8) (as inserted (retrospectively) by Finance (No. 2) Act 1992 (c. 48), s.48)

Marginal Citations

M37 Source—1977 s.45(1)—(4); 1979(C) Sch.7

443 Life policies carrying rights not in money. U.K.

M38 Where any investments or other assets are or have been, in accordance with a policy issued in the course of life assurance business carried on by an insurance company, transferred to the policy holder on or after 6th April 1967, the policy holder’s acquisition of the assets, and the disposal of them to him, shall be deemed to be for a consideration equal to the market value of the assets for the purposes of computing income in accordance with Case I or VI of Schedule D.

Marginal Citations

M38 Source—1970 s.321(1)(b), (2)

444 Life policies issued before 5th August 1965. U.K.

(1) M39 This section applies in relation to policies of life assurance issued before 5th August 1965 by a company carrying on life assurance business, being policies which—

(a) provide for benefits consisting to any extent of investments of a specified description or of a sum of money to be determined by reference to the value of such investments, but

(b) do not provide for the deduction from those benefits of any amount by reference to tax chargeable in respect of chargeable gains.

(2) Where—

(a) the investments of the company’s life assurance fund, so far as referable to those policies, consist wholly or mainly of investments of the description so specified, and

(b) on the company becoming liable under any of those policies for any such benefits (including benefits to be provided on the surrender of a policy), a chargeable gain accrues to the company from the disposal, in meeting or for the purpose of meeting that liability, of investments of that description forming part of its life assurance fund, or would so accrue if the liability were met by or from the proceeds of such a disposal,

then the company shall be entitled as against the person receiving the benefits to retain out of those benefits a part not exceeding in amount or value corporation tax, at the rate specified in subsection (3) below, in respect of the chargeable gain referred to in paragraph (b) above, computed without regard to any amount retained under this subsection.

(3) The amount to be retained under subsection (2) above shall, subject to subsection (4) below, be computed by reference to the rate of corporation tax for the time being in force or, if no rate of corporation tax has yet been fixed for the financial year, the rate last in force.

(4) In so far as the chargeable gain represents or would represent a gain belonging or allocated to, or reserved for, policy holders, the amount to be retained shall be computed by reference to a rate of tax not exceeding 37.5 per cent.

Marginal Citations

M39 Source—1970 s.322

[F93 444A Transfers of business. U.K.

(1) Subject to the following provisions of this section, this section applies where there is a transfer of the whole or part of the long term business of an insurance company (“the transferor”) to another company (“the transferee”) in accordance with a scheme sanctioned by a court under section 49 of the M40 Insurance Companies Act 1982.

(2) Any expenses of management which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been deductible by the transferor under sections 75 and 76 in computing profits for an accounting period following the period which ends with the day on which the transfer takes place shall, instead, be treated as expenses of management of the transferee (and deductible in accordance with those sections, as modified in the case of acquisition expenses by section 86(6) to (9) of the Finance Act 1989 and in the case of expenses to which subsection (6) or (7) of section 87 of that Act applies by that subsection).

(3) Any loss which (assuming the transferor had continued to carry on the business transferred after the transfer)—

(a) would have been available under section 436(3)(c) to be set off against profits of the transferor for the accounting period following that which ends with the day on which transfer takes place, or

(b) where in connection with the transfer the transferor also transfers the whole or part of any overseas life assurance business, would have been so available under section 441(4)(b),

shall, instead, be treated as a loss of the transferee (and available to be set off against profits of the same class of business as that in which it arose).

(4) Where acquisition expenses are treated as expenses of management of the transferee by virtue of subsection (2) above, the amount deductible for the first accounting period of the transferee ending after the transfer takes place shall be calculated as if that accounting period began with the day after the transfer.

(5) Where the transfer is of part only of the transferor’s long term business, subsection (2) or (3) above shall apply only to such part of any amount to which it would otherwise apply as is appropriate.

(6) Any question arising as to the operation of subsection (5) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and transferee shall be entitled to appear and be heard or to make representations in writing.

(7) Subject to subsection (8) below, this section shall not apply unless the transfer is effected for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to corporation tax.

(8) Subsection (7) above shall not affect the operation of this section in any case where, before the transfer, the Board have, on the application of the transferee, notified the transferee that the Board are satisfied that the transfer will be effected for bona fide commercial reasons and will not form part of any scheme or arrangements such as are mentioned in that subsection; and subsections (2) to (5) of section [F94 138 of the 1992 Act]shall have effect in relation to this subsection as they have effect in relation to subsection (1) of that section.]

Textual Amendments

F93 1990 s.48and Sch.9 para.4in relation to transfer of business on or after 1January 1990.

F94 Words in s. 444A(8) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(25) (with ss. 60, 101(1), 171, 201(3))

Modifications etc. (not altering text)

C36 S. 444A(1) modified (with effect in accordance with reg. 1 of the amending Regulations) by The Friendly Societies (Taxation of Transfers of Business) Regulations 1995 (S.I. 1995/171), reg. 4(2)(b)

Marginal Citations

M40 1982 c. 50.