Finance Act 1989

[F1 89 Policy holders’ share of profits. U.K.

(1) The references in [F2 section 88] above to the policy holders’ share of the relevant profits for an accounting period of a company carrying on life assurance business F3 ... are references to —

[F4 (a) in a case where there are no Case I profits of the company for the period in respect of its life assurance business, the amount of the relevant profits, and

(b) in any other case, the amount arrived at in accordance with subsection (1A) below.]

[F5 (1A) An amount is arrived at in accordance with this subsection by—

[F6 (a) deducting from any profits of the company for the period chargeable under Case VI of Schedule D under section 436A of the Taxes Act 1988 so much of the Case I profits of the company for the period in respect of its life assurance business as does not exceed the amount of any profits of the company for the period so chargeable, and]

(b) deducting any remaining Case I profits of the company for the period in respect of its life assurance business from any BLAGAB profits of the company for the period.

(1B) For the purposes of this section, the BLAGAB profits of a company for an accounting period are the income and chargeable gains referable [F7 (in accordance with section 432A of the Taxes Act 1988)] to the company’s basic life assurance and general annuity business reduced by the aggregate amount of—

[F8 (a) amounts falling in respect of any non-trading deficits on the company’s loan relationships to be brought into account in that period in accordance with paragraph 4 of Schedule 11 to the Finance Act 1996, and

(b) the [F9 expenses] deduction given by Step 8 in section 76(7) of the Taxes Act 1988.]]

(2) For the purposes of [F10 subsections (1) and (1A)] above, the Case I profits for a period shall be reduced by—

F11 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) the shareholders’ share of any F12 ... [F13 distributions received from companies resident in the United Kingdom in the period which are] [F14 referable [F15 (in accordance with section 432A of the Taxes Act 1988)] to the company’s basic life assurance and general annuity business][F16 , and

(c) the shareholders’ share of any foreign income dividends arising to the company in the period [F17 which are referable to the company’s basic life assurance and general annuity business].]

[F18 (2A) For the purposes of subsection (2) above—

(a) “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI;

(b) the shareholders’ share of any foreign income dividends is so much of the income they represent as is the shareholders’ share.]

(3) For the purposes of those section “ the shareholders’ share ” in relation to any income is so much of the income as is represented by the fraction

where—

• A is an amount equal to the Case I profits of the company for the period in question in respect of its life assurance business, and

• B is an amount equal to the excess of the company’s relevant non-premium income and relevant gains over its relevant expenses and relevant interest for the period.

(4) Where there is no such excess as is mentioned in subsection (3) above, or where the Case I profits are greater than any excess, the whole of the income shall be the shareholders’ share; and (subject to that) where there are no Case I profits, none of the income shall be the shareholders’ share.

(5) In subsection (3) above the references to the relevant non-premium income, relevant gains, relevant expenses and relevant interest of a company for an accounting period are references respectively to the following items as brought into account for the period, so far as referable to the company’s life assurance business,—

(a) the company’s investment income from the assets of its long-term [F19 insurance] fund together with its other income, apart from premiums;

(b) any increase in the value (whether realised or not) of those assets;

(c) expenses payable by the company;

(d) interest payable by the company;

and if for any period there is a reduction in the value referred to in paragraph (b) above (as brought into account for the period), that reduction shall be taken into account as an expense of the period.

(6) F20 ... where the company’s period of account does not coincide with the accounting period, any reference to an amount brought into account for the accounting period is a reference to the corresponding amount brought into account for the period of account in which the accounting period is comprised, proportionately reduced to reflect the length of the accounting period as compared with the length of the period of account.

[F21 (7) In this section—

• “Case I profits” means profits computed in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D [F22 ; but for the purposes of subsections (1), (1A) and (2) they are to be adjusted in respect of losses in accordance with section 85A(4).]

• F23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ]

[F24 (7A) In a case where—

(a) the company becomes an insurance special purpose vehicle, and

(b) regulations made under section 84 of the Finance Act 2005 do not apply to it,

subsection (7B) applies in the first period of account in which the company is an insurance special purpose vehicle (“the first period”).

(7B) Where this subsection applies, in computing a company’s Case I profits there shall be brought into account as a trading receipt of the company the amount, if any, by which the amount shown in line 51 of Form 14 of the periodical return for the period preceding the first period exceeds—

(a) the fund for future appropriations shown in the company’s IAD accounts, or

(b) the unallocated divisible surplus shown in the company’s IAS accounts,

as the case may be, for that preceding period.

(7C) In subsection (7B)—

• “IAD accounts” means accounts drawn up in accordance with the Council Directive of 19th December 1991 on the annual accounts of insurance undertakings (No.91/674/EEC);

• “IAS accounts” means accounts prepared in accordance with international accounting standards.]

F25 (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ]

Textual Amendments

F1 S. 89 substituted retrospectively by Finance Act 1990 (c. 29) {s. 45(3)}

F2 Words in s. 89(1) substituted (with effect in accordance with Sch. 33 para. 13(11) of the amending Act) by Finance Act 2003 (c. 14), Sch. 33 para. 13(4)(a)

F3 Words in s. 89(1) repealed (with effect in accordance with Sch. 33 para. 13(11) of the amending Act) by Finance Act 2003 (c. 14), Sch. 33 para. 13(4)(b), Sch. 43 Pt. 3(12)

F4 S. 89(1)(a)(b) substituted (with effect in accordance with Sch. 33 para. 6(12) of the amending Act) by Finance Act 2003 (c. 14), Sch. 33 para. 6(3)

F5 S. 89(1A)(1B) inserted (with effect in accordance with Sch. 33 para. 6(11)(12) of the amending Act) by Finance Act 2003 (c. 14), Sch. 33 para. 6(4)

F6 S. 89(1A)(a) substituted (with effect in accordance with s. 38(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 7 para. 59 (with Sch. 7 Pt. 2)

F7 Words in s. 89(1B) inserted (22.7.2004) by Finance Act 2004 (c. 12), Sch. 7 para. 9(2)(c)

F8 Words in s. 89(1B) substituted (with effect in accordance with art. 1(2) of the amending S.I.) by The Finance Act 2004, Sections 38 to 40 and 45 and Schedule 6 (Consequential Amendment of Enactments) Order 2004 (S.I. 2004/2310), art. 1(2), Sch. para. 46(2)

F9 Word in s. 89(1B)(b) substituted (with effect in accordance with s. 39(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 8 para. 16(2) (with Sch. 8 Pt. 2)

F10 Words in s. 89(2) substituted (with effect in accordance with Sch. 33 para. 13(12) of the amending Act) by Finance Act 2003 (c. 14), Sch. 33 para. 6(5)

F11 S. 89(2)(a) repealed (31.7.1997 with effect in relation to distributions made on or after 2.7.1997) by 1997 c. 58, ss. 23, 52, Sch. 3 para. 14(2)(a)(4), Sch. 8 Pt. II(6), note

F12 Words in s. 89(2)(b) repealed (31.7.1997 with effect in relation to distributions made on or after 2.7.1997) by 1997 c. 58, ss. 23, 52, Sch. 3 para. 14(2)(b)(i)(4), Sch. 8 Pt. II(6), note

F13 Words in s. 89(2)(b) substituted (with effect in accordance with Sch. 33 para. 12(5) of the amending Act) by Finance Act 2003 (c. 14), Sch. 33 para. 12(4)

F14 Words in s. 89(2)(b) substituted (31.7.1997 with effect in relation to distributions made on or after 2.7.1997) by 1997 c. 58, s. 23, Sch. 3 para. 14(2)(b)(ii)(4)

F15 Words in s. 89(2)(b) inserted (22.7.2004) by Finance Act 2004 (c. 12), Sch. 7 para. 9(2)(d)

F16 S. 89(2)(c) and word immediately preceding it repealed (31.7.1997 with effect in relation to distributions made on or after 6.4.1999) by 1997 c. 58, ss. 36, 52, Sch. 6 para. 19(2)(4), Sch. 8 Pt. II(11), note

F17 Words in s. 89(2)(c) substituted (31.7.1997 with effect in relation to distributions made on or after 2.7.1997) by 1997 c. 58, s. 23, Sch. 3 para. 14(2)(c)(4)

F18 S. 89(2A) repealed (31.7.1997 with effect in relation to distributions made on or after 2.7.1997) by 1997 c. 58, ss. 36, 52, Sch. 6 para. 19(3)(4), Sch. 8 Pt. II(11), note

F19 Word in s. 89(5)(a) substituted (1.12.2001) by S.I. 2001/3629, art. 60(3)

F20 Words in s. 89(6) repealed (with effect in accordance with Sch. 10 para. 17(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 10 para. 14(3)(b), Sch. 27 Pt. 2(10)

F21 S. 89(7) substituted (1.12.2001) by S.I. 2001/3629, art. 58(3)

F22 Words in s. 89(7) substituted (with effect in accordance with s. 39(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 8 para. 16(3) (with Sch. 8 Pt. 2)

F23 Words in s. 89(7) repealed (10.7.2003) by Finance Act 2003 (c. 14), Sch. 43 Pt. 3(12)

F24 S. 89(7A)-(7C) inserted (with effect in accordance with art. 1(3) of the amending S.I.) by The Insurance Companies (Taxation of Reinsurance Business) (Corporation Tax Acts) (Amendment) Order 2007 (S.I. 2007/3430), arts. 1(1), 2(2)

F25 S. 89(8) repealed (31.7.1997 with effect in relation to distributions made on or after 2.7.1997) by 1997 c. 58, ss. 23, 52, Sch. 3 para. 14(3)(4), Sch. 8 Pt. 2(6) Note

Modifications etc. (not altering text)

C1 S. 89 amended (27.7.1993 with application as mentioned in s. 78(11) of the amending Act) by 1993 c. 34, s. 78(6)(11)

C2 S. 89(1B) applied (10.7.2003) by Finance Act 2003 (c. 14), Sch. 33 para. 6(11)

C3 S. 89(1B) modified by The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 1997 (S.I. 1997/437), reg. 40A(1) (as inserted (8.4.2004) by S.I. 2004/822, regs. 1, 35)