Finance Act 1996

26 (1) In section 88(1) of the Finance Act 1989 (rate of corporation tax on policy holders’ fraction of profits to be equal to the basic rate), after “subsection (2)” there shall be inserted “ and section 88A ”. U.K.

(2) After section 88 of that Act there shall be inserted the following section—

“88A Lower corporation tax rate on certain insurance company profits.

(1) Subject to subsection (2) below, in the case of a company carrying on basic life assurance and general annuity business, the rate of corporation tax chargeable for any financial year on so much of the company’s BLAGAB profits for any accounting period as represents the company’s lower rate income for the period shall be deemed to be the rate at which income tax at the lower rate is charged for the year of assessment which begins on 6th April in the financial year concerned.

(2) Subsection (1) above does not apply in relation to profits charged under Case I of Schedule D.

(3) In this section, references to a company’s lower rate income for any accounting period are references to so much of the income and gains of its basic life assurance and general annuity business for the period as consists in income of any of the following descriptions—

(a) income falling within paragraph (a) of Case III of Schedule D, as that Case applies for the purposes of corporation tax;

(b) purchased life annuities to which section 656 of the Taxes Act 1988 applies or to which that section would apply but for section 657(2)(a) of that Act;

(c) any such dividends or other distributions of a company not resident in the United Kingdom as would be chargeable under Schedule F if the company were resident in the United Kingdom;

(d) so much of—

(i) any dividend distribution (within the meaning of section 468J of the Taxes Act 1988), or

(ii) any foreign income distribution (within the meaning of section 468K of that Act),

as is deemed by subsection (2) of section 468Q of that Act (or by that subsection as applied by section 468R(2) of that Act) to be an annual payment.

(4) Where for any period—

(a) an insurance company’s basic life assurance and general annuity business is mutual business,

(b) the policy holders’ share of the company’s relevant profits is equal to all those profits, or

(c) the policy holders’ share of the company’s relevant profits is more than the company’s BLAGAB profits,

the amount to be taken for the purposes of this section as the amount of the company’s BLAGAB profits for that period representing its lower rate income for that period shall be the amount equal to the applicable proportion of its BLAGAB profits.

(5) Where subsection (4) above does not apply in the case of an insurance company for any period, the amount to be taken for the purposes of this section as the amount of the company’s BLAGAB profits for the period representing its lower rate income for that period shall be the amount produced by multiplying the following, that is to say—

(a) the applicable proportion of those profits; and

(b) the fraction given by dividing the policy holders’ share of the relevant profits of the company for the period by its BLAGAB profits for that period.

(6) For the purposes of this section the applicable proportion of a company’s BLAGAB profits for any period is the amount which bears the same proportion to those profits as the aggregate amount of the company’s lower rate income for that period bears to the total income and gains for that period of the company’s basic life assurance and general annuity business.

(7) For the purposes of this section, the BLAGAB profits of a company for an accounting period are the income and gains of the company’s basic life assurance and general annuity business reduced by the aggregate amount of—

(a) any non-trading deficit on the company’s loan relationships,

(b) expenses of management falling to be deducted under section 76 of the Taxes Act 1988, and

(c) charges on income,

so far as referable to the company’s basic life assurance and general annuity business.

(8) Section 88(3) above applies for the purposes of this section as it applies for the purposes of section 88(1) above.”

(3) In section 89 of that Act (meaning of “policy holders’ share” of profits), in subsection (1)—

(a) for “section 88” there shall be substituted “ sections 88 and 88A ”;

(b) after “life assurance business” there shall be inserted “ or, as the case may be, basic life assurance and general annuity business ”; and

(c) for “the business” there shall be substituted “ its life assurance business ”;

and in subsection (2), in each of paragraphs (b) and (c), for “the business” there shall be substituted “ the company’s life assurance business ”.

(4) This paragraph shall have effect for the financial year 1996 and subsequent financial years.