Finance (No. 2) Act 2005

Receipts to be taken into account

12 (1) Section 83 of FA 1989 is amended as follows.

(2) In subsection (2A) (amounts not required to be taken into account by subsection (2)) for paragraph (a) (amounts which are entirely notional) substitute—

“(a) comprises notional income for the period of account (see subsections (2AA) and (2AB)),

(aa) represents an inter-fund transfer (see subsections (2AC) and (2AD)),”.

(3) After that subsection insert—

“(2AA) For the purposes of subsection (2A)(a) above, an amount brought into account as mentioned in paragraphs (a) to (d) of subsection (2) above for a period of account is to be regarded as notional income for the period of account if—

(a) it represents income which has not been received, and is not receivable, from another person, and

(b) a corresponding notional expense of the same amount is brought into account in the period of account;

and where particular income falls to be regarded as notional income under this subsection, the notional expense by virtue of which that income falls to be so regarded may not be taken into account for determining whether any other income is to be so regarded.

(2AB) In subsection (2AA) above “notional expense” means an expense which has not been paid, and is not payable, to another person and which—

(a) is not deductible in computing the profits of the company in respect of its life assurance business in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D, but

(b) had it represented an amount paid or payable to another person, would have been so deductible.

(2AC) For the purposes of subsection (2A)(aa) above, where—

(a) one or more inter-fund transfers (“transfers-in”) are made into a fund and one or more inter-fund transfers (“transfers-out”) are made out of the fund, and

(b) the amount brought into account for the period of account as other income in respect of the transfers-in represents the amount by which—

(i) the amount or aggregate amount of the transfers-in, exceeds

(ii) the amount or aggregate amount of the transfers-out,

only the amount of that excess shall be taken to represent the transfers-in.

(2AD) In this section “inter-fund transfer” means a transfer between two funds which in the company’s periodical return is shown in, or included in amounts shown in, line 14 or 33 of the Forms 58 for the funds.”.

(4) In subsection (2B) (assets of long-term insurance fund transferred out of fund but transfer not brought into account as part of total expenditure) after paragraph (b) insert—

“For the purposes of this subsection “total expenditure”, in relation to a period of account of an insurance company, includes any expenses brought into account in line 12 of Form 40 (the revenue account) in the periodical return of the company for the period of account.”.

(5) The amendments made by sub-paragraphs (2) and (3) have effect in relation to periods of account ending on or after 2nd December 2004.

(6) The amendment made by sub-paragraph (4) has effect in relation to periods of account beginning on or after 1st January 2005.