Finance Act 2003

1 (1) For section 82 of the Finance Act 1989 (c. 26) (calculation of profits of insurance company in respect of life assurance business when computed in accordance with provisions applicable to Case I of Schedule D) substitute— U.K.

“82 Calculation of profits: bonuses etc

(1) This section and sections 82A and 82B below have effect where the profits of an insurance company in respect of its life assurance business are, for the purposes of the Taxes Act 1988, computed in accordance with the provisions of that Act applicable to Case I of Schedule D.

(2) Any amounts which are allocated to policy holders or annuitants in respect of a period of account are allowed as a deduction in calculating the profits for the period of account.

(3) For the purposes of subsection (2) above, an amount is allocated to policy holders or annuitants if (but only if)—

(a) bonus payments are made to them,

(b) reversionary bonuses are declared in their favour, or

(c) a reduction is made in the premiums payable by them.

(4) Where an amount is allocated to policy holders or annuitants for the purposes of subsection (2) above, the amount of the allocation is—

(a) in the case of bonus payments, the amount of the payments,

(b) in the case of declared reversionary bonuses, the amount of the liabilities assumed by the company in consequence of the declaration, and

(c) in the case of a reduction in premiums, the amount of the liabilities assumed by the company in consequence of the reduction.

82A Calculation of profits: policy holders' tax

(1) Tax expended on behalf of policy holders or annuitants is allowed as a deduction in calculating the profits to the extent (but only to the extent) that regulations made by the Treasury so provide.

(2) The regulations may include provision for tax so expended to be so allowed even if it is not brought into account.

(3) The regulations—

(a) may make different provision for different cases, and

(b) may include provision having effect in relation to periods of account during which they are made.

82B Unappropriated surplus on valuation

(1) This section applies in relation to a period of account of the insurance company (“the period of account in question”) where—

(a) at the end of the period of account in question the company has an unappropriated surplus on valuation as shown in the return deposited with the Financial Services Authority under section 9.6 of the Prudential Sourcebook (Insurers) (an “unappropriated surplus”), and

(b) the company has not made an election in accordance with Rule 4.1(6) of the Prudential Sourcebook (Insurers) covering the period of account in question.

(2) Where the company did not have an unappropriated surplus at the end of the period of account immediately preceding the period of account in question, so much of the unappropriated surplus at the end of the period of account in question as is required to meet the duty of fairness is allowed as a deduction in calculating the profits for the period of account in question.

(3) Where the company did have an unappropriated surplus at the end of that immediately preceding period of account—

(a) if so much of the unappropriated surplus at the end of the period of account in question as is required to meet the duty of fairness exceeds so much of the unappropriated surplus at the end of that immediately preceding period of account as was required to meet that duty, the excess is allowed as a deduction in calculating the profits for the period of account in question, but

(b) if so much of the unappropriated surplus at the end of that immediately preceding period of account as was required to meet the duty of fairness exceeds so much of the unappropriated surplus at the end of the period of account in question as is required to meet that duty, the excess is to be taken into account as a receipt of the period of account in question.

(4) In arriving for the purposes of this section at the amount of the unappropriated surplus which is or was required to meet the duty of fairness there is to be deducted the aggregate of amounts which—

(a) for periods of account ending before 14th March 1989 (and the first notional period of account, within the meaning of section 82 above as originally enacted) have been excluded, by virtue of section 433 of the Taxes Act 1988, as being reserved for policy holders or annuitants, and

(b) have not before that date either been allocated to or expended on behalf of policy holders or annuitants or been treated as profits of an accounting period on ceasing to be so reserved.

(5) References in this section to the company’s duty of fairness are to the company’s duty to treat its policy holders and annuitants fairly with regard to terminal bonuses.”.

(2) In section 83A(1) of the Finance Act 1989 (c. 26) (meaning of “brought into account”), for “83” substitute “ 82A ”.

(3) In section 436(3)(a) of the Taxes Act 1988 (pension business: separate charge on profits)—

(a) for “82 and 83” substitute “ 82 and 82B to 83AB ”, and

(b) omit the words after “modifications”.

(4) In sections 439B(3)(a) and 441(4)(a) of the Taxes Act 1988 (life reinsurance business and overseas life insurance business: separate charge on profits)—

(a) for “82(1), (2) and (4) and 83” substitute “ 82 and 82B to 83AB ”, and

(b) omit “and in particular with the omission of the words “and any amounts of tax which are expended on behalf of” in section 82(1)(a)”.

(5) This paragraph has effect for periods of account beginning on or after 1st January 2003.

(6) In relation to the first period of account of an insurance company beginning on or after that date, section 82B of the Finance Act 1989 (c. 26) (inserted by sub-paragraph (1)) applies as if the references in it to so much of the unappropriated surplus at the end of the immediately preceding period of account as was required to meet the company’s duty of fairness were to any amount included in the closing liabilities of the period of account by virtue of section 82(1)(b) of that Act as originally enacted.