Finance Act 1994

Part III U.K. Insurance companies etc.

4 In section 431(2) of the Taxes Act 1988 (interpretative provisions relating to insurance companies) the following shall be inserted after the definition of “closing liabilities”—

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

5 (1) Section 434 of the Taxes Act 1988 (franked investment income etc.) shall be amended as follows.

(2) In subsection (1) after “income of” there shall be inserted “ , or foreign income dividends arising to, ”.

(3) In subsection (2) after “income of” there shall be inserted “ , and foreign income dividends arising to, ”.

(4) The following subsections shall be inserted after subsection (3A)—

“(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.”

(5) In subsection (6A) the word “and” at the end of paragraph (a) shall be omitted and after that paragraph there shall be inserted—

“(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”.

6 (1) Section 438 of the Taxes Act 1988 (pension business: exemption from tax) shall be amended as follows.

(2) The following subsection shall be inserted after subsection (3)—

“(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.”

(3) In subsection (6) the words from “being” to “that profit,” shall be omitted.

(4) The following subsections shall be inserted after subsection (6A)—

“(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)).”

(5) In subsection (7) for “subsection (6) above” there shall be substituted “ this section ”.

7 In section 458 of the Taxes Act 1988 (capital redemption business) in subsection (2)(a) after “income of” there shall be inserted “ , and foreign income dividends arising to, ”.

8 (1) Section 802 of the Taxes Act 1988 (UK insurance companies trading overseas) shall be amended as follows.

(2) In subsection (2)(a) after “franked investment income” there shall be inserted “ , foreign income dividends ”.

(3) The following subsection shall be inserted after subsection (3)—

“(4) In this section “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI.”

9 (1) Section 89 of the M1 Finance Act 1989 (policy holders’ share of profits) shall be amended as follows.

(2) In subsection (2) after paragraph (b) there shall be inserted “, and

(c) the shareholders’ share of any foreign income dividends arising to the company in the period in respect of investments held in connection with the business.”

(3) The following subsection shall be inserted after subsection (2)—

“(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.”

Marginal Citations

M1 1989 c. 26.