Finance Act 1972

Section 97.

SCHEDULE 18 Insurance Companies

Expenses of management

1 (1) In subsection (2) of section 305 of the Taxes Act (restriction on relief for expenses of management) the reference to income tax shall be omitted, but for the purposes of that subsection—

(a) any tax credit to which the company is entitled in respect of a distribution received by it shall be treated as an equivalent amount of corporation tax borne or paid in respect of that distribution ; and

(b) any payment in respect of that credit under section 254 of that Act shall be treated as reducing the tax so treated as borne or paid.

(2) The other reliefs mentioned in the said subsection (2) shall not include any set-off under section 85 of this Act.

(3) In applying the said subsection (2) to an accounting period in which a company carries on any business in addition to life assurance business, or carries on both ordinary life assurance business and industrial life assurance business, the tax that would have been paid if the company had been charged under Case I of Schedule D in respect of its life assurance business, or its life assurance business of either of those classes, shall be calculated as if any advance corporation tax set against the company's liability to corporation tax for that accounting period were apportioned to the corporation tax attributable to each business in proportion to the profits of that business charged to corporation tax for that accounting period.

Rate relief: investment income reserved for policy holders

2 (1) For the purposes of subsection (2) of section 310 of the Taxes Act (rate relief from corporation tax) the reliefs to be taken into account shall not include any set-off under section 85 of this Act, and "any relief" in subsection (4)(b) of the said section 310 shall be construed accordingly.

(2) Subsection (3) of the said section 310 (rate relief from income tax where rate exceeds 37-5 per cent.) shall cease to have effect.

(3) For subsection (5) of the said section 310 there shall be substituted—

“(5) Any such part of the franked investment income from investments held in connection with a company's life assurance business as is specified in subsection (6) below shall not be used under Part V of the Finance Act 1972 to frank distributions made by the company.”

(4) For the purposes of section 85 of this Act the income charged to corporation tax for any accounting period (as defined in subsection (6) of that section) shall be reduced by an amount equal to the part specified in subsection (6) of the said section 310 of any unrelieved income (as defined in subsection (4) of that section) in respect of which a claim may be made under that section.

(5) Where sub-paragraph (3) or (4) above would deny to a company any relief to which it would have been entitled if it had been charged to tax in respect of its life assurance business under Case I of Schedule D, corresponding relief shall be afforded to the company by repayment of, or set-off against, corporation tax or by payment of tax credit comprised in franked investment income from investments held in connection with that business.

General annuity business

3 In section 313 of the Taxes Act for subsection (4) there shall be substituted—

“(4) Subject to subsection (5) below, franked investment income which is taken into account under subsection (2) above to enable annuities referable to general annuity business to be treated as charges on income shall not be used under Part V of the Finance Act 1972 to frank distributions made by the company.”

Pension business

4 (1) In subsection (1) of section 314 of the Taxes Act the reference to income tax shall be omitted, but if in the case of an insurance company the income mentioned in that subsection includes a distribution in respect of which the company is entitled to a tax credit, the company may, subject to sub-paragraph (2) below, claim to have the amount of that credit paid to it.

(2) If the company mentioned in sub-paragraph (1) above is resident in the United Kingdom (so that the distribution and the tax credit there mentioned constitute franked investment income of that company) no franked investment income comprising any tax credit which is paid under that sub-paragraph shall be used under Part V of the [1972 c. 41.] Finance Act 1972 to frank the company's distributions; but where the company makes an election under subsection (4) of the said section 314 neither sub-paragraph (1) above nor the foregoing provisions of this sub-paragraph shall apply to the franked investment income to which the election relates.

(3) Subsection (3)(b) and (c) of the said section 314 shall cease to have effect and in subsection (4) of that section the words from " If an accounting period " to " periods, and " and the words " or part of an accounting period " shall be omitted.

(4) In section 315(8)(b) for the words "under provisions of the law of that country corresponding with section 314(1) above exemption from income tax is allowable " there shall be substituted the words " the law of that country makes provision corresponding with section 314(1) above and paragraph 4(1) and (2) of Schedule 18 to the Finance Act 1972 ".

Distributions to be taken into account in computing profits

5 (1) Distributions which are not qualifying distributions shall not be taken into account—

(a) in computing under section 312 of the Taxes Act the profits arising to an insurance company or overseas life insurance company from general annuity business or pension business ;

(b) in computing under section 316 of that Act the income of an overseas life insurance company from the investments there mentioned;

and the only distributions to be taken into account for the purposes of section 320(2) of that Act (distributions treated as franked investment income in case of overseas life insurance company exempt from charge under the said section 316) shall be distributions in respect of which the company is entitled to a tax credit.

(2) Accordingly in sections 316(2) and 318(1) for the word " distributions " there shall be substituted the words " qualifying distributions " and in section 320(2) after the word " distributions " there shall be inserted the words " (being distributions in respect of which the company receiving them is entitled to a tax credit) ".

Set-off of income tax and tax credit against corporation tax borne by overseas life insurance company

6 Where an overseas life insurance company receives a distribution in respect of which it is entitled to a tax credit the company may claim to have that credit set off against any corporation tax assessed on the company under section 316 or 318 of the Taxes Act for the accounting period in which the distribution is received, but the restriction in section 319(2) and (3) of that Act on the amount of income tax that may be set off against corporation tax assessed under the said section 316 or 318 shall apply to the aggregate of that income tax and of the tax credit that can be so set off by virtue of this paragraph.