http://www.legislation.gov.uk/id/ukpga/1988/1

PART XII SPECIAL CLASSES OF COMPANIES AND BUSINESSES

C53 C54CHAPTER I INSURANCE COMPANIES, UNDERWRITERS AND CAPITAL REDEMPTION BUSINESS

Annotations:

Modifications etc. (not altering text)

C53

Definitions in Pt. XII Chapter I (ss. 431-458) applied by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 16(7), 18

C54

Pt. XII Chapter I (ss. 431-458) applied (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 212(7)(b), 289 (with ss. 60, 101(1), 171, 201(3))

C34Insurance companies: general

Annotations:

Modifications etc. (not altering text)

C34

See 1989 ss.82-92 for changes made by Finance Act 1989 and 1990 ss.41-48 for changes made by Finance Act 1990.

431 Interpretative provisions relating to insurance companies.

1

M1This section has effect for the interpretation of this Chapter.

C22

M2Unless the context otherwise requires—

“annuity business” means the business of granting annuities on human life;
“general annuity business” means any annuity business which is not pension business F115or overseas life assurance business, and “pension business” shall be construed in accordance with subsections (3) and (4) below;
“annuity fund” means, where an annuity fund is not kept separately from the life assurance fund of an insurance company, such part of the life assurance fund as represents the liability of the company under its annuity contracts, as stated in its periodical returns;
F116“basic life assurance business” means life assurance business other than general business, pension business and overseas life assurance business;
F117“basic life assurance and general annuity business” means life assurance business other than pension business and overseas life assurance business;
“closing” and “opening”, in relation to a period of account, refer respectively to the position at the end and at the beginning of the period and, in relation to an accounting period, refer respectively to the position at the end and at the beginning of the period of account in which the accounting period falls;
“closing liabilities” includes liabilities assumed at the end of the period of account concerned in consequence of the declaration of reversionary bonuses or a reduction in premiums;
“industrial assurance business” has the same meaning as in the M3Insurance Companies Act 1982;
“insurance company” means a company to which Part II of the Insurance Companies Act 1982 applies;
F118“investment reserve”, in relation to an insurance company, means the excess of the value of the assets of the company’s long term business fund over the liabilities of the long term business;
“liabilities”, in relation to an insurance company, means the liabilities of the company estimated as for the purposes of its periodical return (excluding any that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the company’s insurance business);
C3“life assurance business” includes annuity business;
F119“linked assets” means assets of an insurance company which are identified in its records as assets by reference to the value of which benefits provided for under a policy or contract are to be determined;
“long term business” has the meaning given by section 1(1) of the Insurance Companies Act 1982;
“long term business fund” means the fund maintained by an insurance company in respect of its long term business or, where the company carried on both ordinary long term business and industrial assurance business, either or both (as the context may require) of the two funds so maintained;
“offshore income gain” has the same meaning as in Chapter V of Part XVII;
F120“ordinary long term business” and “ordinary life assurance business” means respectively long term business and life assurance business that is not industrial assurance business;
“overseas life assurance business”—
1. a
  in the case of life assurance business other than reinsurance business, means business with a policy holder or annuitant not residing in the United Kingdom the policy or contract for which was effected at or through a branch or agency outside the United Kingdom where life assurance business is carried on; and
2. b
  in the case of reinsurance business, means business the contract for which was effected at or through a branch or agency outside the United Kingdom where none, or no significant part, of the reinsurance business carried on relates to life assurance business with policy holders or annuitants residing in the United Kingdom;
“overseas life assurance fund” shall be construed in accordance with Schedule 19AA;
“overseas life insurance company” means an insurance company F121not resident inthe United Kingdom but carrying on life assurance business through a branch or agency in the United Kingdom; and
“periodical return”, in relation to an insurance company, means a return deposited with the Secretary of State under Part II of the Insurance Companies Act 1982.
F122“UK distribution income” has the meaning given by section 444D(4);
F123“policy holders’ fraction” and “shareholders’ fraction” shall be construed in accordance with section 89of the Finance Act 1989.
F124“value”, in relation to assets of an insurance company, means the value of the assets as taken into account for the purposes of the company’s periodical return;
“with-profits liabilities” means liabilities in respect of policies or contracts under which the policy holders or annuitants are eligible to participate in surplus;

Linked assets shall be taken to be linked solely to long term business of a particular category if, and only if, all (or all but an insignificant proportion) of the policies or contracts providing for the benefits concerned are policies or contracts the effecting of which constitutes the carrying on of business of that category.

3

M4Subject to section 439, any division to be made between general annuity business, pension business and other life assurance business shall be made on the principle of—

a

referring to pension business any premiums falling within subsection (4) below, together with the incomings, outgoings and liabilities referable to those premiums and the policies and contracts under which they are or have been paid;

b

allocating to general annuity business all other annuity business F126that is not overseas life assurance business;

and references to “pension fund” and “general annuity fund” shall be construed accordingly, whether or not any such funds are kept separate from the insurance company’s life assurance fund.

4

The premiums to be referred to pension business are those payable under contracts falling within one or other of the following descriptions, that is to say—

a

M5any contract with an individual who is, or would but for an insufficiency of profits or gains be, chargeable to income tax in respect of relevant earnings (as defined in section 623(1) and (2)) from a trade, profession, vocation, office or employment carried on or held by him (being a contract approved by the Board under section 620), or any substituted contract within the meaning of section 622(3);

b

M6any contract (including a contract of insurance) entered into for the purposes of, and made with the persons having the management of, an exempt approved scheme as defined in Chapter I of Part XIV, being a contract so framed that the liabilities undertaken by the insurance company under the contract correspond with liabilities against which the contract is intended to secure the scheme;

c

M7any contract made under approved personal pension arrangements within the meaning of Chapter IV of Part XIV;

d

any annuity contract entered into for the purposes of—

i

M8a scheme which is approved or is being considered for approval under Chapter I of Part XIV;

F127ii

a scheme which is a relevant statutory scheme for the purposes of Chapter I of Part XIV; or

iii

a fund to which section 608 applies,

being a contract which is approved by the Board and made with the persons having the management of the scheme or fund (or those persons and a member of or contributor to the scheme or fund) and by means of which relevant benefits as defined by section 612(1) (but no other benefits) are secured;

e

any annuity contract approved by the Board which is entered into in substitution for a contract within paragraph (d) above;

f

M9any contract with the trustees or other persons having the management of a scheme approved under section 620 or, subject to subsection (5) below, of a superannuation fund which was approved under section 208 of the 1970 Act, being a contract which—

i

was entered into for the purposes only of that scheme or fund or, in the case of a fund part only of which was approved under section 208, for the purposes only of that part of that fund, and

ii

(in the case of a contract entered into or varied after 1st August 1956) is so framed that the liabilities undertaken by the insurance company under the contract correspond with liabilities against which the contract is intended to secure the scheme or fund (or the relevant part of the fund).

5

F128 Subsection (4)(f) above shall not apply to premiums payable under a contract where the fund in question was approved under section 208 of the 1970 Act unless—

a

immediately before 6th April 1980 premiums paid under the contract with the trustees or other persons having the management of the fund fell within section 323(4) of that Act (premiums referable to pension business); and

b

the terms on which benefits are payable from the fund have not been altered since that time; and

c

section 608 applies to the fund.

6

M10In subsections (3) to (5) above “premium” includes any consideration for an annuity.

F2431ZAElection that assets not be foreign business assets

1

An insurance company may, in its company tax return for the first accounting period of the company beginning on or after 1 January 2008 in which any of the assets of the company's long-term insurance fund would (apart from this section) be foreign business assets, elect that none of the assets of the company's long-term insurance fund are to be regarded for the purposes of this Act as being foreign business assets.

2

The election has effect for that accounting period and all subsequent accounting periods of the company.

3

An election under subsection (1) is irrevocable.

F1431A Amendment of Chapter etc.

Where it is expedient to do so in consequence of the exercise of any power under the M11Insurance Companies Act 1982, the Treasury may by order amend the provisions of this Chapter and any other provision of the Tax Acts so far as relating to insurance companies.

benefits provided by a fund directly (rather than by means of an annuity contract) are to be taken.

432 Separation of different classes of business.

1

M12Where an insurance company carries on life assurance business in conjunction with insurance business of any other class, the life assurance business shall, for the purposes of the Corporation Tax Acts, be treated as a separate business from any other class of business carried on by the company.

2

Where an insurance company carries on both ordinary life assurance business and F129industrial assurance business, the business of each such class shall, for the purposes of the Corporation Tax Acts, be treated as though it were a separate business, and section 76 F129and where appropriate the provisions of this chapter shall apply separately to each such class of business.

where any of the liabilities of the long term business are not linked liabilities but none (or none but an insignificant proportion) are with-profits liabilities, the part of that reserve which bears to the whole the same proportion as the amount of the liabilities of the category of business in question which are not linked liabilities bears to the whole amount of the liabilities of the long term business which are not linked liabilities, and

c

in any other case, the part of that reserve which bears to the whole the same proportion as the amount of the with-profits liabilities of the category of business in question bears to the whole amount of the with-profits liabilities of the long term business;

and in this subsection “linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.

C99

Where the category of business in question is a class of life assurance business, for the purposes of this section—

a

“liabilities” does not include liabilities of the overseas life assurance business; and

C8b

assets of the overseas life assurance fund and liabilities of the overseas life assurance business shall be left out of account in determining the investment reserve.

F13610

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C10 C11 C12432B [F137Apportionment of receipts brought into account.

1

This section and sections 432C to 432E have effect where it is necessary in accordance with section 83 of the Finance Act 1989 to determine what parts of any items brought into account in the revenue account prepared for the purposes of the M13Insurance Companies Act 1982 are referable to life assurance business or any class of life assurance business.

2

Where in addition to the revenue account prepared for the purposes of the Insurance Companies Act 1982 in respect of the whole of any business carried on by a company there are prepared for the purposes of that Act revenue accounts relating to parts of the business, amounts referred to in sections 432C to 432E shall, so far as they relate to those parts, be ascertained by reference to the latter accounts rather than by reference to the former.

3

Sections 432C and 432D apply where the business with which an account is concerned (“the relevant business”) relates exclusively to policies or contracts under which the policy holders or annuitants are not eligible to participate in surplus; and section 432E applies where the relevant business relates wholly or partly to other policies or contracts. ]

C13432C [F138Section 432B apportionment: income of non-participating funds.

1

To the extent that the amount brought into account as income is attributable to assets linked solely to life assurance business, pension business or F139basic life assurance and general annuity business, it shall be referable to the category of business concerned.

2

To the extent that that amount is attributable to assets of the overseas life assurance fund, it shall be referable to overseas life assurance business.

3

There shall be referable to any category of business (apart from overseas life assurance business) the relevant fraction of so much of the amount brought into account as income as is not directly referable to any of the appropriate categories of business.

4

For the purposes of subsection (3) above “the relevant fraction”, in relation to a category of business, is the fraction of which—

a

the numerator is the mean of the opening and closing liabilities of the relevant business so far as referable to the category, reduced by the mean of the opening and closing values of any assets of the relevant business directly referable to the category; and

b

the denominator is the mean of the opening and closing liabilities of the relevant business, reduced by the mean of the opening and closing values of any assets of the relevant business directly referable to any of the appropriate categories of business.

5

For the purposes of subsections (3) and (4) above—

a

references to appropriate categories of business—

i

where the category of business in question is life assurance business, are references to that category of business and long term business other than life assurance business; and

ii

where the category of business in question is pension business, F140or basic life assurance and general annuity business, are references to F141those categories of business; and

b

the part of the amount brought into account as income which is directly referable to a category of business is the part referable to the category by virtue of subsection (1) above and assets are directly referable to a category of business if such part of the amount brought into account as income as is attributable to them is so referable.

6

Where the category of business in question is a class of life assurance business, for the purposes of this section “liabilities” does not include liabilities of the overseas life assurance business. ]

C14432D [F142Section 432B apportionment: value of non-participating funds.

1

To the extent that the amount brought into account as the increase or decrease in the value of assets is attributable to assets linked solely to life assurance business, pension business or F143basic life assurance and general annuity business, or to assets of the overseas life assurance fund which are linked solely to overseas life assurance business, it shall be referable to the category of business concerned.

2

There shall be referable to any category of business the relevant fraction of the amount brought into account as the increase or decrease in the value of assets except so far as the amount is attributable to assets which are directly referable to any of the appropriate categories of business.

3

Subsections (4) and (5) (but not (6)) of section 432C shall apply for the purposes of this section as if—

a

each of the references to a subsection of that section were a reference to the corresponding subsection of this section, and

b

in subsection (5)—

i

a reference to overseas life assurance business were included after each of the references to pension business in paragraph (a)(ii), and

ii

each of the references in paragraph (b) to income were a reference to the increase or decrease in the value of assets. ]

C15432E [F144Section 432B apportionment: participating funds.

1

The part of the net amount of the items referred to in subsection (1) of section 83 of the Finance Act 1989 (that is to say the income referred to in paragraph (a) of that subsection increased or reduced by the increase or reduction in the value referred to in paragraph (b)) which is referable to a particular category of business shall be—

a

the amount determined in accordance with subsection (2) below, or

b

the amount determined in accordance with subsection (3) below,

whichever is the greater.

2

For the purposes of subsection (1) above there shall be determined the amount which is such as to secure—

a

in a case where the relevant business is mutual business, that

CAS = CS

,and

b

in any other case, that

CS - CAS = (S - AS) \times \frac{CAS}{AS}

where—

S is the surplus of the relevant business;
AS is so much of that surplus as is allocated to persons entitled to the benefits provided for by the policies or contracts to which the relevant business relates;
CAS is so much of the surplus so allocated as is attributable to policies or contracts of the category of business concerned; and
CS is so much of the surplus of the relevant business as would remain if the relevant business were confined to business of the category concerned.

3

For the purposes of subsection (1) above there shall also be determined the aggregate of—

a

the applicable percentage of what is left of the mean of the opening and closing liabilities of the relevant business so far as referable to the category of business concerned after deducting from it the mean of the opening and closing values of any assets of the relevant business linked solely to that category of business, and

b

the part of the net amount mentioned in subsection (1) above that is attributable to assets linked solely to that category of business.

C164

For the purposes of subsection (3) above “the applicable percentage”, in any case, is such percentage as may be determined for that case by or in accordance with an order made by the Treasury.

5

Where the part of the net amount referable to a particular category or categories of business (“the subsection (3) category or categories”) is the amount determined in accordance with subsection (3) above, the amount determined in accordance with subsection (2) above in relation to any other category (“the relevant category”) shall be reduced by—

\frac{XY}{Z}

where—

X is the excess of the amount determined in accordance with subsection (3) above in the case of the subsection (3) category (or each of them) over the amount determined in its case (or the case of each of them) in accordance with subsection (2) above;
Y is so much of the surplus of the relevant business as is allocated to persons entitled to the benefits provided for by policies or contracts of the relevant category; and
Z is so much of the surplus of the relevant business as is allocated to persons entitled to the benefits provided for by policies or contracts of the category (or each of the categories) which is not a subsection (3) category.

6

Where the category of business concerned is overseas life assurance business—

a

if the part of the income brought into account that is attributable to assets of the overseas life assurance fund not linked solely to overseas life assurance business is greater than the amount arrived at under subsection (3)(a) above, this section shall have effect as if that part of that income were the amount so arrived at; and

b

the amount which, apart from this paragraph, would be the part of the net amount referable to that category of business shall be—

i

reduced by the part of the net amount attributable to distributions of companies resident in the United Kingdom relating to assets of the company’s overseas life assurance fund, and

ii

increased by the amount which is income of the relevant business by virtue of section 441A.

433 Profits reserved for policy holders and annuitants.

M14Where the profits of an insurance company in respect of its life assurance business are, for the purposes of this Act, computed in accordance with the provisions of this Act applicable to Case Iof Schedule D, such part of those profits as belongs or is allocated to, or is reserved for, or expended on behalf of, policy holders or annuitants shall be excluded in making the computation, but if any profits so excluded as being reserved for policy holders or annuitants cease at any time to be so reserved and are not allocated to or expended on behalf of policy holders or annuitants, those profits shall be treated as profits of the company for the accounting period in which they ceased to be so reserved. F145

C17434 Franked investment income etc.

1

M15Section 208 shall not prevent franked investment income of a company resident in the United Kingdom which carries on life assurance business from being taken into account as part of the profits in computing trading income in accordance with the provisions applicable to Case I of Schedule D.

C182

In ascertaining for the purposes of section 393 or F146393A(1) whether and to what extent a company has incurred a loss on its life assurance business, any profits derived from the investments of its life assurance fund (including franked investment income of a company so resident) shall be treated as part of the profits of that business.

F1473

Subject to sections 437 and 438, the F148policy holders’ share of the franked investment income from investments held in connection with a company’s life assurance business shall not be used under Chapter V of Part VI to frank distributions made by the company and, accordingly, for the purposes of that Chapter (other than the application of franked investment income under section 241), in relation to any unrelieved income of a company falling within subsection (1) above, the surplus of franked investment income for any accounting period means the aggregate of—

a

the F148policy holders’ share of that franked investment income F149from investments held in connection with the company’s life assurance business; and

b

the amount determined under section 241(3) on the basis that the reference therein to franked investment income is a reference F150to that income excluding the amount within paragraph (a) above.

3A

The policy holders’ F151share of the franked investment income from 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 franked investment income forming part of the company’s profits for the purposes of that section.

4

M16Subject to subsection (5)below, the specified part shall be, in the case of any unrelieved income, the same fraction of it as the fraction which, on a computation of the profits of the company in respect of its life assurance business in accordance with the provisions applicable to Case Iof Schedule D (whether or not the company is in fact charged to tax under that Case for the relevant accounting period or periods),would be connoted by the words in section 433 “such part of those profits as belongs or is allocated to, or is reserved for, or expended on behalf of, policy holders or annuitants”. F152

5

If the income exceeds the profits as computed in accordance with the provisions applicable to Case Iof Schedule D other than section 433, the specified part shall be that fraction of the income so far as not exceeding the profits, together with the amount of the excess. F152

6

M17For the purposes of section 239 the profits charged to corporation tax for any accounting period (as defined in subsection (6) of that section) shall be reduced by deducting F153the policy holders’ share of the relevant profits.

F1546A

For the purposes of this section—

a

“the policy holders’ share” of any franked investment income is so much of that income as is not the shareholders’ share within the meaning of section 89 of the Finance Act 1989, and

b

“the policy holders’ share of the relevant profits” has the same meaning as in section 88 of that Act.

7

M18For the purposes of subsection F155(3) above “unrelieved income” means income which has not been excluded from charge to tax by virtue of any provision and against which F156disregarding relief under section 242 no relief has been allowed by deduction or set-off.

8

M19Where subsection (3) or (6) 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.

434AF157 Limitations on loss relief and group relief.

1

In the case of a company carrying on life assurance business, no relief shall be allowable under Chapter II (loss relief) or Chapter IV (group relief) of Part X against the policy holders’ F158share of the relevant profits for any accounting period.

2

For the purposes of subsection (1) above, F158“the policy holders’ share of the relevant profits” has the same meaning as in section 88 of the Finance Act 1989.

435 Taxation of gains reserved for policy holders and annuitants.

1

M20This section has effect in relation to any accounting period of an insurance company carrying on life assurance business and for the purposes of this section—

a

the life assurance gains are such part of the amount to be included, in accordance with section 345,in the company’s total profits as is attributable to gains from investments held in connection with the company’s life assurance business;

b

the policy holders’ share of the life assurance gains or of the relevant reliefs is such fraction thereof as is equal to the fraction of the profits of the company in respect of its life assurance business which, under section 433,is excluded from the computation of those profits or would be so excluded if the profits were computed in accordance with the provisions applicable to Case Iof Schedule D; and

c

the relevant reliefs are such of the sums to be deducted from or set off against the company’s profits as are deducted from or set off against the life assurance gains.

2

M21Corporation tax charged on so much of the policy holders’ share of the life assurance gains as remains after setting against it the amounts referred to in subsection (3)(c)below shall be calculated on the basis of a rate of corporation tax of 30per cent.

3

For the purposes of this section there shall be ascertained the policy holders’ share and the remainder (“the residual part”)of the life assurance gains and of the relevant reliefs; and—

a

the residual part of the relevant reliefs shall be set against the residual part of those gains; and

b

if the residual part of the relevant reliefs exceeds the residual part of those gains, the excess (or so much of it as does not, together with the policy holders’ share of the relevant reliefs, exceed the policy holders’ share of those gains)shall be added to the policy holders’ share of the relevant reliefs; and

c

the policy holders’ share of the relevant reliefs, with any addition made under paragraph (b)above, shall be set against the policy holders’ share of the life assurance gains. F159

436 Annuity business and pension business: separate charge on profits.

1

M22Subject to the provisions of this section, profits arising to an insurance company from F160 . . . pension business shall be treated as income within Schedule D, and be chargeable under Case VI of that Schedule, and for that purpose—

a

F161that business shall be treated separately, and

C19b

subject to paragraph (a) above, and to subsection (3) below, the profits therefrom shall be computed in accordance with the provisions of this Act applicable to Case I of Schedule D.

2

Subsection (1) above shall not apply to an insurance company charged to corporation tax in accordance with the provisions applicable to Case I of Schedule D in respect of the profits of its ordinary life assurance business.

3

M23In making the computation referred to in subsection (1) above—

a

F162sections 82 and 83 of the Finance Act 1989shall apply with the necessary modifications and in particular with the omission of all references to policy holders (other than holders of policies referable to pension business) F163and of the words “tax or” in section 82(1)(a);

b

no deduction shall be allowed in respect of any expenses of management deductible under section 76; F164

c

there may be set off against the profits any loss, to be computed on the same basis as the profits, which has arisen from pension business F165 . . .in any previous accounting period or year of assessment;

d

where the computation in question is of profits arising to an insurance company from pension business—

F166i

group income so far as referable to pension business shall be deducted from the receipts to be taken into account,

ii

annuities shall be deductible notwithstanding section 337(2);

and the company shall not be entitled to treat as paid out of profits or gains brought into charge to income tax any part of the annuities paid by the company which is referable to pension business; and

e

distributions which are not qualifying distributions shall not be taken into account where the computation in question is of the profits arising to an insurance company or overseas life insurance company from F167 . . . pension business.

4

M24Section 396 shall not be taken to apply to a loss incurred by a company on its F168 . . . pension business.

5

M25Nothing in section 128 or 399(1) shall affect the operation of this section.

437 General annuity business.

F1691A

In the case of a company carrying on basic life assurance and general annuity business, the new annuities paid in any accounting period by the company shall be regarded as charges on income only to the extent that they do not exceed the income limit for that accounting period.

1B

Subsection (1A) above shall not apply to an insurance company charged to corporation tax in accordance with the provisions applicable to Case I of Schedule D in respect of the profits of its life assurance business.

1C

For the purposes of this section—

a

“new annuity” means any annuity, so far as paid under a contract made by an insurance company in an accounting period beginning on or after 1st January 1992 and so far as referable to the company’s basic life assurance and general annuity business;

b

“the income limit” for an accounting period of an insurance company is the difference between—

i

the total amount of the new annuities paid by the company in that accounting period; and

ii

the total of the capital elements contained in the new annuities so paid; and

c

the capital element contained in an annuity shall be determined in accordance with Chapter V of Part XIV, but for this purpose—

i

it is immaterial whether or not an annuitant claims any relief to which he is entitled under that Chapter; and

ii

where, by virtue of subsection (2) of section 657, section 656 does not apply to an annuity, the annuity shall be treated as containing the capital element that it would have contained apart from that subsection.

1D

In any case where—

a

a payment in respect of an annuity is made by an insurance company under a group annuity contract made in an accounting period beginning before 1st January 1992,

b

the company’s liabilities first include an amount in respect of that annuity in an accounting period beginning on or after that date, and

c

the company’s liability in respect of that annuity is referable to its basic life assurance and general annuity business,

the payment shall be treated for the purposes of this section, other than this subsection, as if the group annuity contract had been made in an accounting period beginning on or after 1st January 1992 (and, accordingly, as payment of a new annuity).

1E

In any case where—

a

a payment in respect of an annuity is made by a reinsurer under a reinsurance treaty made in an accounting period beginning before 1st January 1992,

b

the reinsurer’s liabilities first include an amount in respect of that annuity in an accounting period beginning on or after that date, and

c

the reinsurer’s liability in respect of that annuity is referable to its basic life assurance and general annuity business,

the payment shall, as respects the reinsurer, be treated for the purposes of this section, other than this subsection, as if the reinsurance treaty had been made in an accounting period beginning on or after 1st January 1992 (and, accordingly, as payment of a new annuity).

1F

In this section—

“group annuity contract” means a contract between an insurance company and some other person under which the company undertakes to become liable to pay annuities to or in respect of such persons as may subsequently be specified or otherwise ascertained under or in accordance with the contract (whether or not annuities under the contract are also payable to or in respect of persons who are specified or ascertained at the time the contract is made);
“reinsurance treaty” means a contract under which one insurance company is obliged to cede, and another (in this section referred to as a “reinsurer”) to accept, the whole or part of a risk of a class or description to which the contract relates.

F1702

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1703

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1704

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1705

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

A company which is not resident in the United Kingdom but carries on through a branch or agency there any general annuity business shall not be entitled to treat any part of the annuities paid by it which are referable to that business as paid out of profits or gains brought into charge to income tax.

C20438 Pension business: exemption from tax.

1

M26Exemption from corporation tax shall be allowed in respect of income from, and chargeable gains in respect of, investments and deposits of so much of an insurance company’s life assurance fund and separate annuity fund, if any, as is referable to pension business.

2

M27The exemption from tax conferred by subsection (1) above shall not exclude any sums from being taken into account as receipts in computing profits or losses for any purpose of the Corporation Tax Acts.

3

M28Subject to subsection (6) below, the exclusion by section 208 from the charge to corporation tax of franked investment income shall not prevent such income being taken into account as part of the profits in computing under section 436 income from pension business.

4

M29If in the case of any company the income referred to in subsection (1) above includes a distribution in respect of which the company is entitled to a tax credit, the company may, subject to subsections (5) and (6) below, claim to have the amount of that credit paid to it.

C215

If the company is resident in the United Kingdom (so that the distribution and the tax credit in question constitute franked investment income of that company), no franked investment income comprising any tax credit which is paid under subsection (4) above shall, subject to subsection (6) below, be used under Chapter V of Part VI to frank the company’s distributions.

6

M30If 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 its F171relevant franked investment income arising in that period, being an amount of franked investment income not exceeding the amount of that profit, subsections (3) to (5) above shall not apply to the franked investment income to which the election relates.

F1726A

In subsection (6) above “relevant franked investment income” means the shareholders’ share of franked investment income within subsection (1) above, and for this purpose “shareholders’ share” has the same meaning as for the purposes of section 89 of the Finance Act 1989.

7

An election under subsection (6) above shall be made by notice given to the inspector not later than two years after the end of the accounting period to which the election relates or within such longer period as the Board may by notice allow.

8

M31Nothing in sections 431(4)(c) or 643(2) of this Act or section F173271(1)(h) of the 1992 Act shall be construed as affording relief in respect of any sums to be brought into account under this section.

438AF190Pension business: payments on account of tax credits and deducted tax.

Schedule 19AB shall have effect.

439 Restricted government securities.

F1741

For the purposes of this Chapter restricted government securities shall be treated as linked solely to pension business.

2

In this section

“restricted government securities” means, subject to the following provisions of this section, government securities issued on the condition that, except in such circumstances as may be specified in the conditions of issue, they are to be held by insurance companies against and applied solely towards meeting pension business liabilities.

6

M32Subject to subsection (7) below, the following Treasury Stock, namely—

a

2 per cent. Index-linked Treasury Stock 1996;

b

2 per cent. Index-linked Treasury Stock 2006;

c

2 per cent. Index-linked Treasury Stock 2011;

are not restricted government securities for the purposes of this section.

7

If any of the index-linked stock referred to in subsection (6) above was on 27th March 1982 held by an insurance company against and applied solely towards meeting the liabilities of the company’s pension business, then—

a

c

assets of the overseas life assurance fund;

C25 C26d

assets of the long term business fund not within any of the preceding paragraphs;

e

other assets.

5

In this section “market value” has the same meaning as in the F1791992 Act.

440A [F180Securities.

1

Subsection (2) below applies where the assets of an insurance company include securities of a class all of which would apart from this section be regarded for the purposes of corporation tax on chargeable gains as one holding.

C27 C282

Where this subsection applies—

a

so many of the securities as are identified in the company’s records as securities by reference to the value of which there are to be determined benefits provided for under policies F181or annuity contracts the effecting of all (or all but an insignificant proportion) of which constitutes the carrying on of F182basic life assurance and general annuity business shall be treated for the purposes of corporation tax as a separate holding linked solely to that business,

b

1

Section 208 shall not apply to a distribution in respect of any asset of an insurance company’s overseas life assurance fund.

2

Subject to subsection (3) below, an insurance company shall not be entitled under section 231 to a tax credit in respect of such a distribution.

3

A company shall be entitled to such a tax credit if and to the extent that, were the recipient an individual resident in the territory in which the relevant branch or agency is situated, he would be entitled to the credit under arrangements having effect by virtue of section 788.

4

For the purposes of subsection (3) above the relevant branch or agency, in the case of a tax credit in respect of a distribution, is—

a

where the relevant asset is linked solely to overseas life assurance business—

i

the branch or agency at or through which the company has effected policies or contracts the benefits under which are to be determined by reference to the value of the asset, or

ii

in a case where there is more than one such branch or agency, the branches to which different parts of it are allocated by the company in accordance with subsection (5) below;

b

subject to paragraph (a) above, where the management of the relevant asset is under the control of a person whose normal place of work is at a branch or agency, that branch or agency; and

c

in any other case, the branch or agency to which it is allocated by the company.

5

Where policies or contracts the benefits under which are to be determined by reference to the value of an asset within subsection (4)(a) above have been effected at or through more than one branch or agency, different parts of the asset shall be allocated to them so as to secure as far as practicable that the part allocated to each is proportionate to the part of the liabilities in respect of those benefits represented by liabilities under policies or contracts effected at or through it.

6

Where the overseas life assurance business carried on at or through a branch or agency in a territory includes—

a

reinsurance business which consists of the reinsurance of liabilities of a person resident in another territory, or

b

retrocession business,

the amount of any tax credit in relation to which the branch or agency is the relevant branch or agency shall be reduced by the proportion which the liabilities of that reinsurance business bear to all the liabilities of the overseas life assurance business carried on at or through the branch or agency.

7

Where a company is entitled to an amount of tax credit by virtue of this section the company may claim to have that amount paid to it.

C318

No franked investment income shall be used under Chapter V of Part VI of this Act to frank a company’s distributions if the tax credit (or any part of the tax credit) comprised in it is payable to the company under subsection (7) above.

442 Overseas business of U.K. companies.

1

M37Subsections (2) and (3) below apply where a company resident in the United Kingdom carries on insurance business outside the United Kingdom through a branch or agency and—

a

that business, or part of it, together with the whole assets of the company used for the purposes of that business or part (or together with the whole of those assets other than cash), is transferred to a company not resident in the United Kingdom;

b

the business or part is so transferred wholly or partly in exchange for shares, or for shares and loan stock, issued by the transferee company to the transferor company; and

c

the shares so issued, either alone or taken together with any other shares in the transferee company already held by the transferor company, amount in all to not less than one quarter of the ordinary share capital of the transferee company.

2

In making any computation in accordance with the provisions of this Act applicable to Case I of Schedule D of the profits or losses of the transferor company for the accounting period in which the transfer occurs, there shall be disregarded any profit or loss in respect of any asset transferred which, apart from this subsection, would fall to be taken into account in making that computation.

C323

Where by virtue of subsection (2) above any profit or loss is disregarded in making any computation otherwise than for the purposes of section 76(2) the profit or loss shall be treated for the purposes of the F1871992 Actas a chargeable gain or allowable loss accruing to the transferor company on the transfer.

4

Where at any time a company resident in the United Kingdom—

a

which carries on insurance business wholly outside the United Kingdom, and

b

the whole or part of whose ordinary share capital is beneficially owned by one or more companies resident in the United Kingdom,

ceases to be resident in the United Kingdom, the profits or losses of the company in respect of that business for the accounting period ending at that time shall be computed for tax purposes without regard to the whole, or, as the case may be, a corresponding part of any profit or loss in respect of any asset which, apart from this subsection, would fall to be calculated in accordance with section 100(1)(b) and taken into account in making that computation.

443 Life policies carrying rights not in money.

M38Where any investments or other assets are or have been, in accordance with a policy issued in the course of life assurance business carried on by an insurance company, transferred to the policy holder on or after 6th April 1967, the policy holder’s acquisition of the assets, and the disposal of them to him, shall be deemed to be for a consideration equal to the market value of the assets for the purposes of computing income in accordance with Case I or VI of Schedule D.

444 Life policies issued before 5th August 1965.

1

M39This section applies in relation to policies of life assurance issued before 5th August 1965 by a company carrying on life assurance business, being policies which—

a

provide for benefits consisting to any extent of investments of a specified description or of a sum of money to be determined by reference to the value of such investments, but

b

do not provide for the deduction from those benefits of any amount by reference to tax chargeable in respect of chargeable gains.

2

Where—

a

the investments of the company’s life assurance fund, so far as referable to those policies, consist wholly or mainly of investments of the description so specified, and

b

on the company becoming liable under any of those policies for any such benefits (including benefits to be provided on the surrender of a policy), a chargeable gain accrues to the company from the disposal, in meeting or for the purpose of meeting that liability, of investments of that description forming part of its life assurance fund, or would so accrue if the liability were met by or from the proceeds of such a disposal,

then the company shall be entitled as against the person receiving the benefits to retain out of those benefits a part not exceeding in amount or value corporation tax, at the rate specified in subsection (3) below, in respect of the chargeable gain referred to in paragraph (b) above, computed without regard to any amount retained under this subsection.

3

The amount to be retained under subsection (2) above shall, subject to subsection (4) below, be computed by reference to the rate of corporation tax for the time being in force or, if no rate of corporation tax has yet been fixed for the financial year, the rate last in force.

4

In so far as the chargeable gain represents or would represent a gain belonging or allocated to, or reserved for, policy holders, the amount to be retained shall be computed by reference to a rate of tax not exceeding 37.5 per cent.

444AF188 Transfers of business.

C331

Subject to the following provisions of this section, this section applies where there is a transfer of the whole or part of the long term business of an insurance company (“the transferor”) to another company (“the transferee”) in accordance with a scheme sanctioned by a court under section 49 of the M40Insurance Companies Act 1982.

2

Any expenses of management which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been deductible by the transferor under sections 75 and 76 in computing profits for an accounting period following the period which ends with the day on which the transfer takes place shall, instead, be treated as expenses of management of the transferee (and deductible in accordance with those sections, as modified in the case of acquisition expenses by section 86(6) to (9) of the Finance Act 1989 and in the case of expenses to which subsection (6) or (7) of section 87 of that Act applies by that subsection).

3

Any loss which (assuming the transferor had continued to carry on the business transferred after the transfer)—

a

would have been available under section 436(3)(c) to be set off against profits of the transferor for the accounting period following that which ends with the day on which transfer takes place, or

b

where in connection with the transfer the transferor also transfers the whole or part of any overseas life assurance business, would have been so available under section 441(4)(b),

shall, instead, be treated as a loss of the transferee (and available to be set off against profits of the same class of business as that in which it arose).

4

Where acquisition expenses are treated as expenses of management of the transferee by virtue of subsection (2) above, the amount deductible for the first accounting period of the transferee ending after the transfer takes place shall be calculated as if that accounting period began with the day after the transfer.

5

Where the transfer is of part only of the transferor’s long term business, subsection (2) or (3) above shall apply only to such part of any amount to which it would otherwise apply as is appropriate.

6

Any question arising as to the operation of subsection (5) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and transferee shall be entitled to appear and be heard or to make representations in writing.

7

Subject to subsection (8) below, this section shall not apply unless the transfer is effected for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to corporation tax.

8

Subsection (7) above shall not affect the operation of this section in any case where, before the transfer, the Board have, on the application of the transferee, notified the transferee that the Board are satisfied that the transfer will be effected for bona fide commercial reasons and will not form part of any scheme or arrangements such as are mentioned in that subsection; and subsections (2) to (5) of section F189138 of the 1992 Actshall have effect in relation to this subsection as they have effect in relation to subsection (1) of that section.

F4Classes of life assurance business

Annotations:

Amendments (Textual)

Ss. 431B-431F and cross-heading inserted (with effect in accordance with Sch. 8 paras. 55, 57 of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 2

C35431B Meaning of “pension business”.

1

In this Chapter “pension business” means so much of a company’s life assurance business as is referable to contracts of the following descriptions or to the reinsurance of liabilities under such contracts.

2

The descriptions of contracts are—

a

any contract with an individual who is, or would but for an insufficiency of profits or gains be, chargeable to income tax in respect of relevant earnings (as defined in section 623(1) and (2)) from a trade, profession, vocation, office or employment carried on or held by him, being a contract approved by the Board under section 620 or a substituted contract within the meaning of section 622(3);

b

any contract (including a contract of insurance) entered into for the purposes of, and made with the persons having the management of, an exempt approved scheme as defined in Chapter I of Part XIV, being a contract so framed that the liabilities undertaken by the insurance company under the contract correspond with liabilities against which the contract is intended to secure the scheme;

c

any contract made under approved personal pension arrangements within the meaning of Chapter IV of Part XIV;

d

any annuity contract entered into for the purposes of—

i

a scheme which is approved or is being considered for approval under Chapter I of Part XIV;

ii

a scheme which is a relevant statutory scheme for the purposes of Chapter I of Part XIV; or

iii

a fund to which section 608 applies,

being a contract which is made with the persons having the management of the scheme or fund, or those persons and a member of or contributor to the scheme or fund, and by means of which relevant benefits (see subsections (3) and (4) below), and no other benefits, are secured;

e

any annuity contract which is entered into in substitution for a contract within paragraph (d) above and by means of which relevant benefits (see subsections (3) and (4) below), and no other benefits, are secured;

f

any contract with the trustees or other persons having the management of a scheme approved under section 620 or, subject to subsection (5) below, of a superannuation fund which was approved under section 208 of the 1970 Act, being a contract which—

i

was entered into for the purposes only of that scheme or fund or, in the case of a fund part only of which was approved under section 208, for the purposes only of that part of that fund, and

ii

3

For the purposes of subsection (2)(d) and (e) above “relevant benefits” means relevant benefits as defined by section 612(1) which correspond—

a

where subsection (2)(d)(i) above applies, or subsection (2)(e) above applies and the contract within subsection (2)(d) was entered into for the purposes of a scheme falling within subsection (2)(d)(i), with benefits that could be provided by a scheme approved under Chapter I of Part XIV;

b

where subsection (2)(d)(ii) above applies, or subsection (2)(e) above applies and the contract within subsection (2)(d) was entered into for the purposes of a scheme falling within subsection (2)(d)(ii), with benefits that could be provided by a scheme which is a relevant statutory scheme for the purposes of Chapter I of Part XIV;

c

where subsection (2)(d)(iii) above applies, or subsection (2)(e) above applies and the contract within subsection (2)(d) was entered into for the purposes of a fund falling within subsection (2)(d)(iii), with benefits that could be provided by a fund to which section 608 applies.

4

For the purposes of subsection (3)(a), (b) or (c) above a hypothetical scheme or fund (rather than any particular scheme or fund), and benefits provided by a scheme or fund directly (rather than by means of an annuity contract), shall be taken.

5

Subsection (2)(f) above shall not apply to a contract where the fund in question was approved under section 208 of the 1970 Act unless—

a

b

the terms on which benefits are payable from the fund have not been altered since that time; and

c

section 608 applies to the fund.

6

In subsection (5) above “premium” includes any consideration for an annuity.

F5431BAMeaning of “child trust fund business”

1

In this Chapter “child trust fund business” means so much of a company's life assurance business as is referable to child trust fund policies (but not including the reinsurance of such business).

2

In this section “child trust fund policy” means a policy of life insurance which is an investment under a child trust fund (within the meaning of the Child Trust Funds Act 2004).

F5431BBMeaning of “individual savings account business”

1

In this Chapter “individual savings account business” means so much of a company's life assurance business as is referable to individual savings account policies (but not including the reinsurance of such business).

2

In this section “individual savings account policy” means a policy of life insurance which is an investment of a kind specified in regulations made by virtue of section 695(1) of ITTOIA 2005.

C36431C Meaning of “life reinsurance business”.

C37 C381

In this Chapter “life reinsurance business” means reinsurance of life assurance business other than pension business or business of any description excluded from this section by regulations made by the Board.

2

Regulations under subsection (1) above may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.

C39 C40431D Meaning of “overseas life assurance business”.

1

In this Chapter “overseas life assurance business” means life assurance business, other than pension business or life reinsurance business, which—

a

in the case of life assurance business other than reinsurance business, is business with a policy holder or annuitant not residing in the United Kingdom, and

b

in the case of reinsurance business, is—

i

reinsurance of life assurance business with a policy holder or annuitant not residing in the United Kingdom, or

ii

reinsurance of business within sub-paragraph (i) above or this sub-paragraph.

2

Subject to subsections (5) and (7) below, in subsection (1) above the references to life assurance business with a policy holder or annuitant do not include life assurance business with a person who is an individual if—

a

the policy holder or annuitant is not beneficially entitled to the rights conferred by the policy or contract for the business, or

b

any benefits under the policy or contract for the business are or will be payable to a person other than the policy holder or annuitant (or his personal representatives) or to a number of persons not including him (or them).

3

For the purposes of subsection (2) above any nomination by a policy holder or annuitant of an individual or individuals as the recipient or recipients of benefits payable on death shall be disregarded.

4

5

Subsections (2) and (4) above do not apply if—

a

the rights conferred by the policy or contract for the business are held subject to a trust,

b

the settlor does not reside in the United Kingdom, and

c

each beneficiary is either an individual not residing in the United Kingdom or a charity.

6

In subsection (5) above—

a

“settlor” means the person, or (where more than one) each of the persons, by whom the trust was directly or indirectly created (and for this purpose a person shall, in particular, be regarded as having created the trust if he provided or undertook to provide funds directly or indirectly for the purposes of the trust or made with any other person a reciprocal arrangement for that other person to create the trust),

b

“beneficiary” means any person who is, or will or may become, entitled to any benefit under the trust (including any person who may become so entitled on the exercise of a discretion by the trustees of the trust), and

c

e

overseas life assurance business.

C41 C42431F Meaning of “basic life assurance and general annuity business”.

In this Chapter “basic life assurance and general annuity business” means life assurance business (including reinsurance business) other than pension business, life reinsurance business or overseas life assurance business.

F7Separation of different categories of business

Annotations:

Amendments (Textual)

Cross-heading before s. 432 inserted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 51(2) (with Sch. 8 para. 55(2))

F8 C47431GCompany carrying on life assurance business

1

This section applies in relation to an insurance company which carries on life assurance business (whether or not it also carries on insurance business of any other kind).

to affect the operation of the I minus E basis in relation to the that business of the company for any accounting period except as specifically provided by the Corporation Tax Acts.

F9 C48431HCompany carrying on life assurance business and other insurance business

1

This section applies in relation to an insurance company which carries on life assurance business and insurance business of any other kind.

2

For the purposes of the Corporation Tax Acts—

a

the life assurance business, and

b

the other insurance business,

are to be treated as separate businesses.

3

The profits of the other insurance business shall be charged to tax under Case I of Schedule D as the profits of a separate trade.

4

But subsection (3) above does not apply where that business is mutual business.

5

As to the profits of the life assurance business, see section 431G.

F10432YALong-term business other than life assurance business — adjustment consequent on change in Insurance Prudential Sourcebook

1

This section applies in the case of—

a

a company which is a non-profit company, or

b

the non-profit fund of a company which is not a non-profit company,

if an amount (other than nil) is shown in paragraph 4(12) of Appendix 9.4 to the periodical return for the company for the first period of account which ends on or after 31st December 2006.

2

In computing profits of long-term business which is not life assurance business in accordance with the provisions applicable to Case I of Schedule D an amount (“the relevant amount”) shall be added—

a

to the closing long term business provision of the company for the first period of account which ends on or after 31st December 2006, and

b

to the opening long term business provision of the company for the next period of account.

3

The relevant amount is, subject to subsection (4), the amount by which B exceeds A. Here—

A is the company's long term business provision in respect of business which is not life assurance business for the first period of account which ends on or after 31st December 2006, calculated after taking into account the company's ability to—
1. a
  make provision for non-attributable expenses by reference to a homogeneous risk group instead of by reference to individual policies or contracts;
2. b
  make provision for the voluntary discontinuance of policies or contracts using a prudent lapse rate assumption; and
3. c
  set negative liabilities against positive liabilities (subject to overall liabilities not being less than nil);
in accordance with the Insurance Prudential Sourcebook; and
B is the company's long term business provision for that period of account in respect of business which is not life assurance business, calculated without taking into account the matters referred to in paragraphs (a) to (c) of the definition of A.

4

In a case falling within subsection (1)(b)—

a

the relevant amount shall be reduced (but not below nil) by so much (if any) of the amount shown in paragraph 4(12) of Appendix 9.4 to the periodical return as is reflected in column 1 of line 51 of the Form 14 for that period of account relating to the non-profit fund in question; and

b

the references in subsection (3) to long term business provision and to liabilities are respectively to long term business provision and to liabilities relating to the non-profit fund in question.

5

In this section—

“long term business provision” has the same meaning as in Schedule 9A to the Companies Act 1985;
“non-profit company” has the meaning given in section 83YA(8) of the Finance Act 1989; and
“non-profit fund” has the same meaning as in the Insurance Prudential Sourcebook.

increases and decreases in the value of such assets,

shall be treated as arising to that category of business in the proportion which is the mean of the proportions determined under subsection (4) above at the beginning and end of the period.

6

In this section “linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.

7

In the case of a policy or contract the effecting of which constitutes a class of life assurance business the fact that it also constitutes long term business other than life assurance business shall be disregarded for the purposes of this section unless the benefits to be provided which constitute long term business other than life assurance business are to be determined by reference to the value of assets.

F12 C44432AA Schedule A business or overseas property business.

1

An insurance company is treated as carrying on separate Schedule A businesses, or overseas property businesses, in accordance with the following rules.

2

The exploitation of land held as an asset of the company’s long term business fund is treated as a separate business from the exploitation of land not so held.

3

The exploitation of land held as an asset of the company’s overseas life assurance fund is treated as a separate business from the exploitation of other land held as an asset of its long term business fund.

C454

The exploitation of land held as an asset linked to any of the following categories of business is regarded as a separate business—

a

pension business;

b

life reinsurance business;

c

basic life assurance and general annuity business;

d

long term business other than life assurance business.

5

Accordingly, the exploitation of land held as an asset of the company’s long term business fund otherwise than as mentioned in subsection (3) or (4) is treated as a separate business from any other.

6

In this section “land” means any estate, interest or rights in or over land.

F12 C46432AB Losses from Schedule A business or overseas property business.

1

This section applies to any loss arising in a Schedule A business or overseas property business.

2

A loss arising from any category of business mentioned in section 432A(2) shall be apportioned under that section in the same way as income.

3

So far as a loss is referable to basic life assurance and general annuity business, it shall be treated as if it were an amount of expenses of management under section 76 disbursed for the accounting period in which the loss arose.

4

Where a company is treated under section 432AA as carrying on—

a

more than one Schedule A business, or

b

more than one overseas property business,

then, in relation to either kind of business, the reference in subsection (3) above to a loss referable to basic life assurance and general annuity business shall be construed as a reference to any aggregate net loss after setting the losses from those businesses which are so referable against any profits from those businesses that are so referable.

5

The provisions of section 392A or 392B (loss relief) do not apply to a loss referable to life assurance business or any category of life assurance business.

6

Where a company is treated under section 432AA as carrying on—

a

more than one Schedule A business, or

b

more than one overseas property business,

and, in relation to either kind of business, there are losses and profits referable to business which is not life assurance business, those losses shall be set against those profits before being used under section 392A or 392B.

the amount so shown for the period of account immediately before it;

and the amount of the difference is “the relevant reduction”.

4

Section 432C applies in relation to so much of the relevant brought into account amount as does not exceed the relevant reduction (“the affected amount”) as if it were brought into account as an increase in the value of assets in the case of the relevant business for the applicable appropriate period of account of the company.

5

A period of account is an “appropriate period of account” if it ended before the current period of account and—

a

the amount shown in column 1 of line 51 of Form 14 of the company's periodical return in respect of the relevant business for it, was more than

b

the amount so shown for the period of account immediately before it;

and the amount of the difference is “the relevant increase.”

6

The “applicable” appropriate period of account is the one which ended most recently (“the most recent appropriate period of account”).

7

But if the relevant increase in the case of the most recent appropriate period of account is less than the affected amount, the most recent appropriate period of account is the applicable appropriate period of account in relation to only so much of the affected amount as does not exceed that relevant increase.

8

In that case, the appropriate period of account which ended most recently before the most recent appropriate period of account is the applicable appropriate period of account in relation to so much of the remainder as does not exceed the relevant increase in the case of that appropriate period of account (and, where necessary, so on until the applicable appropriate period of account is established in relation to all of the affected amount or there are no more appropriate periods of account).

9

If the current period of account is not the first in relation to which this section has applied in the case of the business concerned, the amount of the relevant increase in the case of any appropriate period of account (“the period in question”) is to be treated as reduced by the relevant aggregate.

10

The “relevant aggregate” is the aggregate of so much of the affected amount for any period or periods of account earlier than the current period of account as was an amount to which section 432C applied as if it were brought into account as mentioned in subsection (4) for the period in question.

11

For the purposes of this section an insurance company which has elected under section 83YA(9) of the Finance Act 1989 (changes in value of assets brought into account: non-profit companies) to be treated as a non-profit company in relation to a period of account is to be regarded as a non-profit company in relation to the period of account.

F14432CBTransfers of business involving excess assets

1

This section applies where, under an insurance business transfer scheme, there is a transfer of long-term business—

a

from a non-profit fund of an insurance company (“the transferor”) which is not a non-profit company in relation to the relevant period of account,

b

to another insurance company (“the transferee”) to constitute or form part of a non-profit fund of the transferee (“the transferee's non-profit fund”),

(“the transfer”) and conditions A and B are met.

2

Condition A is that the fair value of the assets transferred by the transfer exceeds by an amount (“the chargeable excess”) the amount of the relevant liabilities transferred by the transfer.

For this purpose “relevant” liabilities are liabilities of a type shown (or treated as shown) in any of lines 14, 17, 21 to 23 and 31 to 38 of Form 14 of a periodical return of an insurance company.

3

Condition B is that the main purpose, or one of the main purposes, of the transferor or the transferee (or both) in entering into any part of the transfer scheme arrangements is to secure a reduction in tax as a result of section 432C having effect in the case of the transferee, rather than the transferor, in relation to the business transferred by the transfer.

4

The chargeable excess is to be brought into account by the transferor as mentioned in section 83(2)(b) of the Finance Act 1989 for the relevant period of account.

5

Where there is no amount shown in relation to the transferee's non-profit fund in column 1 of line 51 of Form 14 of the periodical return of the transferee for the first period of account of the transferee ending on or after the transfer date (“the first post-transfer period of account”), the chargeable excess is to be brought into account by the transferee as mentioned in section 83(2) of the Finance Act 1989 as a decrease in the value of non-linked assets for the first post-transfer period of account.

6

Where—

a

there is an amount shown in relation to the transferee's non-profit fund in column 1 of line 51 of Form 14 of the periodical return of the transferee for the first post-transfer period of account, and

b

b

any contract of reinsurance, or

c

any reconstruction or amalgamation involving the transferor, a dependant of the transferor which is an insurance undertaking or the transferee,

which is effected in connection with the insurance business transfer scheme.

11

In subsection (10)—

“dependant”, and
“insurance undertaking”,

have the same meaning as in the Insurance Prudential Sourcebook.

12

In this section “the transfer date” means the date on which the insurance business transfer scheme takes effect.

13 F15432F Section 432B apportionment: supplementary provisions.

C431

The provisions of this section provide for the reduction of the amount determined in accordance with section 432E(3) (“the subsection (3) figure”) for an accounting period in which that amount exceeds, or would otherwise exceed, the amount determined in accordance with section 432E(2) (“the subsection (2) figure”).

2

For each category of business in relation to which section 432E falls to be applied there shall be determined for each accounting period the amount (if any) by which the subsection (2) figure, after making any reduction required by section 432E(5), exceeds the subsection (3) figure (“the subsection (2) excess”).

3

Where there is a subsection (2) excess, the amount shall be carried forward and if in any subsequent accounting period the subsection (3) figure exceeds, or would otherwise exceed, the subsection (2) figure, it shall be reduced by the amount or cumulative amount of subsection (2) excesses so far as not previously used under this subsection.

4

Where in an accounting period that amount is greater than is required to bring the subsection (3) figure down to the subsection (2) figure, the balance shall be carried forward and aggregated with any subsequent subsection (2) excess for use in subsequent accounting periods.

F16432GSection 432B: apportionment of business transfer-in

1

This section applies where an amount falls within section 83(2)(e) of the Finance Act 1989.

2

Where—

a

this section applies, and

b

it is necessary in accordance with section 83 to determine what part of a business transfer-in is referable to life assurance business or any category of life assurance business,

a business transfer-in shall be apportioned to the categories of business of the transferee in the proportions which the amount of the liabilities transferred for each of those categories bear to the whole of the liabilities transferred.

F17Miscellaneous provisions relating to life assurance business

Annotations:

Amendments (Textual)

F17

Cross-heading before s. 434 inserted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 51(4) (with Sch. 8 para. 55(2))

F18434AZAReduced loss relief for additions to non-profit funds

1

Where this section applies in the case of a company carrying on life assurance business, relief allowable under section 393A or Chapter 4 of Part 10 in respect of losses incurred by the company in the life assurance business in an accounting period is reduced in accordance with section 434AZB.

2

This section applies in the case of a company where—

a

there has been a relevant addition to one or more non-profit funds in a period of account ending no later than the accounting period (“the relevant period of account”) (see subsection (3)),

b

the company is not a non-profit company in relation to the relevant period of account and has not elected under subsection (9) of section 83YA of the Finance Act 1989 to be treated for the purposes of that section as if it were, and

c

condition A or B is met,

and, if the relevant period of account is not the period of account ending with the accounting period (“the current period of account”), condition C is also met.

3

For the purposes of subsection (2), there is a relevant addition to a non-profit fund in the relevant period of account if an amount is shown as a transfer from non-technical account in line 32 of the Form 58 of the non-profit fund in the periodical return for that period of account.

4

Condition A is that there is a relevant book value election in relation to assets of a non-profit fund of the company.

5

For the purposes of subsection (4), there is a relevant book value election in relation to assets of a non-profit fund if an amount is shown in relation to the non-profit fund as the excess of the value of net admissible assets in line 51 of the Form 14 of the non-profit fund in the periodical return for the current period of account.

6

Condition B is that the company is party to arrangements the main purpose, or one of the main purposes, of which is to reduce the relevant admissible value of assets of a non-profit fund of the company, other than any structural assets.

7

For the purposes of subsection (6) (and section 434AZB), the “relevant admissible value” means the value reflected in line 89 of Form 13 of the periodical return for the current period of account.

8

Condition C is that the surplus arising since the last valuation shown in line 34 of the Form 58 of the non-profit fund, or any of the non-profit funds, in relation to which condition A or B is met in the periodical return for the current period of account is a negative amount.

1

For the purposes of sections 434AZA and 434AZB, a non-profit fund required to support a with-profits fund is to be treated as not being a non-profit fund.

2

Sections 434AZA and 434AZB apply to a non-profit part of a with-profits fund as if references to something shown in the Form 14 or Form 58 of the non-profit fund in a periodical return were to what would be so shown if there were a Form 14 or Form 58 of the non-profit part of the with-profits fund in the periodical return.

3

In sections 434AZA and 434AZB—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and
“structural assets” has the same meaning as in section 83XA of the Finance Act 1989 (see subsection (3) of that section and any regulations made under it).

F19434B Treatment of interest and annuities.

1

Where the profits or losses arising to an insurance company from its life assurance business, or any class of life assurance business, fall to be computed for any purpose in accordance with the provisions of this Act applicable to Case I of Schedule D, section 337(2)(b) shall not prevent the deduction of any interest or annuity payable by the company under a liability of its long term business so far as referable to its life assurance business or any class of that business.

2

Nothing in subsection (1) above or in section 338(2) shall be construed as preventing any such interest or annuity as is mentioned in subsection (1) above, so far as referable to the company’s basic life assurance and general annuity business, from being treated as a charge on income for the purposes of the computation of the profits or losses of that business otherwise than in accordance with Case I of Schedule D.

F20434C Interest on repayment of advance corporation tax.

Section 826(1) applies in a case where a repayment falls to be made of advance corporation tax paid by a company carrying on life assurance business in respect of distributions made by it.

In relation to such a case the material date for the purposes of that section is that specified in subsection (2A) of that section.

F21434D Capital allowances: management assets.

1

This section has effect with respect to the allowances and charges to be made under the 1990 Act in respect of “management assets”, that is, assets provided for use or used for the management of life assurance business carried on by a company.

2

No allowances or charges shall be made under that Act in respect of expenditure on management assets except under Part II (machinery and plant).

3

Where the company is charged to tax under section 441 in respect of the profits of its overseas life assurance business for an accounting period—

a

any allowance falling to be made under Part II of the 1990 Act in respect of expenditure on the provision outside the United Kingdom of machinery or plant for use for the management of that business shall be given effect by treating it as an expense of the business for that period; and

b

any charge in respect of such expenditure falling to be so made shall be given effect by treating it as a receipt of the business for that period;

and sections 73, 144 and 145 of the 1990 Act do not apply.

4

Allowances and charges falling to be made under Part II of the 1990 Act in respect of expenditure in respect of management assets not falling within subsection (3) above shall be apportioned between the different classes of life assurance business carried on by the company.

The amount referable to any class of life assurance business shall be the relevant fraction of the amount of the allowance or charge, that is, the fraction of which—

a
the numerator is the mean of the opening and closing liabilities of the class of life assurance concerned, and
b
the denominator is the mean of the opening and closing liabilities of all the classes of life assurance business carried on by the company.

5

Where the company is charged to tax under section 436, 439B or 441 in respect of the profits of its pension business, life reinsurance business or overseas life assurance business for an accounting period—

a

any allowance falling to be made under Part II of the 1990 Act in respect of expenditure on the provision of machinery or plant for use for the management of that business shall be given effect by treating the relevant proportion of the allowance as an expense of that business for the purpose of calculating the Case VI profit for that period; and

b

any charge in respect of such expenditure falling to be so made shall be given effect by treating the relevant proportion of the charge as a receipt of that business for that purpose.

6

Where a company carries on basic life assurance and general annuity business and the profits arising from that business do not fall to be charged to tax in accordance with the provisions applicable to Case I of Schedule D—

a

allowances falling to be given under Part II of the 1990 Act in respect of expenditure on management assets shall be treated as additional expenses of management within section 76; and

b

any charge falling to be made under that Part in respect of such assets shall be chargeable to tax under Case VI of Schedule D.

7

For the purposes of this section the purposes of the management of a business shall be taken to be those purposes expenditure on which would be treated as expenses of management within section 76.

8

Expenditure to which this section applies shall not be taken into account otherwise than in accordance with this section.

This shall not be construed as preventing any allowance under Part II of the 1990 Act which falls to be given by virtue of this section from being taken into account—

a
in any computation of profits for the purposes of section 89(7) of the Finance Act 1989, or
b
in any computation for the purposes of section 76(2) of the tax that would have been paid if the company had been charged to tax under Case I of Schedule D in respect of its life assurance business.

F21434E Capital allowances: investment assets.

1

In this section “investment asset” means an asset held by a company for the purposes of its life assurance business otherwise than for the management of that business.

2

The letting by a company of an investment asset shall be treated for the purposes of section 61 of the 1990 Act (machinery and plant on lease) as a letting otherwise than in the course of a trade.

3

Any allowance under Part V of the 1990 Act (agricultural buildings, &c.) in respect of an investment asset shall be made by way of discharge or repayment of tax and shall be available primarily against agricultural income and income which is the subject of a balancing charge.

Effect shall be given to any balancing charge under that Part in respect of an investment asset by treating the amount on which the charge is to be made as agricultural income.

4

Any allowance under the 1990 Act in respect of an investment asset shall be treated as referable to the category or categories of business to which income arising from the asset is or would be referable and shall be apportioned in accordance with section 432A in the same way as such income.

5

No allowance under the 1990 Act in respect of an investment asset shall be taken into account—

a

in computing the profits of any class of life assurance business under section 436, 439B or 441, or

b

where the company is charged to tax in respect of its life assurance business under Case I of Schedule D, in computing the profits of that business.

6

Where any allowance under the 1990 Act in respect of an investment asset falls to be taken into account (having regard to subsection (5) above), only such allowances as are referable to the company’s basic life assurance and general annuity business shall be given effect under section 145(1) of that Act, and then only against income referable to that business; and section 145(3) shall not apply.

No loss to which section 396 applies may be set off under subsection (4) above against the amount of any profits chargeable under this section.

7

This section does not apply in relation to an insurance company for an accounting period if the profits of its long-term business for the accounting period are charged to tax under Case I of Schedule D.

F22436BGains referable to gross roll-up business not to be chargeable gains

1

Gains referable to gross roll-up business are not chargeable gains.

2

For the purposes of this section “gains referable to gross roll-up business” means gains which—

a

accrue to an insurance company on the disposal by it of assets of its long-term insurance fund, and

b

are referable (in accordance with section 432A) to gross roll-up business.

Where—

a

any question arises for the purposes of this section whether the amount of any payment in respect of any annuity—

i

is substantially smaller than the amount of, or

ii

accrues at a rate substantially less than,

an earlier payment in respect of that annuity, and

b

the annuitant or, as the case may be, every annuitant is an individual who is beneficially entitled to all the rights conferred on him as such an annuitant,

that question shall be determined without regard to so much of the difference between the amounts or rates as is referable to a reduction falling to be made as a result of the occurrence of a death.

6

Where the amount of any one or more of the payments to which an annuitant is entitled in respect of an annuity depends on any contingency, his entitlement to payments in respect of that annuity shall be determined for the purposes of section 437(1CA) to (1CC) and this section according to whatever (applying any relevant actuarial principles) is the most likely outcome in relation to that contingency.

7

Where any agreement or arrangement has effect for varying the rights of an annuitant in relation to a payment in respect of any annuity, that payment shall be taken, for the purposes of section 437(1CA) to (1CC) and this section, to be a payment of the amount to which the annuitant is entitled in accordance with that agreement or arrangement.

8

References in this section to a contingency include references to a contingency that consists wholly or partly in the exercise by any person of any option.

F24438B Income or gains arising from property investment LLP

1

Where an asset held by an insurance company as an asset of its long term business fund is held by the company as a member of a property investment LLP, the policy holders’ share of any income arising from, or chargeable gains accruing on the disposal of, the asset which—

a

is attributable to the company, and

b

would otherwise be referable by virtue of section 432A to pension business,

shall be treated for the purposes of the Corporation Tax Acts as referable to basic life assurance and general annuity business.

2

For the purposes of this section the property business of the insurance company for the purposes of which the asset is held shall be treated as a separate business.

“Property business” means a Schedule A business or overseas property business.

3

Where (apart from this subsection) an insurance company would not be carrying on basic life assurance and general annuity business, it shall be treated as carrying on such business if any income or chargeable gains of the company are treated as referable to the business by virtue of subsection (1) above.

4

A company may be charged to tax by virtue of this section—

a

notwithstanding section 439A, and

b

whether or not the income or chargeable gains to which subsection (1) above applies is taken into account in computing the profits of the company for the purposes of any charge to tax in accordance with Case I of Schedule D.

5

The policy holders’ share of income or chargeable gains to which subsection (1) above applies—

a

shall not be treated as relevant profits for the purposes of section 88 of the Finance Act 1989 (corporation tax on policy holders’ fraction of profits), and

b

shall not be treated as part of the BLAGAB profits for the purposes of section 88A of that Act (lower corporation tax rate on certain profits);

but the whole of the income or gains to which that subsection applies shall be chargeable to tax at the rate provided by section 88 of that Act.

6

So far as income is brought into account as mentioned in section 83(2) of the Finance Act 1989, sections 432B to 432F (apportionment of receipts brought into account) have effect as if subsection (1) above did not apply.

F24438C Determination of policy holders’ share for purposes of s.438B

1

For the purposes of section 438B the policy holders’ share of any income or chargeable gains to which subsection (1) of that section applies is what remains after deducting the shareholders’ share.

2

The shareholders’ share is found by applying to the whole the fraction—

\frac{A}{B}

where—

A is the amount of the profits of the company for the period which are chargeable to tax under section 436; and

B is an amount equal to the excess of—

(a) the amount taken into account as receipts of the company in computing those profits (apart from premiums and sums received by virtue of a claim under a reinsurance contract), over

(b) the amounts taken into account as expenses in computing those profits.

3

Where there is no such excess as is mentioned in subsection (2) above, or where the profits are greater than any excess, the whole of the income or gains is treated as the shareholders’ share.

4

Subject to that, where there are no profits none of the income or gains is treated as the shareholders’ share.

F25439A Taxation of pure reinsurance business.

If a company does not carry on life assurance business other than reinsurance business, and none of that business is of a type excluded from this section by regulations made by the Board, the profits of that business shall be charged to tax in accordance with Case I of Schedule D and not otherwise.

F26439B Life reinsurance business: separate charge on profits.

1

Where a company carries on life reinsurance business and the profits arising from that business are not charged to tax in accordance with the provisions applicable to Case I of Schedule D, then, subject as follows, those profits shall be treated as income within Schedule D and be chargeable to tax under Case VI of that Schedule, and for that purpose—

a

that business shall be treated separately, and

b

subject to paragraph (a) above, the profits from it shall be computed in accordance with the provisions of this Act applicable to Case I of Schedule D.

2

Subsection (1) above does not apply to so much of reinsurance business of any description excluded from that subsection by regulations made by the Board.

Regulations under this subsection may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.

3

In making the computation referred to in subsection (1) above—

a

sections 82(1), (2) and (4) and 83 of the Finance Act 1989 shall apply with the necessary modifications and in particular with the omission of the words “tax or” in section 82(1)(a),

b

section 83(3) of that Act shall not apply, and

c

there may be set off against the profits any loss, to be computed on the same basis as the profits, which has arisen from life reinsurance business in any previous accounting period beginning on or after 1st January 1995.

4

Section 396 shall not be taken to apply to a loss incurred by a company on life reinsurance business.

5

Nothing in section 128 or 399(1) shall affect the operation of this section.

6

Gains accruing to a company which are referable to its life reinsurance business shall not be chargeable gains.

7

In ascertaining whether or to what extent a company has incurred a loss on its life reinsurance business, franked investment income and foreign income dividends shall be taken into account (notwithstanding anything in section 208) as part of the profits of that business.

F27440B Modifications where tax charged under Case I of Schedule D.

1

The following provisions apply where the profits of a company’s life assurance business are charged to tax in accordance with Case I of Schedule D.

2

Section 438 applies as if in subsections (6), (6B) and (6E) for the reference to any profit arising to the company and computed under section 436 there were substituted a reference to the profit that would arise on a computation under section 436 if the profits of the company’s life assurance business were not charged to tax under Case I of Schedule D.

3

Section 440(1) and (2) apply as if the only categories set out in subsection (4) of that section were—

a

assets of the long term business fund, and

b

other assets.

4

Section 440A applies as if for paragraphs (a) to (e) of subsection (2) there were substituted—

”

so many of the securities as are identified in the company’s records as securities by reference to the value of which there are to be determined benefits provided for under policies or contracts the effecting of all (or all but an insignificant proportion) of which constitutes the carrying on of long term business, shall be treated for the purposes of corporation tax as a separate holding linked solely to that business, and

b

any remaining securities shall be treated for those purposes as a separate holding which is not of the description mentioned in the preceding paragraph.”.

5

Section 212(1) of the 1992 Act does not apply, but without prejudice to the bringing into account of any amounts deferred under section 213(1) or 214A(2) of that Act from any accounting period beginning before 1st January 1995.

the next accounting period, or

b

any subsequent accounting period for which the profits of the company's life assurance business continue to be charged to tax in accordance with Case I of Schedule D,

may be given by set-off against any gains treated as accruing under section 213(1) of the 1992 Act at the end of the accounting period.

8

But if the profits of the company's life assurance business for a subsequent accounting period are charged to tax under the I minus E basis, any relief not previously given under subsection (7) is to be treated for the purposes of the operation of section 76 in relation to the first subsequent accounting period for which profits are so charged as if it were an amount which is to be relieved under that section by virtue of section 86(8) and (9) of the Finance Act 1989.

F29440DModifications in relation to BLAGAB group reinsurers

Schedule 19ABA (which makes modifications of this Act in relation to BLAGAB group reinsurers) shall have effect.

F30441B Treatment of UK land.

1

This section applies to land in the United Kingdom which—

a

is held by a company as an asset linked to the company’s overseas life assurance business, or

b

is held by a company which is charged to tax under Case I of Schedule D in respect of its life assurance business as an asset by reference to the value of which benefits under any policy or contract are to be determined, where the policy or contract (or, in the case of a reinsurance contract, the underlying policy or contract) is held by a person not residing in the United Kingdom.

2

Income arising from land to which this section applies shall be treated for the purposes of this Chapter as referable to basic life assurance and general annuity business.

3

Where (apart from this subsection) an insurance company would not be carrying on basic life assurance and general annuity business it shall be treated as carrying on such business if any income of the company is treated as referable to such business by subsection (2) above.

4

A company may be charged to tax by virtue of this section—

a

notwithstanding section 439A, and

b

whether or not the income to which subsection (2) above relates is taken into account in computing the profits of the company for the purposes of any charge to tax in accordance with Case I of Schedule D.

5

In this section “land” has the same meaning as in Schedule 19AA.

F31 C49442A Taxation of investment return where risk reinsured.

C501

Where an insurance company reinsures any risk in respect of a policy or contract attributable to its basic life assurance and general annuity business, the investment return on the policy or contract shall be treated as accruing to the company over the period of the reinsurance arrangement and shall be charged to tax under Case VI of Schedule D.

2

The Board may make provision by regulations as to the amount of investment return to be treated as accruing in each accounting period during which the reinsurance arrangement is in force.

3

2

Any loss which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been available to be set off against profits chargeable under section 436A (a “Case VI loss”) shall instead be treated as a loss of the transferee (a “Case I loss”) available to be set off against GRBP in relation to a period of account.

3

For the purposes of subsection (2) above “GRBP”, in relation to a period of account, is—

P \times \frac{G R B T L}{T L}

where—

P is the amount of such profits of the transferee's life assurance business for the period of account as relate to the business transferred (that amount being determined in accordance with section 343(9) and (10), where applicable),
GRBTL is the mean of the opening and closing liabilities of the transferred gross roll-up business for the period of account, and
TL is the mean of the opening and closing liabilities of the transferred life assurance business for the period of account.

4

Where the transfer is of part only of the transferor's long-term business, subsection (2) above shall apply only to such part of any Case VI loss to which it would otherwise apply as is appropriate.

5

Any question arising as to the operation of subsection (4) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and the transferee shall be entitled to appear and be heard or to make representations in writing.

F32444AZBTransfers of life assurance business: Case I losses of the transferor

1

This section applies where—

a

an insurance business transfer scheme has effect to transfer life assurance business from one person (“the transferor”) to another (“the transferee”),

b

assuming the transferor had continued to carry on the business transferred after the transfer, the amount of any profits would have been charged to tax in accordance with Case I of Schedule D by virtue of section 431G(3),

c

the profits in respect of the business transferred for the first period of account of the transferee ending after the date on which the transfer takes effect are charged to tax under the I minus E basis, and

d

the conditions in paragraphs (a) and (b) of section 343(1) are satisfied in relation to the business transferred (construing references to an event as to a transfer).

2

The relevant fraction of any loss which (assuming the transferor had continued to carry on the business transferred after the transfer) would have been available to be set off against profits of that business (a “Case I loss”) shall instead be treated as a loss of the transferee (a “Case VI loss”) available to be set off against the amount of such profits chargeable under section 436A for a period of account as relate to the business transferred (that amount being determined in accordance with section 343(9) and (10), where applicable).

3

For the purposes of subsection (2) above “the relevant fraction”, in relation to a period of account, is—

\frac{G R B T L}{T L}

where—

GRBTL is the mean of the opening and closing liabilities of the transferred gross roll-up business for the period of account, and
TL is the mean of the opening and closing liabilities of the transferred life assurance business for the period of account.

4

Where the transfer is of part only of the transferor's long-term business, subsection (2) above shall apply only to such part of the amount of any Case I loss to which it would otherwise apply as is appropriate.

5 F33444AATransfers of business: deemed periodical return

1

This section applies where an insurance business transfer scheme has effect to transfer the whole of the long-term business of one person (“the transferor”).

2

Where the last period covered by a periodical return of the transferor ends otherwise than immediately before the transfer, there is to be deemed for the purposes of corporation tax to be a periodical return of the transferor covering the period—

a

beginning immediately after the last period ending before the transfer which is covered by an actual periodical return of the transferor, and

b

ending immediately before the transfer,

containing such entries as would have been included in an actual periodical return of the transferor covering that period (and so making that period a period of account of the transferor).

3

Where the last period covered by a periodical return of the transferor (whether or not by virtue of subsection (2) above) ends immediately before the transfer, there is to be deemed for the relevant purpose to be a periodical return of the transferor—

a

covering the time of the transfer, and

b

containing such entries as would have been included in an actual periodical return covering the time of the transfer,

(and so making the time of the transfer a period of account of the transferor for the relevant purpose).

4

Where the last period covered by a periodical return of the transferor ends after the transfer, the periodical return covering that period is to be ignored for all purposes of corporation tax other than the relevant purpose.

5

In this section “the relevant purpose” means determining for the purposes of section 83(2B) of the Finance Act 1989 whether a transfer is brought into account as part of total expenditure.

6

For the purposes of this section “insurance business transfer scheme” includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State).

6

Where in any accounting period of the transferor beginning after the transfer there is an increase in the amount of the retained liabilities, this section applies in relation to subsequent accounting periods of the transferor as if the amount of the retained liabilities were reduced by the amount of the increase.

7

Where an amount is shown as post-transfer reduction liabilities in the transferor’s accounts for any accounting period beginning after the transfer, this section applies as if the amount of the retained liabilities at the end of that accounting period (and the beginning of the next) were increased by the amount so shown.

8

In subsection (7) above “post-transfer reduction liabilities” means liabilities of the transferor to make payments to relevant persons which, in accordance with the terms of the insurance business transfer scheme, have arisen in consequence of a reduction in the amount of the retained liabilities at any time after the transfer.

9

In subsection (8) above “relevant persons” means—

a

if the transferor’s life assurance business immediately before the transfer was mutual business, persons who were policy holders or annuitants, or members of the transferor, at that time, and

b

in any other case, persons who were policy holders or annuitants at that time.

F36444ABAANon-profit fund transferred assets

1

For the purposes of section 444AB the relevant amount in relation to assets that are non-profit fund transferred assets is—

F V A - (A B T O + T L)

where—

FVA is the fair value of the assets on the transfer date,

ABTO is any amount brought into account in respect of the assets as a business transfer-out and shown (or treated as shown) in line 32 of Form 40 in the periodical return of the transferor for the period of account of the transferor including the transfer date, and

The relevant amount in relation to the relevant non-transferred assets is—

FVA - BTO

where

FVA is the fair value of the assets on the transfer date, and

BTO is any amount brought into account in respect of the assets as a business transfer-out.

5

See section 444AA for the meaning of “the transfer date” in this section.

F40444ABDTransferor's period of account including transfer

1

Any profits representing the amount by which—

a

the value of the liabilities transferred by an insurance business transfer scheme, exceeds

b

the value of the assets transferred by the insurance business transfer scheme shown (or treated as shown) in line 32 of the periodical return of the transferor for the period of account of the transferor including the transfer date,

are to be taken into account as profits of that period of account.

2

See section 444AA for the meaning of “the transfer date” in this section.

444ACTransfers of business: modification of s.83(2) FA 1989

1

This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

2

If—

a

the element of the transferee’s line 15 figure representing the transferor’s long-term insurance fund, exceeds

b

the amount of the liabilities to policy holders and annuitants transferred to the transferee,

the excess is not to be regarded as other income of the transferee for the purposes of section 83(2)(d) of the Finance Act 1989.

3

In this section and section 444AD “the element of the transferee’s line 15 figure representing the transferor’s long-term insurance fund” means so much of—

a

the amount which is brought into account by the transferee as other income in the period of account of the transferee in which the transfer takes place, as represents

b

the assets transferred to the transferee.

F41444ACZATransfer schemes transferring part of business: reduction in income of transferee

1

2

The condition is that the transferor did not carry on life assurance business that is mutual business during the period of account of the transferor covering the transfer date.

3

The amount which (apart from this section) would be regarded as other income of the transferee for the purposes of section 83(2)(e) of the Finance Act 1989 for the period of account of the transferee which includes the transfer date is to be reduced by an amount equal to the transferred surplus.

4

In subsection (4) above “the transferred surplus” means such part of the amount shown (or treated as shown) in line 13 of Form 14 in the periodical return of the transferor covering the last period of account of the transferor ending before the transfer date as it is just and reasonable to regard as being attributable to the transfer.

5

See section 444AA for the meaning of “the transfer date” in this section.

F42444ACATransfers of business: transferor shares are assets of transferee's long-term insurance fund etc

1

This section applies where an insurance business transfer scheme (see section 444AC(11)) has effect to transfer long-term business from one company (“the transferor”) to another (“the transferee”).

2

If—

a

immediately before the transfer, the assets of the long-term insurance fund of the transferee comprise or include relevant shares or an interest in such shares, and

b

the fair value (see section 444AC(11)) of the relevant shares, or of that interest, is reduced (whether or not to nil) as a result of the transfer,

an amount equal to that reduction in fair value is to be taken into account under section 83(2) of the Finance Act 1989 as a receipt of the transferee of the period of account of the transferee in which the transfer takes place.

3

But if—

a

the assets transferred to the transferee under the transfer comprise or include assets (“the relevant assets”) which, immediately before the transfer,—

i

were assets of the transferor, but

ii

were not assets of the transferor's long-term insurance fund, and

b

in respect of the transfer of the relevant assets, an amount is—

i

brought into account by the transferee as other income of the transferee of the period of account of the transferee in which the transfer takes place, and

ii

taken into account in computing in accordance with the provisions of this Act applicable to Case I of Schedule D the profits of the transferee's life assurance business and any category of its life assurance business to which the amount is referable,

the amount taken into account under section 83(2) of the Finance Act 1989 by virtue of subsection (2) above shall be reduced (but not below nil) by an amount equal to the amount referred to in paragraph (b) above.

4

In subsection (2) above “relevant shares” means—

a

some or all of the shares in the transferor, or

b

some or all of the shares in a company (whether or not an insurance company) which owns, directly or indirectly,—

i

some or all of the shares in the transferor, or

ii

an interest in some or all of those shares.

5

In subsection (4) above “shares”, in relation to a company, includes any interests in the company possessed by members of the company.

444ADTransfers of business: modification of s.83(2B) FA 1989

1

This section applies where an insurance business transfer scheme has effect to transfer long-term business from one person (“the transferor”) to another (“the transferee”).

2

If the transferor and the transferee jointly elect, section 83(2B) of the Finance Act 1989 does not apply to the transferor by reason of the transfer as respects so much of the value of the assets to which it would otherwise so apply as does not exceed the amount specified in subsection (4) below.

3

An election under subsection (2) above—

a

is irrevocable, and

b

is to be made by notice to an officer of the Board no later than the end of the period of 28 days beginning with the day following that on which the transfer takes place;

In subsection (1) above “transfer scheme arrangements” means an insurance business transfer scheme (“the relevant transfer scheme”) together with any relevant associated operations.

3

If a Case I advantage is obtained by the transferor (see subsection (1) of section 444AEB), the amount of the transferor's Case I advantage (see subsection (2) of that section) is to be taken into account as an increase in value of the assets of the long-term insurance fund of the transferor for the period of account of the transferor covering the transfer date.

4

If a Case I advantage is obtained by the transferee (see subsection (1) of section 444AEC), the amount of the transferee's Case I advantage (see subsection (2) of that section) is to be taken into account as an increase in value of the assets of the long-term insurance fund of the transferee for the first period of account of the transferee ending after the transfer date.

5

In this section and sections 444AEB and 444AEC “relevant associated operations”, in relation to the relevant transfer scheme, means—

a

any other insurance business transfer scheme,

b

any contract of reinsurance,

c

any reconstruction or amalgamation involving the transferor, a dependant of the transferor which is an insurance undertaking or the transferee, or

d

any surplus-increasing transfer of assets,

which is effected in connection with the relevant transfer scheme.

6

In subsection (5) above—

“dependant” and “insurance undertaking” have the same meaning as in the Insurance Prudential Sourcebook, and
“surplus-increasing transfer of assets” means a transfer of assets of the transferor's long-term insurance fund to the transferee which is not brought into account for any period of account of the transferee but increases the amount of total surplus shown in line 39 of Form 58 in any periodical return of the transferee.

7

See section 444AA for the meaning of “the transfer date” in this section.

See section 444AA for the meaning of “the transfer date”, and section 444AEA for the meaning of “relevant associated operations”, in this section.

444AECCase I advantage: transferee

1

A Case I advantage is obtained by the transferee if—

See section 444AA for the meaning of “the transfer date”, section 444AEA for the meaning of “relevant associated operations” and section 444AEB for the meaning of “Case I profits” and “Case I losses”, in this section.

F43444AECAParts of transfer scheme arrangements: anti-avoidance rule

1

This section applies where—

a

as a result of any part of transfer scheme arrangements involving the transfer of long-term business from one person (“the transferor”) to another (“the transferee”) a Case I advantage is obtained by the transferor or the transferee (or by both), and

b

the sole or main purpose, or one of the main purposes, of that part of the transfer scheme arrangements is the obtaining of that Case I advantage.

2

In subsection (1) above “transfer scheme arrangements” has the same meaning as in section 444AEA.

3

If a Case I advantage is obtained by the transferor (see subsection (1) of section 444AECB), the amount of the transferor's Case I advantage (see subsection (3) of that section) is to be taken into account as an increase in value of the assets of the long-term insurance fund of the transferor—

a

to the extent that the advantage is obtained by the transferor in the period of account covering the transfer date or any earlier period of account—

i

for the period of account of the transferor ending (or treated as ending) immediately before the transfer date, or

ii

where there is no such period, for the period of account of the transferor including the transfer date, and

b

to the extent that the advantage is obtained by the transferor in any later period of account of the transferor in which any relevant associated operations are effected, for that later period of account.

4

If a Case I advantage is obtained by the transferee (see subsection (1) of section 444AECC), the amount of the transferee's Case I advantage (see subsection (2) of that section) is to be taken into account as an increase in value of the assets of the long-term insurance fund of the transferee for the period of account of the transferee in which the advantage is obtained by the transferee.

5

See section 444AA for the meaning of “the transfer date”, and section 444AEA for the meaning of “relevant associated operations”, in this section.

F43444AECBParts of transfer scheme arrangements: Case I advantage transferor

6 F43444AECCParts of transfer scheme arrangements: Case I advantage transferee

1

A Case I advantage is obtained by the transferee if—

any intervening period of account.

5

See section 444AA for the meaning of “the transfer date”, section 444AEA for the meaning of “relevant associated operations”, section 444AEB for the meaning of “Case I profits” and “Case I losses” and “the relevant time” and section 444AECB for the meaning of “the relevant part of the arrangements”, in this section.

do not comply with subsection (8) above,

the applicant may require them to transmit the application to the Special Commissioners.

10

A requirement under subsection (9) above must be imposed within 30 days of the giving of the notice or the failure to comply and must be accompanied by any notice given under subsection (5) above and further particulars provided pursuant to any such notice.

11

Any notice given by the Special Commissioners has effect for the purposes of subsection (1) above as if it were given by the HMRC Commissioners.

12

If any particulars provided under this section do not fully and accurately disclose all facts and considerations material for the decision of the HMRC Commissioners or the Special Commissioners, any resulting notice that they are satisfied as mentioned in subsection (2) above is void.

13

For the purposes of this section two companies are members of the same group of companies if they are for the purposes of Chapter 4 of Part 10.

F63Surpluses of mutual and former mutual businesses

Annotations:

Amendments (Textual)

F63

Ss. 444AF-444AL and preceding cross-heading inserted (with effect in accordance with Sch. 11 para. 5(2)-(14) of the amending Act) by Finance Act 2006 (c. 25), Sch. 11 para. 5(1)

whether that subsection applies in relation to any such separate revenue account, and

ii

if so, the amount to be brought into account under that subsection in relation to that account,

shall be determined using only amounts or items which relate to the separate revenue account concerned.

4

In applying subsection (2) above in relation to a revenue account or separate revenue account which—

a

is recognised for the purposes of section 83 of that Act, and

b

b

if that amount is a negative amount, nil.

For this purpose—

UDSP is the undistributed demutualisation surplus of the company for the period of account immediately preceding the relevant period,
AD is any amount deemed under this section to be brought into account for the period of account immediately preceding the relevant period as an increase in the value of the assets of the company's long-term insurance fund,
DTSI is the total amount of any demutualisation transfer surpluses accruing to the company during the relevant period (see section 444AG),
DTSO is the total amount of any demutualisation transfer surpluses accruing to any other company (or companies) during the relevant period on a transfer (or transfers) of life assurance business by the company to that other company (or companies).

In this section “post-2002 period of account”, in relation to an insurance company, means a period of account of the company beginning on or after 1st January 2003 and ending on or after 9th April 2003.

444AISection 444AF: “reduction in company's unappropriated surplus”

1

For the purposes of section 444AF—

a

there is a reduction in the amount of the company's unappropriated surplus over the relevant period if CUS is less than (OUS + TSI – TSO);

b

the amount of that reduction is the amount by which CUS is less than (OUS + TSI – TSO).

2

In this section—

CUS is the amount of the company's unappropriated surplus at the end of the relevant period,
OUS is the amount of the company's unappropriated surplus at the end of the period of account immediately preceding the relevant period,
TSI is the total amount of any transfer surpluses accruing to the company during the relevant period (see subsections (3) to (7)),
TSO is the total amount of any transfer surpluses accruing to any other company (or companies) during the relevant period on a transfer (or transfers) of life assurance business by the company to that other company (or companies).

3

For the purposes of this section, a transfer surplus accrues to an insurance company where life assurance business is transferred to the company by a person (“the transferor”).

4

The transfer surplus accrues to the company on the date of the transfer.

5

The amount of the transfer surplus is equal to so much of the unappropriated surplus of the transferor at the end of the period of account of the transferor ending immediately before the transfer as is transferred to the company under the transfer.

6

But if, immediately before the transfer, the transferor carried on the transferred business as mutual business, the amount of the transfer surplus is the aggregate of—

a

the amount given by subsection (5) above, and

b

the amount of any added surplus accruing to the company in connection with the transfer.

7

Subsection (10) of section 444AG applies for the purposes of subsection (6) above as it applies for the purposes of that section.

there is a transfer from a with-profits fund of the company to another fund of the company (“the initial transfer”) which is shown in (or included in an amount shown in) line 14 of Form 58 for the with-profits fund,

b

there is a transfer from a fund of the company (whether or not the other fund mentioned in paragraph (a) above) to the non-technical account which is shown in (or included in an amount shown in) line 13 of Form 58 for that fund, and

c

the transfer to the non-technical account can reasonably be regarded as connected with the initial transfer,

the amount of the gross transfer to non-technical account for the relevant period given by subsection (3) above in the case of the with-profits fund is to be increased by the amount transferred to the non-technical account.

5

In this section “post-policy holder surplus” means an amount equal to—

SA - TAP

where—

SA is—

(a) the amount shown in line 34 of Form 58 for the fund (surplus arising since last valuation), or
(b) if that amount is a negative amount, nil;

TAP is the amount shown in line 46 of Form 58 for the fund (total allocated to policy holders).

6

The amount, in the case of a policy holder participation fund, is—

a

where TAP is greater than SA, the amount of the difference;

b

otherwise, nil;

and for this purpose “SA” and “TAP” have the same meaning as in subsection (5) above.

7

References in this section to Form 58 are references to that Form in the periodical return of the company for the relevant period.

8

In this section “policy holder participation fund” means a fund in the case of which an amount equal to the amount shown in line 34 of Form 58 for the fund is allocated to policy holders for the relevant period.

CUS is less than UUS.

7

The amount of that reduction is—

a

the amount by which CUS is less than OUS, or

b

if OUS is greater than UUS, the amount by which CUS is less than UUS.

8

In this section—

CUS is the amount of the company's unappropriated surplus at the end of the relevant period,
OUS is the amount of the company's unappropriated surplus at the end of the period of account immediately preceding the relevant period,
UUS is the amount of the company's unappropriated surplus at the end of the period of account immediately preceding the first period of account of the company to begin on or after 1st January 2003 and to end on or after 9th April 2003.

444ALInterpretation of sections 444AF to 444AK

1

This section applies for the purposes of sections 444AF to 444AK.

2

References to mutual business, in relation to any time, include business which at that time is treated for the purposes of section 432E as mutual business.

3

“Unappropriated surplus”, in relation to a period of account of an insurance company, means an unappropriated surplus on valuation as shown in the periodical return of the company for the period of account.

4

References to the unappropriated surplus of the transferor at the end of the period of account of the transferor ending immediately before the transfer are, where a period of account of the transferor does not end at that time, references to the unappropriated surplus on valuation that would have been shown in a periodical return of the transferor for that period had such a return been drawn up.

F45 Provisions applying in relation to overseas life insurance companies

Annotations:

Amendments (Textual)

F45

S. 444B and cross heading inserted (27.7.1993) by 1993 c.34, s. 97(1)

F44444B Modification of Act in relation to overseas life insurance companies.

Schedule 19AC (which makes modifications of this Act in relation to overseas life insurance companies) shall have effect.

444CF192 Modification of section 440.

1

Where the company mentioned in section 440(1) is an overseas life insurance company, section 440 shall have effect with the modifications in subsections (2) and (3) below.

2

Subsection (4) shall be treated as if—

a

paragraph (c) were omitted;

b

in paragraphs (a), (b), (d) and (e), the words “UK assets” were substituted for the word “assets”; and

c

at the end there were inserted the following paragraphs—

f

section 11C assets;

g

non-UK assets.”

3

The following subsection shall be treated as inserted at the end of the section—

6

For the purposes of this section—

a

UK assets are—

i

section 11(2)(b) assets;

ii

section 11(2)(c) assets; or

iii

assets which by virtue of section 11B are attributed to the branch or agency in the United Kingdom through which the company carries on life assurance business;

b

section 11C assets are assets—

i

(in a case where section 11C (other than subsection (9)) applies) of the relevant fund, other than UK assets; or

ii

(in a case where that section including that subsection applies) of the relevant funds, other than UK assets;

c

non-UK assets are assets which are not UK assets or section 11C assets;

and any expression used in this subsection to which a meaning is given by section 11A has that meaning.”

4

Where one or each of the companies mentioned in section 440(2) is an overseas life insurance company, section 440(2)(b) and (4) shall have effect as if for “categories”, in each place where the word occurs, there were substituted “paragraphs”.

5

Where the transferor company mentioned in section 440(2) is an overseas life insurance company, section 440 shall have effect, as regards the time immediately before the acquisition, with the modifications in subsections (2) and (3) above.

6

Where the acquiring company mentioned in section 440(2) is an overseas life insurance company, section 440 shall have effect, as regards the time immediately after the acquisition, with the modifications in subsections (2) and (3) above.

the deduction of expenses of management under section 76;

d

the setting of certain capital allowances against total profits under section 145(3) of the 1990 Act.

7

Subsections (3), (4) and (8) of section 242 shall apply for the purposes of a claim under subsection (5) above as they apply for the purposes of a claim under that section.

444EF194 Income from investments attributable to BLAGAB, etc.

1

In computing the income from the investments of an overseas life insurance company attributable to the basic life assurance and general annuity business of the branch or agency in the United Kingdom through which the company carries on life assurance business, any interest, dividends and other payments whatsoever to which section 48 or 123(4) extends shall be included notwithstanding the exemption from tax conferred by those sections.

2

Where in computing the income referred to in subsection (1) above any interest on any securities issued by the Treasury is excluded by virtue of a condition of the issue of those securities regulating the treatment of the interest on them for tax purposes, the relief under section 76 shall be reduced so that it bears to the amount of relief which would be granted apart from this subsection the same proportion as the amount of that income excluding that interest bears to the amount of that income including that interest.

F64 Equalisation reserves

Annotations:

Amendments (Textual)

F64

Ss. 444BA-444BD and preceding cross-heading inserted (29.4.1996) by Finance Act 1996 (c. 8), s. 166, Sch. 32 para. 1

that company by notice in writing to an officer of the Board makes an election in relation to that amount for the purposes of this subsection, and

d

the notice of the election is given not more than two years after the end of that period,

the rule mentioned in subsection (2)(a) above shall not apply to that transfer of that amount and, instead, the amount transferred (the “unrelieved transfer”) shall be carried forward for the purposes of subsection (5) below to the next accounting period and (subject to subsection (6) below) from accounting period to accounting period.

any business the income and gains of which fall to be disregarded in making a computation of the company’s profits in accordance with the rules applicable to Case I of Schedule D, or

b

any business by reference to which double taxation relief is afforded in respect of any income or gains.

3

Section 444BA shall have effect (subject to any regulations under subsection (1) above) in the case of an equalisation reserve maintained by an insurance company which—

a

is not resident in the United Kingdom, and

b

carries on business in the United Kingdom through a branch or agency,

only if such conditions as may be prescribed by regulations made by the Treasury are satisfied in relation to that company and in relation to transfers into or out of that reserve.

4

Regulations under this section prescribing conditions subject to which section 444BA is to apply in the case of any equalisation reserve maintained by an insurance company may—

a

contain conditions imposing requirements on the company to furnish the Board with information with respect to any matters to which the regulations relate, or to produce to the Board documents or records relating to any such matters; and

b

provide that, where any prescribed condition is not, or ceases to be, satisfied in relation to the company or in relation to transfers into or out of that reserve, there is to be deemed for the purposes of the Tax Acts to have been a transfer out of that reserve of an amount determined under the regulations.

5

Regulations under this section may—

a

provide for apportionments under the regulations to be made in such manner, and by reference to such factors, as may be specified or described in the regulations;

b

make different provision for different cases;

c

contain such supplementary, incidental, consequential and transitional provision as the Treasury may think fit;

d

make provision having retrospective effect in relation to accounting periods beginning not more than one year before the time when the regulations are made;

and the powers conferred by this section in relation to transfers into or out of any reserve shall be exercisable in relation to both actual and assumed transfers.

6

In this section “double taxation relief” means—

a

relief under double taxation arrangements which takes the form of a credit allowed against corporation tax, or

b

unilateral relief under section 790(1) which takes that form;

and “double taxation arrangements” here means arrangements having effect by virtue of section 788.

444BC Modification of s. 444BA for non-annual accounting etc.

1

The Treasury may by regulations make provision modifying the operation of section 444BA in relation to cases where an insurance company has, for the purpose of preparing the documents it is required to prepare for the purposes of section 17 of the M44Insurance Companies Act 1982, applied for any period an accounting method described in paragraph 52 or 53 of Schedule 9A to the M45Companies Act 1985 (accounting on a non-annual basis).

2

Subsection (5) of section 444BB applies for the purposes of this section as it applies for the purposes of that section.

444BD Application of s. 444BA rules to other equalisation reserves.

1

The Treasury may by regulations provide for section 444BA to have effect, in such cases and subject to such modifications as may be specified in the regulations, in relation to any equivalent reserves as it has effect in relation to equalisation reserves maintained by virtue of section 34A regulations.

2

For the purposes of this section a reserve is an equivalent reserve if—

a

it is maintained, otherwise than by virtue of section 34A regulations, either—

i

by an EC company carrying on business in the United Kingdom through a branch or agency, or

ii

7

In this section—

“credit insurance business” means any insurance business falling within general business class 14 of Schedule 2 to the M46Insurance Companies Act 1982 that is not reinsurance business;
“the credit insurance directive” means Council Directive 87/343/EEC of 22nd June 1987 amending, as regards credit insurance and suretyship insurance, First Directive 73/239 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance; and
“EC company” has the same meaning as in the M47Insurance Companies Act 1982.

Provisions applying only to overseas life insurance companies

F46445. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

446 Annuity business.

F471

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F482

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F483

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F494

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

447 F501

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F502

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F513

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F504

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F52448. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F53449. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Underwriters

F54450. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F55451. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F56452. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F57453. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F58454. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F59455. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F60456. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F61457. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital redemption business

C52458 Capital redemption business.

1

M42Where any person carries on capital redemption business in conjunction with business of any other class, the capital redemption business shall, for the purposes of the Corporation Tax Acts (including the provisions about corporation tax on chargeable gains) and the Income Tax Acts, be treated as a separate business from any other class of business carried on by that person.

2

In ascertaining whether and to what extent any person has incurred a loss on his capital redemption business for the purposes of section 380 or sections 393 and F195393A(1)—

a

any profits derived from investments held in connection with the capital redemption business (including franked investment income of a company resident in the United Kingdom) shall be treated as part of the profits of that business, and

b

in determining whether any, and if so what, relief can be given under section 385(4) in the case of capital redemption business, the loss which may be carried forward under subsection (1) of that section shall be similarly computed.

3

In this section “capital redemption business” means the business (not being life assurance business or industrial assurance business) of effecting and carrying out contracts of insurance, whether effected by the issue of policies, bonds or endowment certificates or otherwise, whereby, in return for one or more premiums paid to the insurer, a sum or a series of sums is to become payable to the insured in the future.

4

This section shall not apply to any capital redemption business in so far as it consists of carrying out contracts of insurance effected before 1st January 1938.

F62458A Capital redemption business: power to apply life assurance provisions.

1

The Treasury may by regulations provide for the life assurance provisions of the Corporation Tax Acts to have effect in relation to companies carrying on capital redemption business as if capital redemption business were, or were a category of, life assurance business.

2

Regulations under this section may provide that the provisions applied by the regulations are to have effect as respects capital redemption business with such modifications and exceptions as may be provided for in the regulations.

3

Regulations under this section may—

a

make different provision for different cases;

b

include such incidental, supplemental, consequential and transitional provision (including provision modifying provisions of the Corporation Tax Acts other than the life assurance provisions) as the Treasury consider appropriate; and

c

include retrospective provision.

4

In this section references to the life assurance provisions of the Corporation Tax Acts are references to the following—

a

the provisions of this Chapter so far as they relate to life assurance business or companies carrying on such business; and

b

any other provisions of the Corporation Tax Acts making separate provision by reference to whether or not the business of a company is or includes life assurance business or any category of insurance business that includes life assurance business.

5

In this section “capital redemption business” has the same meaning as in section 458.

CHAPTER II FRIENDLY SOCIETIES, TRADE UNIONS AND EMPLOYERS’ ASSOCIATIONS

Unregistered friendly societies

459 Exemption from tax.

M48An unregistered friendly society F196(that is, a friendly society which is neither an incorporated friendly society nor a registered friendly society) whose income does not exceed £160 a year shall, on making a claim, be entitled to exemption from income tax and corporation tax (whether on income or chargeable gains).

Registered friendly societies

460 Exemption from tax in respect of life or endowment business.

1

M49Subject to subsection (2) below, a F200friendly society shall, on making a claim, be entitled to exemption from income tax and corporation tax (whether on income or chargeable gains) on its profits arising from life or endowment business.

2

Subsection (1) above—

a

M50shall not, subject to section 462, exempt a F201registered friendly society registered after 31st December 1957 which at any time in the period of three months ending 3rd May 1966 entered into any transaction in return for a single premium, being a transaction forming part of its life or endowment business;

F202aa

shall not, subject to section 462, exempt an incorporated friendly society which, before its incorporation, was a registered friendly society such as is mentioned in paragraph (a) above;

b

M51shall not apply to profits arising from pension business;

c

M52shall not apply to profits arising from life or endowment business consisting—

F203ai

where the profits relate to contracts made on or after the day on which the Finance Act 1991 was passed, of the assurance of gross sums under contracts under which the total premiums payable in any period of 12 months exceed £200 or of the granting of annuities of annual amounts exceeding £156;

i

where the profits relate to contracts made after F20431st August 1990 but before the day on which the Finance Act 1991 was passed, of the assurance of gross sums under contracts under which the total premiums payable in any period of 12 months exceed F205£150 or of the granting of annuities of annual amounts exceeding £156;

F206ia

where the profits relate to contracts made after 31st August 1987 but before 1st September 1990, of the assurance of gross sums under contracts under which the total premiums payable in any period of 12 months exceed £100 F207or of the granting of annuities of annual amounts exceeding £156.

ii

where the profits relate to contracts made after 13th March 1984 but before 1st September 1987, of the assurance of gross sums exceeding £750 or of the granting of annuities of annual amounts exceeding £156;

iii

where the profits relate to contracts made before 14th March 1984, of the assurance of gross sums exceeding £500 or of the granting of annuities of annual amounts exceeding £104;

F208ca

shall not apply to so much of the profits arising from life or endowment business as is attributable to contracts for the assurance of gross sums made on or after 20th March 1991 and expressed at the outset not to be made in the course of tax exempt life or endowment business; and

d

M53as respects other life or endowment business (“tax exempt life or endowment business”), has effect subject to the following provisions of this Chapter.

3

M54In determining for the purposes F209of F210subsection (2)(c)(ai), (i) or (ia) above the total premiums payable in any period of 12 months—

a

where those premiums are payable more frequently than annually, there shall be disregarded an amount equal to 10 per cent. of those premiums; and

b

so much of any premium as is charged on the ground that an exceptional risk of death F197or disability is involved shall be disregarded;

and in applying the limit of £156 in F211subsection (2)(c)(ai), (i) or (ia) above, any bonus or addition declared upon an annuity shall be disregarded.

4

In applying the limits referred to in subsection (2)(c)(ii) and (iii) above, any bonus or addition which either is declared upon an assurance of a gross sum or annuity or accrues upon such an assurance by reference to an increase in the value of any investments shall be disregarded.

F2124A

Subsection (4B) below applies to contracts for the assurance of gross sums under tax exempt life or endowment business made after 31st August 1987 and before the day on which the Finance Act 1991 was passed.

4B

Where the amount payable by way of premium under a contract to which this subsection applies is increased by virtue of a variation made in the period beginning with the day on which the Finance Act 1991 was passed and ending with 31st July 1992, the contract shall be treated for the purposes of subsection (2)(c) above as made at the time of the variation.

5

M55A F213friendly society is within this subsection if its rules make no provision for it to carry on life or endowment business consisting of the assurance of gross sums exceeding £2,000 or of the granting of annuities of annual amounts exceeding £416.

6

M56In the case of a F213friendly society within subsection (5) above—

a

subsection (2)(c)(iii) above shall have effect with the substitution of references to £2,000 and £416 respectively for the references to £500 and £104; and

relates to contracts made before that time; and

b

immediately before that time was tax exempt life or endowment business,

shall F199continue to be exempt from corporation tax (whether on income or chargeable gains) on profits arising from it.

12

M61For the purposes of the Corporation Tax Acts any part of a company’s business which continues to be tax exempt life or endowment business by virtue of subsection (11) above shall be treated as a separate business from any other business carried on by the company.

461 Taxation in respect of other business.

1

M62Subject to the following provisions of this section, a registered friendly society other than a society to which subsection (2) below applies shall, on making a claim, be entitled to exemption from income tax and corporation tax (whether on income or chargeable gains) on its profits other than those arising from life or endowment business.

2

M63This subsection applies to any society registered after 31st May 1973 unless—

a

its business is limited to the provision, in accordance with the rules of the society, of benefits for or in respect of employees of a particular employer or such other group of persons as is for the time being approved for the purposes of this section by the registrar; or

b

it was registered before 27th March 1974 and its rules limit the aggregate amount which may be paid by a member by way of contributions and deposits to not more than £1 per month or such greater amount as the registrar may authorise for the purposes of this section;

and also applies to any society registered before 1st June 1973 with respect to which a direction under subsection (8) below is in force.

3

M64If a society to which subsection (2) above applies, after 26th March 1974 or such later date as may be specified in a direction under this section, makes a payment to a member in respect of his interest in the society and the payment is made otherwise than in the course of life or endowment business and exceeds the aggregate of any sums paid by him to the society by way of contributions or deposits, after deducting from that aggregate the amount of—

a

any previous payment so made to him by the society after that date, and

b

any earlier repayment of such sums paid by him,

the excess shall be treated for the purposes of corporation tax and income tax as a qualifying distribution.

4

M65Where a registered friendly society—

a

at any time ceases by virtue of section 84 of the M66Friendly Societies Act 1974 or by virtue of F217section 91 of the Friendly Societies Act 1992 (conversion into company) to be registered under F217either of those Acts; and

b

immediately before that time was exempt from income tax or corporation tax on profits arising from any business carried on by it other than life or endowment business,

the company into which the society is converted shall be so exempt on its profits arising from any part of that business which relates to contracts made before that time so long as there is no increase in the scale of benefits which it undertakes to provide in the course of carrying on that part of its business.

5

For the purposes of the Corporation Tax Acts any part of a company’s business in respect of the profits from which the company is exempt by virtue of subsection (4) above shall be treated as a separate business from any other business carried on by the company.

6

M67If—

a

a friendly society registered before 1st June 1973 begins after 26th March 1974 to carry on business other than life or endowment business or, in the opinion of F218the Commission, begins to carry on business other than life or endowment business on an enlarged scale or of a new character; and

b

it appears to F216the Commission, having regard to the restrictions imposed by this section on friendly societies registered later, that for the protection of the revenue it is expedient to do so;

F218the Commission may serve a notice on the society referring to the provisions of this subsection and stating that F218the Commission is considering the question whether, for the protection of the revenue, it is expedient to give a direction that subsection (2) above shall apply to the society as from the date of the notice.

7

The Commission shall consider any representations or undertakings made or offered to F218the Commissionby the society within the period of one month from service of the notice, and if the society so requests shall afford it an opportunity of being heard by F218the Commissionnot later than three weeks after the end of that period.

8

If, after consideration of any such representations or undertakings, F218the Commission remains of the opinion that it is expedient to do so, F218the Commissionshall direct that subsection (2) above shall apply to the society as from the date of the notice, but subject to any further direction given by F218the Commission cancelling that direction.

F2198A

In this section “the Commission” means the Friendly Societies Commission.

9

A friendly society may, within one month from the giving of a direction under subsection (8) above, appeal against it to the court to which or person to whom it might appeal under section 92 of the Friendly Societies Act 1974 or section 81 of the Friendly Societies Act (Northern Ireland) 1970 against cancellation of its registration.

10

For the purposes of this section a registered friendly society formed on the amalgamation of two or more friendly societies shall be treated as registered before 1st June 1973 if at the time of the amalgamation subsection (2) above did not apply to any of the societies amalgamated, but otherwise shall be treated as registered at that time.

461AF65Taxation in respect of other business: incorporated friendly societies qualifying for exemption.

1

For the purposes of sections 461B and 461C, a “qualifying society” is an incorporated friendly society which—

a

immediately before its incorporation, was a registered friendly society to which section 461(2) did not apply,

b

was formed otherwise than by the incorporation of a registered friendly society or the amalgamation of two or more friendly societies and satisfies subsection (2) below, or

c

was formed by the amalgamation of two or more friendly societies and satisfies subsection (3) below,

and in respect of which no direction under section 461C(5) is in force.

2

A society satisfies this subsection if its business is limited to the provision, in accordance with the rules of the society, of benefits for or in respect of employees of a particular employer or such other group of persons as is for the time being approved for the purposes of this section by the Friendly Societies Commission.

3

If at the time of the amalgamation referred to in subsection (1)(c) above—

a

section 461(2) applied to none of the registered friendly societies being amalgamated (if any), and

b

all of the incorporated friendly societies being amalgamated (if any) were qualifying societies,

the society formed by the amalgamation satisfies this subsection.

F66461B Taxation in respect of other business: incorporated friendly societies etc.

1

Subject to the following provisions of this section, a qualifying society shall, on making a claim, be entitled to exemption from income tax and corporation tax (whether on income or chargeable gains) on its profits other than those arising from life or endowment business.

2

Subsection (1) above shall not apply to any profits arising or accruing to the society from, or by reason of its interest in, a body corporate which is a subsidiary (within the meaning of the Friendly Societies Act 1992) of the society or of which the society has joint control (within the meaning of that Act).

3

If an incorporated friendly society which is not a qualifying society makes a payment to a member in respect of his interest in the society and the payment is made otherwise than in the course of life or endowment business and exceeds the aggregate of any sums paid by him to the society by way of contributions or deposits, after deducting from that aggregate the amount of—

a

any previous payment so made to him by the society, and

b

any earlier repayment of such sums paid by him,

the excess shall be treated for the purposes of corporation tax and income tax as a qualifying distribution.

4

In relation to an incorporated friendly society which, immediately before its incorporation, was a registered friendly society to which section 461(2) applied—

a

the references in subsection (3) above to sums paid to the society shall include sums paid to the registered friendly society,

b

the reference in subsection (3)(a) above to any payment made by the society shall include any payment made by the registered friendly society after 26 March 1974 or such later date as was specified in any direction under section 461(8) relating to it, and

c

the reference in subsection (3)(b) above to any repayment shall include any repayment made by the registered friendly society.

5

Where a qualifying society at any time ceases by virtue of section 91 of the Friendly Societies Act 1992 (conversion into company) to be registered under that Act, the company into which the society is converted shall be exempt from income tax or corporation tax on its profits arising from any part of its business, other than life or endowment business, which relates to contracts made before that time.

6

Subsection (5) above shall apply so long as there is no increase in the scale of benefits which the company undertakes to provide in the course of carrying on the relevant part of its business.

7

Any part of a company’s business to which an exemption under subsection (5) above relates shall be treated for the purposes of the Corporation Tax Acts as a separate business from any other business carried on by the company.

A friendly society may, within one month from the giving of a direction under subsection (5) above, appeal against it to a tribunal constituted in accordance with section 59(2) of the Friendly Societies Act 1992.

7

The Treasury may by regulations provide for sections 58 to 61 of that Act to have effect in relation to appeals under subsection (6) above subject to such modifications as may be prescribed by the regulations.

F70461DTransfers of other business

1

Where—

a

at any time a friendly society (“the transferee”) acquires by way of transfer of engagements or amalgamation from another friendly society (“the transferor”) any business, other than life or endowment business, consisting of business which relates to contracts made before that time, and

b

immediately before that time the transferor was exempt from corporation tax on profits arising from that business,

the transferee is so exempt after that time.

2

But if during an accounting period of the transferee there is an increase in the scale of benefits which it undertakes to provide in the course of carrying on that business, the transferee shall not be exempt from corporation tax by virtue of subsection (1) above for that or any subsequent accounting period.

3

Where—

a

b

immediately before that time the transferor was not exempt from corporation tax on profits arising from that business,

the transferee is not so exempt after that time.

4

The Treasury may by regulations provide that, where any business of a friendly society is exempt from corporation tax by virtue of subsection (1) above, or not so exempt by virtue of subsection (3) above, the Corporation Tax Acts have effect subject to such modifications (or exceptions) as the Treasury consider appropriate.

5

Regulations under subsection (4) above—

a

may make different provision for different cases,

b

may include any incidental, supplementary, consequential or transitional provisions which the Treasury consider appropriate, and

c

may include retrospective provision.

462 Conditions for tax exempt business.

1

M68Subject to subsections (2) to (4) below, section 460(1) shall not apply to so much of the profits arising from tax exempt life or endowment business as is attributable to a policy which, by virtue of paragraph 6(2) of Schedule 15—

a

is not a qualifying policy; and

b

would not be a qualifying policy if all policies with other friendly societies were left out of account.

2

F220 M69Section 460(2)(a) or (aa) and subsection (1) above shall not withdraw exemption under section 460(1) for profits arising from any part of a life or endowment business relating to contracts made not later than 3rd May 1966.

3

If, with respect to a policy issued in respect of an insurance made on or after 1st June 1984 and before 19th March 1985 for the assurance of a gross sum, there is or has been an infringement of any of the conditions in paragraph 3(2) to (11) of Schedule 15, section 460(1) shall not apply to so much as is attributable to that policy of the profits of the F221friendly society or registered branch concerned which arise from tax exempt life or endowment business.

4

Nothing in subsection (3) above shall be taken to affect the status of a policy as a qualifying policy.

462AF68Election as to tax exempt business.

1

Where a registered friendly society has tax exempt life or endowment business which includes contracts—

a

made before 20th March 1991, and

b

expressed at the outset not to be made in the course of such business,

the society may by notice to the inspector elect that section 460(1) shall not apply to so much of the profits arising from such business as is attributable to such contracts.

2

Where a registered friendly society has tax exempt life or endowment business which includes contracts falling within subsection (3) below, the society may by notice to the inspector elect that section 460(1) shall not apply to so much of the profits arising from such business as is attributable to such contracts.

3

A contract falls within this subsection if—

a

at the outset, it is neither expressed to be made in the course of tax exempt life or endowment business nor expressed not to be so made but is assumed by the society not to be so made, and

b

the policy issued in pursuance of it falls within paragraph 21(1)(b) of Schedule 15.

4

An election under subsection (2) above shall only be valid if the society satisfies the inspector (or the Commissioners on appeal) that it is possible to identify all the contracts to which the election relates.

5

If the inspector decides that he is not satisfied as mentioned in subsection (4) above, he shall give notice of his decision to the society; and section 42(3), (4) and (9) of, and paragraph 1(1) to (1E) of Schedule 2 to, the Management Act shall apply in relation to such a decision as they apply in relation to a decision of an inspector on a claim.

6

An election under subsection (1) or (2) above shall have effect for accounting periods ending on or after the day on which the Finance Act 1991 was passed.

7

No election under subsection (1) or (2) above may be made after 31st July 1992.

8

Where a friendly society has made an election under subsection (1) or (2) above, then, for any accounting period for which the election has effect—

a

section 460(1) shall apply to profits arising from life or endowment business which would have been included in the society’s tax exempt life or endowment business had no account been taken of the contracts to which the election relates, and

b

section 462(1), in its application to the society, shall have effect with the insertion after “societies” of “and all policies issued in pursuance of contracts to which an election under section 462A(1) or (2) relates”.

F2419

If a friendly society which (or a branch of which) has made an election under subsection (1) or (2) above becomes an incorporated friendly society, the election shall have effect in relation to the incorporated friendly society as it had effect in relation to the society (or branch) which made the election (and accordingly, in relation to accounting periods of the incorporated friendly society, “the society” in subsection (8)(a) and (b) above shall be read as referring to the incorporated friendly society).

463 Life or endowment business: application of the Corporation Tax Acts.

C56 C571

M70Subject to section 460(1), the Corporation Tax Acts shall apply to the life or endowment business carried on by F222friendly societies in the same way as they apply to mutual life assurance business carried on by insurance companies, so however that the Treasury may by regulations provide that those Acts as so applied shall have effect subject to such modifications and exceptions as may be prescribed by the regulations, and those regulations may in particular require any part of any business to be treated as a separate business.

F2232

The provisions of the Corporation Tax Acts which apply on the transfer of the whole or part of the long term business of an insurance company shall apply in the same way—

a

on the transfer of the whole or part of the business of a friendly society to another friendly society (and on the amalgamation of friendly societies), and

b

on the transfer of the whole or part of the business of a friendly society to a company which is not a friendly society (and on the conversion of a friendly society into such a company),

so however that the Treasury may by regulations provide that those provisions as so applied shall have effect subject to such modifications and exceptions as may be prescribed by the regulations.

3

The Treasury may by regulations provide that the provisions of the Corporation Tax Acts which apply on the transfer of the whole or part of the long term business of an insurance company to another company shall have effect where the transferee is a friendly society subject to such modifications and exceptions as may be prescribed by the regulations.

4

Regulations under this section may make different provision for different cases and may include provision having retrospective effect.

464 Maximum benefits payable to members.

1

M71Subject to subsections (2) and (3) below, a member of a F224friendly society or registered branch shall not be entitled to have at any time outstanding contracts with any one or more such societies or branches (taking together all such societies or branches throughout the United Kingdom) for the assurance of—

a

more than £750 by way of gross sum under tax exempt life or endowment business;

b

more than £156 by way of annuity under tax exempt life or endowment business.

In any case where the member’s outstanding contracts were all made before 14th March 1984 this subsection shall have effect with the substitution for “£750” and “£156” of “ £2,000 ” and “ £416 ” respectively.

2

Subsection (1)(a) above shall not apply as respects sums assured under contracts made after 31st August 1987.

3

With respect to contracts for the assurance of gross sums under tax exempt life or endowment business, a member of a F224friendly society or registered branch shall not be entitled to have outstanding with any one or more such societies or branches (taking together all such societies or branches throughout the United F225Kingdom)—

F226za

contracts under which the total premiums payable in any period of 12 months exceed £200; or

a

contracts F227made before the day on which the Finance Act 1991 was passed and under which the total premiums payable in any period of 12 months exceed £150; or

b

contracts made before 1st September 1990 under which the total premiums payable in any period of 12 months exceed £100,

unless all those contracts were made before 1st September 1987.

4

In applying the F225limits in subsection (3) above, the premiums under any contract for an annuity which was made before 1st June 1984 by a new society shall be brought into account as if the contract were for the assurance of a gross sum.

F2284A

4B

5

In applying the limits in this section there shall be disregarded—

a

any bonus or addition which either is declared upon assurance of a gross sum or annuity or accrues upon such an assurance by reference to an increase in the value of any investments;

b

any approved annuities as defined in section 620(9) or any policy of insurance or annuity contract by means of which the benefits to be provided under an occupational pension scheme as defined in section 51(3)(a) of the Social Security Act 1973 are secured;

c

any increase in a benefit under a friendly society contract, as defined in section 6 of the M72Decimal Currency Act 1969, resulting from the adoption of a scheme prescribed or approved in pursuance of subsection (3) of that section; and

d

so far as concerns the total premiums payable in any period of 12 months—

i

10 per cent. of the premiums payable under any contract under which the premiums are payable more frequently than annually; and

ii

£10 of the premiums payable under any contract made before 1st September 1987 by a F229friendly society other than a new society; and

iii

so much of any premium as is charged on the ground that an exceptional risk of death is involved.

6

In applying the limits in this section in any case where a member has outstanding with one or more society or branch one or more contracts made after 13th March 1984 and one or more contracts made on or before that date, any contract for an annuity which was made before 1st June 1984 by a new society shall be regarded not only as a contract for the annual amount concerned but also as a contract for the assurance of a gross sum equal to 75 per cent. of the total premiums which would be payable under the contract if it were to run for its full term or, as the case may be, if the member concerned were to die at the age of 75 years.

7

A F230friendly society or registered branch may require a member to make and sign a statutory declaration that the total amount assured under outstanding contracts entered into by that member with any one or more F230friendly societies or registered branches (taking together all such societies or branches throughout the United Kingdom) does not exceed the limits applicable by virtue of this section and that the total premiums under those contracts do not exceed those limits.

465 Old societies.

1

M73In this section “old society” means a friendly society which is not a new society.

2

This section applies if, on or after 19th March 1985, an old society—

a

begins to carry on tax exempt life or endowment business; or

b

in the opinion of the Board begins to carry on such business on an enlarged scale or of a new character.

3

If it appears to the Board, having regard to the restrictions placed on qualifying policies issued by new societies by paragraphs 3(1)(b) F231 . . . and 4(3)(b) of Schedule 15, that for the protection of the revenue it is expedient to do so, the Board may give a direction to the old society under subsection (4) below.

4

A direction under this subsection is that (and has the effect that) the old society to which it is given is to be treated for the purposes of this Act as a new society with respect to business carried on after the date of the direction.

5

An old society to which a direction is given may, within 30 days of the date on which it is given, appeal against the direction to the Special Commissioners on the ground that—

a

it has not begun to carry on business as mentioned in subsection (2) above; or

b

that the direction is not necessary for the protection of the revenue.

F2326

If a registered friendly society in respect of which a direction is in force under subsection (4) above becomes an incorporated friendly society, the direction shall continue to have effect, so that the incorporated friendly society shall be treated for the purposes of this Act as a new society.

465AF69Assets of branch of registered friendly society to be treated as assets of society after incorporation.

1

This section applies where any assets of a branch of a registered friendly society have been identified in a scheme under section 6(5) of the Friendly Societies Act 1992 (property, rights etc. excluded from transfer to the society on its incorporation).

2

In relation to any time after the incorporation of the society, the assets shall be treated for the purposes of the Tax Acts as assets of the society (and, accordingly, any tax liability arising in respect of them shall be a liability of the society rather than of the branch).

3

Where, by virtue of this section, tax in respect of any of the assets becomes chargeable on and is paid by the society, the society may recover from the trustees in whom those assets are vested the amount of the tax paid.

466 Interpretation of Chapter II.

1

M74In this Chapter “life or endowment business” means any business within F234class I, II, III or IV of Head A of Schedule 2 to the Friendly Societies Act 1992, any pension business and any other life assurance business, but—

a

shall not include the issue of a policy affording provision for sickness or other infirmity (whether bodily or mental) unless—

i

it also affords assurance for a gross sum independent of sickness or other infirmity; and

ii

not less than 60 per cent. of the amount of the premiums is attributable to the provision afforded during sickness or other infirmity; and

iii

there is no bonus or addition which may be declared or accrue upon the assurance of the gross sum;

b

shall not include the assurance of any annuity the consideration for which consists of sums obtainable on the maturity, or on the surrender, of any other policy of assurance issued by the friendly society, being a policy of assurance forming part of the tax exempt life or endowment business of the friendly society.

2

In this Chapter—

F235 “friendly society”, without qualification, means (except in section 459) an incorporated friendly society or a registered friendly society;
“incorporated friendly society” means a society incorporated under the Friendly Societies Act 1992;
“life assurance business” means the issue of, or the undertaking of liability under, policies of assurance upon human life, or the granting of annuities upon human life, not being industrial assurance business;
F236“new society” means—
1. a
  a registered friendly society which was registered after 3rd May 1966 or which was registered in the period of three months ending on that date but which at no time earlier than that date carried on any life or endowment business, or
2. b
  an incorporated friendly society other than one which, before its incorporation, was a registered friendly society not within paragraph (a) above;
“pension business” shall be construed in accordance with section 431;
“policy”, in relation to life or endowment business, includes an instrument evidencing a contract to pay an annuity upon human life;
F237 “registered branch” means the same as in the Friendly Societies Act 1992 (and includes any branch that by virtue of section 96(3) of that Act is to be treated as a registered branch);
“registered friendly society” means the same as in the Friendly Societies Act 1992 (and includes any society that by virtue of section 96(2) of that Act is to be treated as a registered friendly society);
“registrar” means the Chief Registrar of Friendly Societies or, in the application of this Chapter to Scotland, the assistant registrar for Scotland or, in the application of this Chapter to Northern Ireland, the Registrar of Friendly Societies for Northern Ireland;
“tax exempt life or endowment business” has, subject to subsections (7) to F233(10A) of section 460, the meaning given by subsection (2)(d) of that section, that is to say, it means (subject to those subsections) life or endowment business other than business profits arising from which are excluded from subsection (1) of that section by subsection (2)(b) or (c) of that section (read, where appropriate, with subsection (6) of that section);

and references in sections 460 to 465 and this subsection to a friendly society F238include, in the case of a registered friendly society, references to any branch of that society.

3

M75It is hereby declared that for the purposes of this Chapter (except where provision to the contrary is made) a F239friendly society formed on the amalgamation of two or more friendly societies is to be treated as different from the amalgamated societies.

4

A registered friendly society formed on the amalgamation of two or more friendly societies shall, for the purposes of this Chapter, be treated as registered not later than 3rd May 1966 if at the time of the amalgamation—

a

all the friendly societies amalgamated were registered friendly societies eligible for the exemption conferred by section 460(1); and

b

at least one of them was not a new society;

or, if the amalgamation took place before 19th March 1985, the society was treated as registered not later than 3rd May 1966 by virtue of the proviso to section 337(4) of the 1970 Act.

F2405

An incorporated friendly society formed on the amalgamation of two or more friendly societies shall, for the purposes of this Chapter, be treated as a society which, before its incorporation, was a registered friendly society registered not later than 3rd May 1966 if at the time of the amalgamation—

a

all the friendly societies amalgamated were registered friendly societies eligible for the exemption conferred by section 460(1); and

b

at least one of them was not a new society.

Trade unions and employers’ associations

467 Exemption for trade unions and employers’ associations.

1

M76A trade union which is precluded by Act of Parliament or by its rules from assuring to any person a sum exceeding F242£4,000 by way of gross sum or F243£825 by way of annuity shall on making a claim be entitled—

a

to exemption from income tax and corporation tax in respect of its income which is not trading income and which is applicable and applied for the purpose of provident benefits;

C58b

to exemption from tax in respect of chargeable gains which are applicable and applied for the purpose of provident benefits.

2

In this section “provident benefits” includes any payment, expressly authorised by the rules of the trade union, which is made to a member during sickness or incapacity from personal injury or while out of work, or to an aged member by way of superannuation, or to a member who has met with an accident, or has lost his tools by fire or theft, and includes a payment in discharge or aid of funeral expenses on the death of a member or the F244spouse of a member or as provision for the children of a deceased member.

C583

In determining for the purposes of this section whether a trade union is by Act of Parliament or its rules precluded from assuring to any person a sum exceeding F245£825 by way of annuity, there shall be disregarded any approved annuities (as defined in section 620(9)).

F2463A

The Treasury may by order substitute for any figure for the time being specified in this section such greater figure as may be specified in the order; and any amendment made in exercise of the power conferred by this subsection shall have effect in relation to such income or gains as may be specified in the order.

4

In this section “trade union” means—

C59a

M77any trade union the name of which is entered in the list of trade unions maintained by the F247Certification Officer under F248section 2 of the Trade Union and Labour Relations (Consolidation) Act 1992;

C59b

any employers’ association the name of which is entered in the list of employers’ associations maintained by the F247Certification Officer under F249section 123 of the Trade Union and Labour Relations (Consolidation) Act 1992 and which on 30th September 1971 was a registered trade union for the purposes of section 338 of the 1970 Act;

F250ba

any trade union the name of which is entered in the list of trade unions maintained by the Certification Officer for Northern Ireland under Article 5 of the Industrial Relations (Northern Ireland) Order 1992;

bb

any employers’ association the name of which is entered in the list of employers’ associations maintained by the Certification Officer for Northern Ireland under Article 5 of the Industrial Relations (Northern Ireland) Order 1992 and which immediately before the coming into operation of that Article was a trade union for the purposes of this section; and

c

M78the Police Federation for England and Wales, the Police Federation for Scotland, the Police Federation for Northern Ireland and any other organisation of persons in police service which has similar functions.

CHAPTER III UNIT TRUST SCHEMES, DEALERS IN SECURITIES ETC.

Unit trust schemes

468 Authorised unit trusts.

1

M79In respect of income arising to the trustees of an authorised unit trust, and for the purposes of the provisions relating to relief for capital expenditure, the Tax Acts shall have effect as if—

a

the trustees were a company resident in the United Kingdom; and

b

the rights of the unit holders were shares in the company.

2

The Tax Acts shall also have effect as if the aggregate amount shown in the accounts of the trust as income available for payment to unit holders or for investment were dividends on the shares referred to in subsection (1) above paid to them in proportion to their rights, the date of payment, in the case of income not paid to unit holders, being taken to be—

a

the date or latest date provided by the terms of the authorised unit trust for any distribution in respect of the distribution period in question;

b

if no date is so provided, the last day of the distribution period.

This subsection shall not apply to any authorised unit trust which is also an approved personal pension scheme (within the meaning of Chapter IV of Part XIV).

3

References in the Corporation Tax Acts to a body corporate shall be construed in accordance with subsections (1) and (2) above, and section F251234A shall apply with any necessary modifications.

4

Section 75 shall apply in relation to an authorised unit trust whether or not it is an investment company within the meaning of section 130; and sums periodically appropriated for managers’ remuneration shall be treated for the purposes of section 75 as sums disbursed as expenses of management.

C605

Subsection (1) above shall not apply in relation to an authorised unit trust under the terms of which the funds of the trust cannot be invested in such a way that income can arise to the trustees which will be chargeable to tax in the hands of the trustees otherwise than—

a

under Schedule C as profits arising from United Kingdom public revenue dividends, or

b

under Case III of Schedule D;

and in this subsection “United Kingdom public revenue dividends” means public revenue dividends payable in the United Kingdom (whether they are also payable outside the United Kingdom or not) out of the public revenue of the United Kingdom.

C616

In this section—

“authorised unit trust” means, as respects an accounting period, a unit trust scheme in the case of which an order under section 78 of the M80Financial Services Act 1986 is in force during the whole or part of that accounting period;
“distribution period” means a period beginning on or after 1st April 1987 over which income from the investments subject to the trusts is aggregated for the purposes of ascertaining the amount available for distribution to unit holders;
“unit holder” means a person entitled to a share of the investments subject to the trusts of a unit trust scheme; and
“unit trust scheme” has the same meaning as in section 469.

C62468AAF71 Authorised unit trusts: futures and options.

1

Trustees shall be exempt from tax under Case I of Schedule D in respect of income if—

a

the income is derived from transactions relating to futures contracts or options contracts, and

b

the trustees are trustees of a unit trust scheme which is an authorised unit trust as respects the accounting period in which the income is derived.

2

For the purposes of subsection (1) above a contract is not prevented from being a futures contract or an options contract by the fact that any party is or may be entitled to receive or liable to make, or entitled to receive and liable to make, only a payment of a sum (as opposed to a transfer of assets other than money) in full settlement of all obligations.

3

In this section—

“authorised unit trust” has the same meaning as in section 468, and
“unit trust scheme” has the same meaning as in section 469.

F72468A Certified unit trusts.

F73. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F74468B Certified unit trusts: corporation tax.

F75. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F76468C Certified unit trusts: distributions.

F77. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F78468D Funds of funds: distributions.

F79. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

468EF80 Authorised unit trusts: corporation tax.

1

This section has effect as regards an accounting period of the trustees of an authorised unit trust ending after 31st December 1990.

2

Subject to subsection (3) below, the rate of corporation tax F252shall be deemed to be 22.5 per cent. for the financial year 1993 and for subsequent financial years shall be deemed to be the rate at which income tax at the lower rateis charged for the year of assessment which begins on 6th April in the financial year concerned.

3

Where the period begins before 1st January 1991, subsection (2) above shall only apply for the purpose of computing corporation tax chargeable for so much of the period as falls in the financial year 1991 and subsection (4) below shall apply for the purpose of computing corporation tax chargeable for so much of the period as falls in the financial year 1990.

4

So much of the period as falls after 31st December 1990 and before 1st April 1991 shall be deemed to fall in a financial year for which the rate of corporation tax is the rate at which income tax at the basic rate is charged for the year 1990-91.

5

Subsections (3) and (4) above shall not apply where the authorised unit trust concerned is a certified unit trust as respects the period.

6

Where the period begins after 31st December 1990, section 338 shall have effect as if any reference to interest of any description were a reference to interest of that description on borrowing of a relevant description.

7

Where the authorised unit trust concerned is a certified unit trust as respects the period, subsection (6) above shall have effect without the words preceding “section 338”.

8

For the purposes of subsection (6) above borrowing is of a relevant description if it is borrowing in respect of which there has been no breach during the accounting period of the duties imposed on the manager of the scheme by regulations under section 81 of the M81Financial Services Act 1986 with respect to borrowing by the trustees of the scheme.

9

The Treasury may by regulations provide that for subsection (8) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of what constitutes borrowing of a relevant description for the purposes of subsection (6) above.

10

Regulations under subsection (9) above may contain such supplementary, incidental, consequential or transitional provision as the Treasury think fit.

11

In this section “certified unit trust” means, as respects an accounting period, a unit trust scheme in the case of which—

a

an order under setion 78 of the Financial Services Act 1986 is in force during the whole or part of that accounting period, and

b

a certificate under section 78(8) of that Act, certifying that the scheme complies with the conditions necessary for it to enjoy the rights conferred by the UCITS directive, has been issued before or at any time during that accounting period.

12

In this section—

“authorised unit trust” has the same meaning as in section 468,
M82 “the UCITS directive” means the directive of the Council of the European Communities, dated 20th December 1985, on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (no.85/611/EEC), and
“unit trust scheme” has the same meaning as in section 469. ]

F83468EE Corporation tax: cases where lower rate applies.

1

Where this subsection applies, the rate of corporation tax for the financial year 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 that financial year.

2

Subsection (1) above only applies—

a

for the financial year 1994 and subsequent financial years; and

b

where, on a claim made within the period of twelve months from the end of the accounting period which or part of which falls in the financial year concerned, it is shown to the satisfaction of the inspector that throughout that accounting period the condition in subsection (3) below is fulfilled by the investments subject to the trusts of the authorised unit trust.

3

The condition in this subsection is fulfilled by the investments if the market value of such of those investments as are qualifying investments does not exceed 60 per cent. of the market value of all those investments.

4

For the purposes of subsection (3) above “qualifying investments” means any of the following investments—

a

any money placed at interest;

b

any security—

i

including any loan stock or similar security whether of the Government of the United Kingdom or of any other government or of any public or local authority in the United Kingdom or elsewhere, or of any company, and whether secured or unsecured, but

ii

excluding shares in a company;

c

any shares in a building society; and

d

an entitlement to a share in the investments subject to the trusts of another authorised unit trust, unless, throughout the relevant period, the condition in subsection (5) below is fulfilled by the investments subject to the trusts of that other authorised unit trust.

5

The condition in this subsection is fulfilled by the investments if the market value of such of the investments as fall within paragraphs (a) to (c) of subsection (4) above does not exceed 60 per cent. of the market value of all those investments.

6

In subsection (4)(d) above “the relevant period” means the accounting period in relation to which by virtue of subsection (2)(b) above the question whether the entitlement is a “qualifying investment” falls to be determined.

7

For the purposes of this section “investment” does not include cash awaiting investment.

8

The Treasury may by order amend this section so as to extend or restrict the meaning of qualifying investments for the purposes of subsection (3) above.

9

An order under subsection (8) above may contain such transitional provision as the Treasury think necessary or expedient.

468FF81Authorised unit trusts: distributions.

1

Subsection (2) below applies where—

a

as regards a distribution period ending after 31st December 1990 a dividend is treated by virtue of section 468(2) as paid to a unit holder (whether or not income is in fact paid to the unit holder),

b

the dividend is treated as paid by the trustees of a unit trust scheme which is an authorised unit trust as respects the accounting period in which the distribution period falls, and

c

on the date of payment the unit holder is within the charge to corporation tax F256. . . .

2

For the purpose of computing corporation tax chargeable in the case of the unit holder F253the unfranked portion of the payment shall be deemed—

a

to be an annual payment, and not a dividend or other distribution, and

b

to have been received by the unit holder after deduction of income tax at the F254lower rate, for the year of assessment in which the date of payment falls, from a corresponding gross amount.

F2552A

For the purposes of subsection (2) above the unfranked portion of the payment shall be calculated according to the following formula—

U = Py \frac{I - D}{I}

2B

For the purposes of the formula in subsection (2A) above—

U is the unfranked portion of the payment;
P is the payment;
I is the gross amount of the income arising to the trustees in respect of the distribution period in question which has been brought into account in ascertaining the amount of income available for distribution to unit holders in respect of that period; and
D is so much of I as represents franked investment income from the investments subject to the trusts.

3

6

For the purposes of this section—

a

“authorised unit trust” has the same meaning as in section 468,

b

“unit trust scheme” has the same meaning as in section 469, and

c

a unit trust scheme is an authorised unit trust on a particular date if it is an authorised unit trust as respects the accounting period of the scheme that includes that date.

C63469 Other unit trusts.

1

This section applies to—

a

a M83ny unit trust scheme that is not an authorised unit trust; and

b

any authorised unit trust to which, by virtue of subsection (5) of section 468, that section does not apply,

except where the trustees of the scheme are not resident in the United Kingdom.

2

Income arising to the trustees of the scheme shall be regarded for the purposes of the Tax Acts as income of the trustees (and not as income of the unit holders); and the trustees (and not the unit holders) shall be regarded as the persons to or on whom allowances or charges are to be made under the provisions of those Acts relating to relief for capital expenditure.

3

For the purposes of the Tax Acts the unit holders shall be treated as receiving annual payments (made by the trustees under deduction of tax) in proportion to their rights.

This subsection shall not apply to any authorised unit trust which is also an approved personal pension scheme (within the meaning of Chapter IV of Part XIV).

4

The total amount of those annual payments in respect of any distribution period shall be the amount which, after deducting income tax at the basic rate in force for the year of assessment in which the payments are treated as made, is equal to the aggregate amount shown in the accounts of the scheme as income available for payment to unit holders or for investment.

5

The date on which the annual payments are treated as made shall be the date or latest date provided by the terms of the scheme for any distribution in respect of the distribution period in question, except that, if—

a

the date so provided is more than 12 months after the end of the period; or

b

470 Transitional provisions relating to unit trusts.

1

Any transitional provisions contained in an order made under section 40(5) of the M85Finance Act 1987 appointing a day for the coming into force of subsections (1) and (2) of that section and made in connection therewith shall after the coming into force of this section have effect for the purposes of this Act as they had effect for the purposes of that section, with such modifications if any as may be necessary.

2

If such an order as is mentioned in subsection (1) above has not been made before the coming into force of this Act, section 468 shall have effect with the substitution for the definition of “authorised unit trust” contained in subsection (6) of the following definition—

“authorised unit trust” means, as respects any accounting period, a unit trust scheme in the case of which an order under section 17 of the M86Prevention of Frauds (Investments) Act 1958 or under section 16 of the M87Prevention of Frauds (Investments) Act (Northern Ireland) 1940 is in force during the whole or some part of that accounting period;

and sections 468 and 832 shall have effect with the omission of the definition of “unit trust scheme”.

C653

If such an order as is mentioned in subsection (1) above has not been made before the coming into force of this Act, subsection (2) above shall cease to have effect on such day as the Board may by order appoint; and an order under this subsection may contain such transitional provisions as appear to the Board to be necessary or expedient.

F87 Distributions of authorised unit trusts: general

Annotations:

Amendments (Textual)

F87

Ss. 468H-468R and cross-headings inserted (with effect in accordance with Sch. 14 para. 7 of the amending Act) by Finance Act 1994 (c. 9), Sch. 14 para. 2

468H Interpretation.

1

This section has effect for the interpretation of sections 468I to 468R.

2

The making of a distribution by an authorised unit trust to a unit holder includes investing an amount on behalf of the unit holder in respect of his accumulation units.

3

In relation to an authorised unit trust—

a

“distribution period” means a period by reference to which the total amount available for distribution to unit holders is ascertained; and

b

“distribution accounts” means accounts showing how that total amount is computed.

4

The distribution date for a distribution period of an authorised unit trust is—

a

the date specified by or in accordance with the terms of the trust for any distribution for that distribution period; or

b

if no date is so specified, the last day of that distribution period.

5

In this Chapter references to foreign income dividends shall be construed in accordance with Chapter VA of Part VI.

6

Sections 468I to 468R do not apply to an authorised unit trust which is also an approved personal pension scheme (within the meaning of Chapter IV of Part XIV).

468I Distribution accounts.

7

Where in any accounting period the amount deductible by virtue of subsection (5) above exceeds the amount from which the deduction is made—

a

the excess may be carried forward to the succeeding accounting period; and

b

the amount so carried forward shall be treated as if it were deductible in that succeeding accounting period by virtue of subsection (5) above.

income under Schedule A;

c

any foreign income dividend;

d

any amount afforded relief from taxation imposed under the laws of a territory outside the United Kingdom under arrangements having effect by virtue of section 788 in relation to that territory.

468N Deduction of tax (mixed funds).

1

Subsection (2) below applies where—

a

an interest distribution is made for a distribution period to a unit holder; and

b

the gross income entered in the distribution accounts for the purposes of computing the total amount available for distribution to unit holders does not derive from eligible income entirely.

2

Where this subsection applies, the obligation to deduct under section 349(2) shall not apply to the relevant amount of the interest distribution to the unit holder if the residence condition is on the distribution date fulfilled with respect to him.

3

Section 468O makes provision with respect to the circumstances in which the residence condition is fulfilled with respect to a unit holder.

4

This is how to calculate the relevant amount of the interest distribution—

R = A x \frac{B}{C}

Where—

R = the relevant amount;
A = the amount of the interest distribution before deduction of tax to the unit holder in question;
B = such amount of the gross income as derives from eligible income;
C = the amount of the gross income.

5

In subsection (4) above the references to the gross income are references to the gross income entered as mentioned in subsection (1)(b) above.

C66468O Residence condition.

1

For the purposes of sections 468M and 468N, the residence condition is fulfilled with respect to a unit holder if—

a

there is a valid declaration made by him that he is not ordinarily resident in the United Kingdom; or

b

he holds the rights as a personal representative of a unit holder and—

i

before his death the deceased made a declaration valid at the time of his death that he was not ordinarily resident in the United Kingdom; or

ii

the personal representative has made a declaration that the deceased, immediately before his death, was not ordinarily resident in the United Kingdom.

2

For the purposes of sections 468M and 468N, the residence condition is also fulfilled with respect to a unit holder if the unit holder is a company and there is a valid declaration made by the company that it is not resident in the United Kingdom.

3

The Board may by regulations make such provision as appears to them to be necessary or expedient modifying the application of this section and section 468P in relation to interest distributions made to or received under a trust.

4

Regulations under subsection (3) above may—

a

make different provision for different cases; and

b

contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate.

For the purposes of determining whether an interest distribution should be made with or without any deduction, the trustees may not treat a declaration as valid if—

a

they receive a notification in compliance with an undertaking under subsection (2) or (4) above that the person in question has become ordinarily resident or, as the case may be, resident in the United Kingdom; or

b

they come into possession of information by some other means which indicates that the person in question is or may be ordinarily resident or, as the case may be, resident in the United Kingdom;

but, subject to that, they are entitled to treat the declaration as valid.

6

The trustees shall, on being required to do so by a notice given by an officer of the Board, make available for inspection by such an officer any declarations made to them under this section or any specified declaration or description of declarations.

7

This is how to calculate the unfranked part of the dividend distribution—

U = ((A + B) x \frac{C}{D}) - B

Where—

U = the unfranked part of the dividend distribution to the unit holder;
A = the amount of the dividend distribution;
B = the amount of any foreign income distribution for the distribution period for which that dividend distribution is made to the unit holder;
C = such amount of the gross income as does not derive from franked investment income;
D = the amount of the gross income.

4

If the calculation in accordance with subsection (3) above produces a value of U that is less than O, it shall be assumed for the purposes of this section that no part of the dividend distribution is unfranked.

5

Where the unit holder is on the distribution date the manager of the scheme, subsection (2) above shall not apply in so far as the rights in respect of which the dividend distribution is made are held by him in the ordinary course of his business as manager of the scheme.

6

For the purposes of this section the references to the gross income are references to the gross income entered in the distribution accounts for the purpose of computing the total amount available for distribution to unit holders for the distribution period in question.

468R Foreign income distribution to corporate unit holder.

1

Subsection (2) below applies where—

a

a foreign income distribution for a distribution period is made to a unit holder by the trustees of an authorised unit trust; and

b

on the distribution date for that distribution period the unit holder is within the charge to corporation tax.

2

The provisions of subsections (2) to (6) of section 468Q shall have effect, with the necessary modifications, in relation to the foreign income distribution as they have effect in relation to a dividend distribution, and in particular as if for the provisions of subsection (3) of that section there were substituted the provisions of subsection (3) below.

3

This is how to calculate the unfranked part of the foreign income distribution—

U = ((A + B) x \frac{E}{D}) - A

Where—

U = the unfranked part of the foreign income distribution to the unit holder in question;
A = the amount of any dividend distribution for the distribution period for which that foreign income distribution is made to the unit holder;
B = the amount of that foreign income distribution;
E = such amount of the gross income as does not derive from foreign income dividends;
D = the amount of the gross income.

F85469A Court common investment funds.

1

The Tax Acts shall have effect in relation to any common investment fund established under section 42 of the M96Administration of Justice Act 1982 (common investment funds for money paid into court) as if—

a

the fund were an authorised unit trust;

b

the person who is for the time being the investment manager of the fund were the trustee of that authorised unit trust; and

c

the persons whose interests entitle them, as against the Accountant General, to share in the fund’s investments were the unit holders in that authorised unit trust.

2

In this section “the Accountant General” means (subject to subsection (3) below) the Accountant General of the Supreme Court of Judicature in England and Wales or the Accountant General of the Supreme Court of Judicature of Northern Ireland.

3

Where in the case of any common investment fund a person other than the Accountant General is authorised by the Lord Chancellor to hold shares in the fund, the reference in subsection (1)(c) above to the Accountant General shall include a reference to that other person.

Dealers in securities, banks and insurance businesses

471 Exchange of securities in connection with conversion operations, nationalisation etc.

1

M88If—

a

any securities to which a person who is carrying on a trade which consists wholly or partly in dealing in securities is beneficially entitled are exchanged for other securities; and

b

the exchange is one to which this section applies,

then, whether or not any additional consideration is given for the exchange but subject to subsection (2) below, that person shall be treated for tax purposes (except as regards any tax payable in respect of dividends or interest), both at the time of the exchange and thereafter, as if the exchange had not taken place, and in that case the produce of any subsequent realisation of any of the securities received by him under the exchange (together with any additional consideration, or the appropriate part of any additional consideration, received by him under the exchange) shall be treated as the produce of the realisation of the corresponding securities surrendered by or transferred from him under the exchange, or of a corresponding part thereof, as the case may be.

2

Subsection (1) above shall not apply to any person who gives notice to the inspector not later than two years after the end of the chargeable period in which the exchange takes place that he desires not to be treated as mentioned in that subsection.

3

The exchanges to which this section applies are—

a

any exchange effected under any arrangement carried out under section 2 of the M89National Loans Act 1939 or section 14 of the M90National Loans Act 1968 if the Treasury direct, in pursuance of that arrangement, that this section shall apply to exchanges thereunder;

b

any exchange of securities effected by section 1 of the M91Bank of England Act 1946; and

c

any exchange of securities effected in pursuance of any enactment passed after 5th April 1946 which provides for the compulsory acquisition of any securities and the issue of other securities in lieu thereof, if the Treasury direct that this section shall apply to exchanges of securities effected in pursuance of that enactment.

4

In this section “securities” includes shares, stock, bonds, debentures and debenture stock.

472 Distribution of securities issued in connection with nationalisation etc.

1

M92Where—

a

in pursuance of any enactment passed after 5th April 1946 any securities are issued to any body corporate as, or as part of, the consideration for the compulsory acquisition of any property under that enactment; and

b

that body corporate is wound up or the capital thereof is reduced or any bonds, debentures or debenture stock thereof are redeemed, and, in or in connection with the winding up, reduction of capital or redemption, all or any of the securities so issued are distributed to holders of securities of the body corporate (“the distributed securities”); and

c

the Treasury direct that this section shall apply in relation to the distribution,

shall be excluded from the definition of “charges on income” in section 338.

3

Subject to subsection (4) below, in determining the amount ineligible for relief, account shall be taken of all money borrowed for the purposes of the business which is outstanding in the accounting or basis period, up to the total cost of the tax-free Treasury securities held for the purpose of the business in that period.

4

Where the person carrying on the business is a company, account shall not be taken of any borrowed money carrying interest which, apart from subsection (2) above, does not fall to be included in the computations under paragraph (a) of that subsection, and is not to be treated as a charge on income for the purposes of the Corporation Tax Acts.

5

Subject to subsection (6) below, the amount ineligible for relief shall be equal to a year’s interest on the amount of money borrowed which is to be taken into account under subsection (3) above at a rate equal to the average rate of interest in the accounting or basis period on money borrowed for the purposes of the business, except that in the case of a period of less than 12 months interest shall be taken for that shorter period instead of for a year.

6

Where relief for expenses of management is to be granted to an insurance company for any accounting period, and that relief falls to be reduced under section F263444E(2)(by applying the fraction which is investment income F264attributable to basic life assurance and general annuity business other than income from tax-free Treasury securities divided by that total investment income)—

a

the amount ineligible for relief shall be a fraction of the amount of interest in the accounting period on money borrowed for the purposes of the business; and

b

that fraction shall be the fraction which is income from tax-free Treasury securities divided by total investment income F264attributable to basic life assurance and general annuity business (that is to say, one minus the fraction to be applied under section F263444E(2)).

7

In this section “tax-free Treasury securities” means securities issued by the Treasury with a condition regulating the treatment of the interest thereon for income tax or corporation tax purposes such that interest on the securities is excluded in computing the income or profits.

8

For the purposes of this section the cost of a holding of tax-free Treasury securities which has fluctuated in the accounting or basis period shall be the average cost of acquisition of the initial holding, and of any subsequent acquisitions in the accounting or basis period, applied to the average amount of the holding in the accounting or basis period, and this subsection shall be applied separately to securities of different classes.

9

In this section “accounting or basis period” means the company’s accounting period or the period by reference to which the profits or gains arising in the year of assessment are to be computed.

CHAPTER IV BUILDING SOCIETIES, BANKS, SAVINGS BANKS, INDUSTRIAL AND PROVIDENT SOCIETIES AND OTHERS

476 Building societies: regulations for payment of tax.

F88. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

477 Investments becoming or ceasing to be relevant building society investments.

F89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

would be so imposed if a certificate were not supplied, in accordance with the regulations, to the effect that the person beneficially entitled to the sum is unlikely to be liable to pay any amount by way of income tax for the year of assessment in which the sum is paid.

7

Notwithstanding anything in sections 348 to 350, for any year of asessment to which regulations under subsection (1) above apply income tax shall not be deducted upon payment to the society of any interest on advances, being interest payable in that year.

8

Subsection (7) above shall not apply to any payment of relevant loan interest to which section 369 applies.

9

In this section “dividend” has the meaning given by regulations under subsection (1) above, but any sum which is paid by a building society by way of dividend and which is not paid under deduction of income tax shall be treated for the purposes of Schedule D as paid by way of interest.

F26810

In this section—

“qualifying certificate of deposit” has the same meaning as in section 349, and
F269 “qualifying deposit right” has the meaning given by section 349(4), reading “paid” as “paid or credited”, and
“security” includes share.

477BF97Building societies: incidental costs of issuing qualifying shares.

1

In computing for the purposes of corporation tax the income of a building society from the trade carried on by it, there shall be allowed as a deduction, if subsection (2) below applies, the incidental costs of obtaining finance by means of issuing shares in the society which are qualifying shares.

2

This subsection applies if any amount payable in respect of the shares by way of dividend or interest is deductible in computing for the purposes of corporation tax the income of the society from the trade carried on by it.

3

In subsection (1) above, “the incidental costs of obtaining finance” means expenditure on fees, commissions, advertising, printing and other incidental matters (but not including stamp duty), being expenditure wholly and exclusively incurred for the purpose of obtaining the finance (whether or not it is in fact obtained), or of providing security for it or of repaying it.

4

This section shall not be construed as affording relief—

a

for any sums paid in consequence of, or for obtaining protection against, losses resulting from changes in the rate of exchange between different currencies, or

b

for the cost of repaying qualifying shares so far as attributable to their being repayable at a premium or to their having been issued at a discount.

5

In this section—

“dividend” has the same meaning as in section 477A, and
“qualifying share” has the same meaning as in section F284117(4) of the 1992 Act.

478 Building societies: time for payment of tax.

1

M97This section shall apply, in place of the provisions of section 10, with respect to any accounting period ending before 6th April 1990 of a building society to which section 344 of the 1970 Act applied immediately before the coming into force of this Act.

2

Where this section applies to a building society, then—

a

corporation tax assessed on the society for any accounting period shall be paid within 30 days from the date of the issue of the notice of assessment, except that if the society’s basis period for the year 1965-66 did not extend into the year 1966, the tax shall not be payable before the like time after the last day of the accounting period as 1st January 1966 is after the last day of that basis period; but

b

if corporation tax has not become payable by the society for an accounting period by the like time from the beginning of that period as there is between the beginning of the society’s basis period for the year 1965-66 and 1st January 1966, the society shall at that time from the beginning of the accounting period make a provisional payment of tax computed on the amount on which the society is chargeable to corporation tax for the accounting period last ended with such adjustments, if any, as may be required for periods of different length or as may be agreed between the society and the inspector.

3

References in F270subsection (2) above to a society’s basis period for the year 1965-66 are references to the period by reference to which the society was assessed to income tax for that year under arrangements entered into under section 445 of the M98Income Tax Act 1952.

4

M99Where, by virtue of subsection (2)(a) above, corporation tax assessed on a building society in respect of a 1989 accounting period would, apart from this subsection, be payable by a date which is earlier than the end of the period of two months from the end of that accounting period, the tax shall be payable within that period of two months.

5

If, apart from this subsection, the date on which, under subsection (2)(b) above, a building society would be required to make a provisional payment of corporation tax for a 1989 accounting period would fall before the end of the period of two months from the end of that accounting period, that date shall be postponed until the end of that period of two months.

6

With respect to a 1989 accounting period of a building society to which subsection (4) above applies, in section 825(8)(b) of this Act and paragraph 5(c) in the second column of the Table in section 86(4) of the Management Act (the reckonable date for interest on overdue tax), the reference to the time limit imposed by section (2)(a) above shall be construed as a reference to the limit imposed by subsection (4) above.

7

In subsections (4) to (6) above a “1989 accounting period” means an accounting period ending in the year 1989-90.

479 Interest paid on deposits with banks etc.

F91. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

480 Deposits becoming or ceasing to be composite rate deposits.

F92. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F93 C71480A Relevant deposits: deduction of tax from interest payments.

C721

Any deposit-taker making a payment of interest in respect of a relevant deposit shall, on making the payment, deduct out of it a sum representing the amount of income tax on it for the year of assessment in which the payment is made.

2

Any payment of interest out of which an amount is deductible under subsection (1) above shall be a relevant payment for the purposes of Schedule 16 whether or not the deposit-taker making the payment is resident in the United Kingdom.

3

Schedule 16 shall apply in relation to any payment which is a relevant payment by virtue of subsection (2) above—

a

with the substitution for any reference to a company of a reference to a deposit-taker,

b

as if paragraph 5 applied only in relation to payments received by the deposit-taker and falling to be taken into account in computing his income chargeable to corporation tax, and

c

as if in paragraph 7 the reference to section 7(2) included a reference to sections 11(3) and 349(1).

4

In relation to any deposit-taker who is not a company, Schedule 16 shall have effect as if—

a

paragraph 5 were omitted, and

b

references to accounting periods were references to periods for which the deposit-taker makes up his accounts.

5

For the purposes of this section, crediting interest shall be treated as paying it.

F94 C73480B Relevant deposits: exception from section 480A.

1

The Board may by regulations provide that section 480A(1) shall not apply as regards a payment of interest if such conditions as may be prescribed by the regulations are fulfilled.

2

In particular, the regulations may include—

a

provision for a certificate to be supplied to the effect that the person beneficially entitled to a payment is unlikely to be liable to pay any amount by way of income tax for the year of assessment in which the payment is made;

b

provision for the certificate to be supplied by that person or such other person as may be prescribed by the regulations;

c

provision about the time when, and the manner in which, a certificate is to be supplied;

d

provision about the form and contents of a certificate.

3

Any provision included under subsection (2)(d) above may allow the Board to make requirements, in such manner as they see fit, as to the matters there mentioned.

4

For the purposes of this section, crediting interest shall be treated as paying it.

F95480C Relevant deposits: computation of tax on interest.

Notwithstanding anything in sections 64, 66 and 67, income tax chargeable under Case III of Schedule D on interest in respect of a relevant deposit shall be computed on the full amount of the income arising in the year of assessment.

481“Deposit-taker”, “deposit” and “relevant deposit”.

1

M100In this section “the relevant provisions” means sections 479 and 480, this section and section 482 F271.

F2721A

In this section “the relevant provisions” also means sections 480A and 480C.

2

In the relevant provisions “deposit-taker” means any of the following—

a

the Bank of England;

b

any institution authorised under the M101Banking Act 1987 or municipal bank within the meaning of that Act;

c

the Post Office;

F273ca

any local authority;

F274d

any company to which property and rights belonging to a trustee savings bank were transferred by section 3 of the M102Trustee Savings Bank Act 1985;

F274e

any bank formed under the M103Savings Bank (Scotland) Act 1819; and

f

any person or class of person who receives deposits in the course of his business or activities and which is for the time being prescribed by order made by the Treasury for the purposes of this paragraph.

3

M104In the relevant provisions “deposits” means a sum of money paid on terms under which it will be repaid with or without interest and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person to whom it is made.

4

For the purposes of the relevant provisions a deposit is a relevant deposit if, but only if—

a

the person who is beneficially entitled to any interest in respect of the deposit is an individual or, where two or more persons are so entitled, all of them are individuals; or

b

in Scotland, the person who is so entitled is a partnership all the partners of which are individuals; or

c

the person entitled to any such interest receives it as a personal representative in his capacity as such;

and the deposit is not prevented from being a relevant deposit by subsection (5) below.

5

A deposit is not a relevant deposit if—

a

a qualifying certificate of deposit has been issued in respect of it or it is a qualifying time deposit;

b

it is a debt on a debenture (“debenture” having the meaning given in section 744 of the M105Companies Act 1985) issued by the deposit-taker;

c

it is a loan made by a deposit-taker in the ordinary course of his business or activities;

d

it is a debt on a security which is listed on a recognised stock exchange;

e

it is a general client account deposit;

f

it forms part of a premiums trust fund (within the meaning of F275section 184 of the Finance Act 1993) of an underwriting or former underwriting member of Lloyd’s;

g

it is made by a Stock Exchange money broker (recognised by the Bank of England) in the course of his business as such a broker;

h

in the case of a deposit-taker resident in the United Kingdom for the purposes of income tax or corporation tax, it is held at a branch of his situated outside the United Kingdom;

j

in the case of a deposit-taker who is not so resident, it is held otherwise than at a branch of his situated in the United Kingdom; or

k

the appropriate person has declared in writing to the deposit-taker liable to pay interest in respect of the deposit that—

i

at the time when the declaration is made, the person who is beneficially entitled to the interest is not, or, as the case may be, all the persons who are so entitled are not, ordinarily resident in the United Kingdom;

ii

in a case falling within subsection (4)(c) above the deceased was, immediately before his death, not ordinarily resident in the United Kingdom.

F2765A

In a case where—

a

there is an arrangement falling within section 56A,

b

the deposit is with a deposit-taker,

c

no certificate of deposit, as defined in section 56(5), has been issued in respect of the right at the time the interest mentioned in section 480A or 480C is paid, and

d

the conditions set out in paragraphs (a) and (b) in the definition of “qualifying certificate of deposit” in section 482(6) apply,

the deposit is not a relevant deposit.

6

M106The Treasury may by order make amendments in this section and sections F277480A, 480C 479(2) to (7), 480 F278 and 482 providing for deposits of a kind specified in the order to be or, as the case may be, not to be relevant deposits in relation to all deposit-takers or such deposit-takers or classes of deposit-takers as may be so specified.

482 Supplementary provisions.

1

M107For the purposes of sections 479, 480 and F279 481 and this section, any amount which is credited as interest in respect of a relevant deposit shall be treated as a payment of interest.

2

M108A declaration under section 481(5)(k) shall—

a

if made under sub-paragraph (i), contain an undertaking by the person making it that if the person, or any of the persons in respect of whom it is made, becomes ordinarily resident in the United Kingdom he will notify the deposit-taker accordingly; and

b

in any case, be in such form as may be prescribed or authorised, and contain such information as may reasonably be required, by the Board.

3

M109A deposit-taker shall, on being so required by notice given to him by an inspector, make all declarations which have been made to him under section 481(5) available for inspection by the inspector or by a named officer of the Board.

4

Where a notice has been given to a deposit-taker under subsection (3) above, the declarations shall be made available within such time as may be specified in the notice, and the person to whom they are to be made available may take copies of or extracts from them.

5

A deposit-taker shall treat every deposit made with him as a relevant deposit unless satisfied that it is not a relevant deposit, but where he has satisfied himself that a deposit is not a relevant deposit he shall be entitled to continue to so treat it until such time as he is in possession of information which can reasonably be taken to indicate that the deposit is or may be a relevant deposit.

6

In section 481(5)—

“appropriate person”, in relation to a deposit, means any person who is beneficially entitled to any interest in respect of the deposit or entitled to receive any such interest as a personal representative in his capacity as such or to whom any such interest is payable;
“general client account deposit” means a deposit, held by the deposit-taker in a client account (other than one which is identified by the deposit-taker as one in which sums are held only for one or more particular clients of the person whose account it is) in respect of which that person is required by provision made under any enactment to make payments representing interest to some or all of the clients for whom, or on whose account, he received the sums deposited in the account;
“qualifying certificate of deposit” means a certificate of deposit, as defined in section 56(5), which is issued by a deposit-taker and under which—
1. a
  the amount payable by the deposit-taker, exclusive of interest, is not less than £50,000 (or, for a deposit denominated in foreign currency, not less than the equivalent of £50,000 at the time when the deposit is made); and
2. b
  C74the obligation of the deposit-taker to pay that amount arises after a period of not less than seven days beginning with the date on which the deposit is made; and
“qualifying time deposit” means a deposit which is made by way of loan for an amount which is not less than £50,000 (or, for a deposit denominated in foreign currency, not less than the equivalent of £50,000 at the time when the deposit is made) and on terms which—
1. a
  C75prevent repayment of the deposit before the expiry of the period of seven days beginning with the date on which the deposit is made, but which require repayment at the end of a specified period;
2. b
  do not make provision for the transfer of the right to repayment; and
3. c
  prevent partial withdrawals of, or additions to, the deposit.

In relation to deposits made before 20th May 1986 this subsection shall have effect with the substitution for “seven” of “ 28 ” (in both places). C76

7

For the purposes of section 481(5)(h) and (j) a deposit is held at a branch of a deposit-taker if it is recorded in his books as a liability of that branch.

8

M110A certificate of deposit, as defined in section 56(5), which was issued before 13th March 1984 on terms which provide for interest to be payable on the deposit at any time after 5th April 1985 (whether or not interest is payable on it before that date) shall, if it is not a qualifying certificate of deposit, be treated for the purposes of section 481(5) as if it were a qualifying certificate of deposit.

9

M111Any deposit which was made before 6th July 1984 but which is not a qualifying time deposit shall, where it is made on terms which—

a

do not make provision for the transfer of the right to repayment;

b

prevent partial withdrawals of, or additions to, the deposit; and

c

require—

i

the deposit-taker to repay the sum at the end of a specified period which ends after 5th April 1985; or

ii

in a case where interest is payable only at the time of repayment of the deposit, the deposit-taker to repay the sum on demand or on notice;

be treated for the purposes of section 481(5) as if it were a qualifying time deposit.

10

A M112n order under section 481(2)(f) may prescribe a person or class of person in relation to all relevant deposits or only in relation to relevant deposits of a kind specified in the order.

11

The Board may by regulations make provision—

a

M113requiring any declaration under section 481(5)(k)(i) which does not give the address of the person making it, to be supported by a certificate given by the deposit-taker concerned—

i

in such form as may be prescribed or authorised by the Board; and

ii

containing such information as may reasonably be required by the Board; and

F280aa

with respect to the furnishing of information by depositors or deposit-takers, including, in the case of deposit-takers, the inspection of books, documents and other records on behalf of the Board; and

b

generally for giving effect to sections 479 to 481 and this section.

F28111A

In subsection (11)(aa) above the reference to depositors is to persons who are appropriate persons (within the meaning given by subsection (6) above) in relation to deposits.

12

M114Regulations under subsection (11) above or an order under section 481(6) may contain such incidental and consequential provision as appears to the Board or the Treasury, as the case may be, to be appropriate.

482AF285 Audit powers in relation to non-residents.

1

The Board may make regulations with respect to the exclusion, in relation to investments of persons who are not ordinarily resident in the United Kingdom, of powers conferred by regulations made by virtue of section 477A(2)(a) or 482(11)(aa) (“audit powers”).

2

Regulations under subsection (1) above may in particular—

a

make provision for the exclusion of audit powers in the case of any building society or deposit-taker to be dependent on whether the society or deposit-taker is approved by the Board for the purposes of the regulations and on the scope of that approval;

b

make provision with respect to the approval of building societies and deposit-takers by the Board for the purposes of the regulations;

c

make provision with respect to, and with respect to alteration of, the scope of approval by the Board for the purposes of the regulations;

d

6

M117In this section “successor” and “existing”, in relation to a trustee savings bank, have the meanings given by section 1 of the M118Trustee Savings Bank Act 1985, and “further successor” has the meaning given by paragraph 9 of Schedule 2 to that Act.

485 Savings banks: supplemental.

1

M119Where the business of a trustee savings bank has been transferred to another trustee savings bank after 21st November 1979 and before the day which was the vesting day for the purposes of the M120Trustee Savings Bank Act 1985—

a

any exempt investment which was held on that date by the first bank and was transferred with the business shall be treated for the purposes of section 484 in its application to any savings bank which is the successor to the second bank as if it had been held on that date by the second bank but without prejudice to any election made in respect of the investment by the first bank under sub-paragraph (3) of paragraph 2 of Schedule 11 to the Finance Act 1980; and

b

the cost of the investment shall be taken for the purposes of that sub-paragraph as equal to the cost of the investment to the first bank.

2

Where the business of a trustee savings bank was transferred to another trustee savings bank before 21st November 1979 the cost of any exempt investment held by the second bank on that date which—

a

was transferred to it with the business; and

b

was an exempt investment on the date of the transfer,

shall be taken for the purposes of section 484(2) in its application to any savings bank which is the successor to the second bank as equal to the cost of the investment to the first bank.

3

In this section references to exempt investments held by a trustee savings bank on 21st November 1979 or the date of the transfer are to investments on the disposal of which immediately before that date no chargeable gain or allowable loss would have accrued to the bank by virtue of section 67 of the 1979 Act (gilt-edged securities held for more than a year) or, in the case of a transfer which took place before that section came into force, section 41 of the M121Finance Act 1969 (which was re-enacted by section 67 of the 1979 Act).

any registered industrial and provident society which does not sell to persons not members thereof; or

b

any registered industrial and provident society the number of the shares in which is not limited by its rules or practice;

there are to be deducted as expenses any sums which—

i

represent a discount, rebate, dividend or bonus granted by the company to members or other persons in respect of amounts paid or payable by or to them on account of their transactions with the company, being transactions which are taken into account in the tax computation; and

ii

are calculated by reference to those amounts or to the magnitude of those transactions and not by reference to the amount of any share or interest in the capital of the company.

11

No dividends or bonus deductible in computing income as mentioned in subsection (10) above shall be regarded as a distribution.

12

In this section—

“co-operative association” means a body of persons having a written constitution from which the Minister is satisfied, having regard to the provision made as to the manner in which the income of the body is to be applied for the benefit of its members and all other relevant provisions, that the body is in substance a co-operative association;
“the Minister” means—
the Minister of Agriculture, Fisheries and Food, as regards England and Wales;
the Secretary of State, as regards Scotland; and
the Department of Agriculture for Northern Ireland, as regards Northern Ireland;
“registered industrial and provident society” means a society registered or deemed to be registered under the M123Industrial and Provident Societies Act 1965 or under the M124Industrial and Provident Societies Act (Northern Ireland) 1969;
“share interest” means any interest, dividend, bonus or other sum payable to a shareholder of the society by reference to the amount of his holding in the share capital of the society;
“loan interest” means any interest payable by the society in respect of any mortgage, loan, loan stock or deposit;

and references to the payment of share interest or loan interest include references to the crediting of such interest.

487 Credit unions.

1

M125Subject to subsection (2) below, in computing for the purposes of corporation tax the income of a credit union for any accounting period—

a

neither the activity of the credit union in making loans to its members nor in placing on deposit or otherwise investing from time to time its surplus funds shall be regarded as the carrying on of a trade or part of a trade; and

b

interest received by the credit union on loans made by it to its members shall not be chargeable to tax under Case III of Schedule D or otherwise.

2

Paragraph (b) of subsection (1) above shall not apply to an accounting period of a credit union for which the credit union is obliged to make a return under section 486(6) and has not done so within three months after the end of that accounting period or such longer period as the inspector shall allow.

3

No share interest, loan interest or annuity or other annual payment paid or payable by a credit union in any accounting period shall be deductible in computing for the purposes of corporation tax the income of the credit union for that period from any trade carried on by it or be treated for those purposes as a charge on income.

4

A credit union shall not be regarded as an investment company for the purposes of section 75 above or section 306 of the 1970 Act (capital allowances).

5

In this section—

“credit union” means a society registered as a credit union under the M126Industrial and Provident Societies Act 1965 or the M127Credit Unions (Northern Ireland) Order 1985;
“share interest” and “loan interest” have the same meaning as in section 486;
“surplus funds”, in relation to a credit union, means funds not immediately required for its purposes;

and references to the payment of share interest or loan interest include references to the crediting of such interest.

by the Secretary of State in the case of a housing association in Great Britain;

b

by the Head of the Department of the Environment for Northern Ireland in the case of a housing association in Northern Ireland;

and an association shall not be approved unless the approving authority is satisfied—

i

that the association is, or is deemed to be, duly registered under the M129Industrial and Provident Societies Act 1965 or the M130Industrial and Provident Societies Act (Northern Ireland) 1969, and is a housing association within the meaning of the M131Housing Associations Act 1985 or F283Article 3 of the Housing (Northern Ireland) Order 1992;

ii

that the rules of the association restrict membership to persons who are tenants or prospective tenants of the association, and preclude the granting or assignment (or, in Scotland, the granting or assignation) of tenancies to persons other than members; and

iii

that the association satisfies such other requirements as may be prescribed by the approving authority, and will comply with such conditions as may for the time being be so prescribed.

7

An approval given for the purposes of this section shall have effect as from such date (whether before or after the giving of the approval) as may be specified by the approving authority and shall cease to have effect if revoked.

8

The Secretary of State as respects Great Britain, or the Head of the Department of the Environment for Northern Ireland as respects Northern Ireland, may make regulations for the purpose of carrying out the provisions of this section; and, from the coming into operation of regulations under this subsection prescribing requirements or conditions for the purposes of subsection (6)(iii) above, “prescribed” in subsection (6)(iii) above shall mean prescribed by or under such regulations.

The power to make regulations under this subsection shall be exercisable by the Secretary of State by statutory instrument and by the Head of the Department of the Environment for Northern Ireland by statutory rule for the purposes of the M132Statutory Rules (Northern Ireland) Order 1979.

9

A claim under this section shall be made to the inspector, and shall be made not later than two years after the end of the year of assessment or accounting period to which, or to a part of which, it relates.

Section 42 of the Management Act shall not apply to a claim under this section.

10

Subject to subsection (11) below, no claim under this section shall have effect unless it is proved that during the year or accounting period, or part thereof, to which the claim relates—

a

no property belonging to the association making the claim was let otherwise than to a member of the association;

b

no property let by the association, and no part of such property, was occupied, whether solely or as joint occupier, by a person not being a member of the association;

c

the association making the claim satisfies the conditions specified in subsection (6)(i) and (ii) above and has complied with the conditions prescribed under subsection (6)(iii) for the time being in force; and

d

any covenants required to be included in grants of tenancies by those conditions have been observed.

For the purposes of paragraph (b) above occupation by any other person in accordance with the will, or the provisions applicable on the intestacy, of a deceased member, shall be treated during the first six months after the death as if it were occupation by a member.

11

Where the Board are satisfied that the requirements of subsection (10) above are substantially complied with they may direct that the claim shall have effect; but if subsequently information comes to the knowledge of the Board which satisfies them that the direction was not justified they may revoke the direction and thereupon the liability of all persons concerned to tax for all relevant years or accounting periods shall be adjusted by the making of assessments or otherwise.

12

A claim under this section shall be in such form and contain such particulars as may be prescribed by the Board, and, without prejudice to the generality of this provision, the required particulars may include an authority granted by all members of the association for any relevant information contained in any return made by a member under the provisions of the Income Tax Acts to be used by the Board in such manner as the Board may think fit for determining whether the claim ought to be allowed.

489 Self-build societies.

C811

M133Where a self-build society makes a claim in that behalf for any year or part of a year of assessment during which the society was approved for the purposes of this section, rent to which the society was entitled from its members for the year or part shall be disregarded for tax purposes.

2

Where a claim under subsection (1) above has effect, any adjustment of the society’s liability to tax which is required in consequence of the claim may be made by an assessment or by repayment or otherwise, as the case may require.

3

Where a self-build society makes a claim in that behalf for an accounting period or part during which it was approved for the purposes of this section, the society shall be exempt from corporation tax on chargeable gains accruing to it in the accounting period or part thereof on the disposal of any land to a member of the society.

4

References in this section to the approval of a self-build society are references to its approval by the Secretary of State, and the Secretary of State shall not approve a self-build society for the purposes of this section unless he is satisfied—

a

that the society is, or is deemed to be, duly registered under the M134Industrial and Provident Societies Act 1965; and

C82b

that the society satisfies such other requirements as may be prescribed by or under regulations under subsection (6) below and will comply with such conditions as may for the time being be so prescribed.

5

An approval given for the purposes of this section shall have effect as from such date (whether before or after the giving of the approval) as may be specified by the Secretary of State and shall cease to have effect if revoked by him.

6

The Secretary of State may by statutory instrument make regulations for the purpose of carrying out the provisions of this section; and a statutory instrument containing any such regulations shall be subject to annulment in pursuance of a resolution of the House of Commons.

7

Section 42 of the Management Act shall not apply to a claim under this section, but such a claim shall be made to the inspector and shall be made not later than two years after the end of the year of assessment or accounting period to which, or to a part of which, it relates.

8

Subject to subsection (9) below, no claim under this section shall have effect unless it is proved that during the year or accounting period, or part thereof, to which the claim relates—

a

no land owned by the society was occupied, in whole or in part and whether solely or as joint occupier, by a person who was not, at the time of his occupation, a member of the society; and

b

the society making the claim satisfies the condition specified in paragraph (a) of subsection (4) above and has complied with the conditions prescribed under paragraph (b) of that subsection and for the time being in force;

and for the purposes of paragraph (a) above, occupation by any other person in accordance with the will, or the provisions applicable on the intestacy, of a deceased member, shall be treated during the first six months after the death as if it were occupation by a member.

9

Notwithstanding the provisions of subsection (8) above, where, on a claim under this section, the Board are satisfied that the requirements of paragraphs (a) and (b) of that subsection are substantially complied with, they may direct that the claim shall have effect; but if, subsequently, information comes to the knowledge of the Board which satisfies them that the direction was not justified, they may revoke the direction and thereupon the liability of the society to tax for all relevant years or accounting periods shall be adjusted by the making of assessments or otherwise.

10

A claim under this section shall be in such form and contain such particulars as may be prescribed by the Board.

11

In this section—

“self-build society” has the same meaning as in the M135Housing Associations Act 1985 or, in Northern Ireland, Part VII of the M136Housing (Northern Ireland) Order 1981; and
“rent” includes any sums to which a self-build society is entitled in respect of the occupation of any of its land under a licence or otherwise.

12

In the application of this section to Northern Ireland—

a

any reference in subsections (4) and (5) above to the Secretary of State shall be construed as a reference to the Department of the Environment for Northern Ireland;

b

the reference in subsection (4)(a) to the M137Industrial and Provident Societies Act 1965 shall be construed as a reference to the M138Industrial and Provident Societies Act (Northern Ireland) 1969; and

c

for subsection (6) there shall be substituted the following subsection—

6
the Department of the Environment for Northern Ireland may by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 make regulations for the purpose of carrying out the provisions of this section; and a statutory rule containing any such regulations shall be subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954.

C83490 Companies carrying on a mutual business or not carrying on a business.

1

M139Subject to subsection (2) below, where a company carries on any business of mutual trading or mutual insurance or other mutual business the provisions of the Tax Acts relating to distributions shall apply to distributions made by the company notwithstanding that they are made to persons participating in the mutual activities of that business and derive from those activities, but shall so apply only to the extent to which the distributions are made out of profits of the company which are brought into charge to corporation tax or out of franked investment income (including group income).

2

In the case of a company carrying on any mutual life assurance business, the provisions of the Tax Acts relating to distributions shall not apply to distributions made to persons participating in the mutual activities of that business and derived from those activities; but if the business includes annuity business, the annuities payable in the course of that business shall not be treated as charges on the income of the company to any greater extent than if the business were not mutual but were being carried on by the company with a view to the realisation of profits for the company.

3

Subject to subsections (1) and (2) above, the fact that a distribution made by a company carrying on any such business is derived from the mutual activities of that business and the recipient is a person participating in those activities shall not affect the character which the payment or other receipt has for purposes of corporation tax or income tax in the hands of the recipient.

4

Where a company does not carry on, and never has carried on, a trade or a business of holding investments, and is not established for purposes which include the carrying on of a trade or of such a business, the provisions of the Tax Acts relating to distributions shall apply to distributions made by the company only to the extent to which the distributions are made out of profits of the company which are brought into charge to corporation tax or out of franked investment income.

491 Distribution of assets of body corporate carrying on mutual business.

1

M140Where any person receives any money or money’s worth—

a

forming part of the assets of a body corporate, other than assets representing capital; or

b

forming part of the consideration for the transfer of the assets of a body corporate, other than assets representing capital, as part of a scheme of amalgamation or reconstruction which involves the winding up of the body corporate; or

c

9

In this section “mutual business” includes any business of mutual insurance or mutual trading.

10

Subsections (3) to (7) above shall apply with any necessary modifications—

a

to a profession or vocation; and

C84b

to the occupation of woodlands the profits or gains of which are assessable under Schedule D;

as they apply to a trade.

11

It is hereby declared that the description of trades in subsection (1) above does not include any trade all the profits or gains of which are chargeable to tax and, in particular, does not include such a trade carried on by any registered industrial and provident society.

C1CHAPTER V

Annotations:

Modifications etc. (not altering text)

Pt. 12 Ch. 5 modified (27.7.1999) by Finance Act 1999 (c. 16), s. 98

C85 PETROLEUM EXTRACTION ACTIVITIES

Annotations:

Modifications etc. (not altering text)

C85

Pt. 12 Ch. 5 applied (29.4.1996) by Finance Act 1996 (c. 8), Sch. 8 para. 1(4)

492 Treatment of oil extraction activities etc. for tax purposes.

(1) Where a person carries on as part of a trade—

a
any oil extraction activities; or
b
any of the following activities, namely, the acquisition, enjoyment or exploitation of oil rights; or
c
activities of both those descriptions,

those activities shall be treated for all purposes of income tax, and for the purposes of the charge of corporation tax on income, as a separate trade, distinct from all other activities carried on by him as part of the trade.

2

Relief in respect of a loss incurred by a person shall not be given under section 380 or 381 against income arising from oil extraction activities or from oil rights (“ring fence income”) except to the extent that the loss arises from such activities or rights.

3

Relief in respect of a loss incurred by a person shall not be given under section F286393A(1) against his ring fence profits except to the extent that the loss arises from oil extraction activities or from oil rights.

4

In any case where—

a

in any chargeable period a person incurs a loss in activities (“separate activities”) which, for that or any subsequent chargeable period, are treated by virtue of subsection (1) above as a separate trade for the purposes specified in that subsection; and

b

in any subsequent chargeable period any of his trading income is derived from activities (“related activities”) which are not part of the separate activities but which, apart from subsection (1) above, would together with those activities constitute a single trade,

then, notwithstanding anything in that subsection, the amount of the loss may be set off, in accordance with section 385 or 393(1), against so much of his trading income in any subsequent chargeable period as is derived from the related activities.

5

Subject to subsection (7) below, a capital allowance which is to be given to any person by discharge or repayment of tax shall not to any extent be given effect under F287section 141 of the 1990 Act by deduction from or set off against his ring fence income.

6

Subject to subsection (7) below, a capital allowance which is to be given to any person by discharge or repayment of tax shall not to any extent be given effect under F288section 145 of the 1990 Act by deduction from or set off against his ring fence profits.

7

Subsection (5) or (6) above shall not apply to a capital allowance which falls to be made to a company for any accounting period in respect of an asset used in the relevant accounting period by a company associated with it and so used in carrying on oil extraction activities. For the purposes of this subsection, the relevant accounting period is that in which the allowance in question first falls to be made to the company (whether or not it can to any extent be given effect in that period under F289section 145(1) of the 1990 Act).

8

On a claim for group relief made by a claimant company in relation to a surrendering company, group relief shall not be allowed against the claimant company’s ring fence profits except to the extent that the claim relates to losses incurred by the surrendering company that arose from oil extraction activities or from oil rights.

493 Valuation of oil disposed of or appropriated in certain circumstances.

1

Where a person disposes of any oil in circumstances such that the market value of that oil in a particular month falls to be taken into account under section 2 of the M141Oil Taxation Act 1975 (“the 1975 Act”), otherwise than by virtue of paragraph 6 of Schedule 3 to that Act, in computing for the purposes of petroleum revenue tax the assessable profit or allowable loss accruing to him in any chargeable period from an oil field (or as would so fall but for section 10 of that Act), then—

a

for all purposes of income tax, and

b

for the purposes of the charge of corporation tax on income,

the disposal of the oil and its acquisition by the person to whom it was disposed of shall be treated as having been for a consideration equal to the market value of the oil as so taken into account under section 2 of that Act (or as would have been so taken into account under that section but for section 10 of that Act).

2

Where a person makes a relevant appropriation of any oil without disposing of it and does so in circumstances such that the market value of that oil in a particular month falls to be taken into account under section 2 of the 1975 Act in computing for the purposes of petroleum revenue tax the assessable profit or allowable loss accruing to him in any chargeable period from an oil field (or would so fall but for section 10 of that Act), then for all the purposes of income tax and for the purposes of the charge of corporation tax on income, he shall be treated—

a

as having, at the time of the appropriation—

i

sold the oil in the course of the separate trade consisting of activities falling within section 492(1)(a) or (b); and

ii

bought it in the course of the separate trade consisting of activities not so falling; and

b

as having so sold and bought it at a price equal to its market value as so taken into account under section 2 of the 1975 Act (or as would have been so taken into account under that section but for section 10 of that Act).

In this subsection “relevant appropriation” has the meaning given by section 12(1) of the 1975 Act.

3

Where—

a

a person disposes otherwise than in a sale at arm’s length (as defined in paragraph 1 of Schedule 3 to the 1975 Act) of oil acquired by him in the course of oil extraction activities carried on by him or by virtue of oil rights held by him, and

b

subsection (1) above does not apply in relation to the disposal,

then, for all purposes of income tax and for the purposes of the charge of corporation tax on income, the disposal of the oil and its acquisition by the person to whom it was disposed of shall be treated as having been for a consideration equal to the market value of the oil in the calendar month in which the disposal was made.

4

If a person appropriates oil acquired by him in the course of oil extraction activities carried on by him or by virtue of oil rights held by him and the appropriation is to refining or to any use except for production purposes of an oil field, within the meaning of Part I of the 1975 Act, then, unless subsection (2) above applies, for all purposes of income tax and for the purposes of the charge of corporation tax on income—

a

he shall be treated as having, at the time of the appropriation, sold and bought the oil as mentioned in subsection (2)(a)(i) and (ii) above; and

b

that sale and purchase shall be deemed to have been at a price equal to the market value of the oil in the calendar month in which it was appropriated.

5

For the purposes of subsections (3) and (4) above—

a

“calendar month” means a month of the calendar year; and

b

paragraph 2 of Schedule 3 to the 1975 Act shall apply as it applies for the purposes of Part I of that Act, but with the following modifications, that is to say—

i

for sub-paragraph (2)(f) there shall be substituted—

f
the contract is for the sale of the whole quantity of oil of which the market value falls to be ascertained for the purposes of section 493(3) or (4) of the Income and Corporation Taxes Act 1988 and of no other oil; and for the avoidance of doubt it is hereby declared that the terms as to payment which are to be implied in the contract shall be those which are customarily contained in contracts for sale at arm’s length of oil of the kind in question.

ii

sub-paragraphs (3) and (4) shall be omitted.

494 Charges on income.

1

Section 338 shall have effect subject to the following provisions of this section.

2

Interest paid by a company shall not be allowable under section 338 as a deduction against the company’s ring fence profits except—

a

to the extent that it was payable in respect of money borrowed by the company which is shown to have been used to meet expenditure incurred by the company in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person or to have been appropriated to meeting expenditure to be so incurred by the company; and

b

in the case of interest paid by the company to a company associated with it, to the extent that (subject always to paragraph (a) above) the rate at which it was payable did not exceed what, having regard to all the terms on which the money was borrowed and the standing of the borrower, was a reasonable commercial rate.

Section 839 shall apply for the purposes of this subsection.

3

Where a company pays to a company associated with it a charge on income not consisting of a payment of interest, the charge shall not be allowable to any extent under section 338 against the first-mentioned company’s ring fence profits.

4

In any case where—

a

such of the charges on income which are paid by a company and allowable under section 338 as, by virtue of subsections (2) and (3) above, are not allowable against the company’s ring fence profits exceed the remaining part of its profits (the company’s “non-oil profits”), and

b

the amount of that excess is greater than the amount (if any) by which the total of the charges on income which are allowable to the company under that section exceeds the total of the company’s profits,

then, for the purpose of enabling the company to surrender the excess referred to in paragraph (a) above by way of group relief, section 403(7) shall have effect as if in that subsection—

i

the reference to the amount paid by the surrendering company by way of charges on income were a reference to so much of that amount as is allowable only against the company’s non-oil profits; and

ii

the reference to the surrendering company’s profits were a reference to its non-oil profits alone.

Where any expenditure—

a

would apart from subsection (3) above be allowable in computing for the purposes of Schedule D the profits of the ring fence trade for an accounting period, but

b

by virtue of that subsection is not so allowable,

that expenditure shall be brought into account for the purposes of Chapter II of Part IV of the M150Finance Act 1996 as if it were a non-trading debit in respect of a loan relationship of the lessee for that accounting period.

6

In this section, “lease”, in relation to an asset, has the same meaning as in sections 781 to 784.

F99494A Computation of amount available for surrender by way of group relief.

1

2

Where this subsection applies, for the purposes of the charge of income tax or corporation tax on the income arising from those activities of the person referred to in paragraph (a) of subsection (1) above which are treated by virtue of section 492(1) as a separate trade for those purposes, the expenditure referred to in that paragraph shall be treated as reduced by the amount of the regional development grant referred to in paragraph (b) of that subsection.

3

Subsections (4) to (6) below apply where—

a

expenditure incurred by any person in relation to an asset in any relevant period (“the initial period”) has been or is to be met by a regional development grant; and

b

notwithstanding the provisions of section 137 of the M142Finance Act 1982 and subsections (1) and (2) above, in determining that person’s liability to income tax or corporation tax for the initial period the whole or some part of that expenditure falls to be taken into account F291Part I, II or VII of the 1990 Act; and

c

in a relevant period subsequent to the initial period either expenditure on the asset becomes allowable under section 3 or 4 of the 1975 Act or the proportion of any such expenditure which is allowable is different as compared with the initial period;

and in subsections (4) to (6) below the subsequent relevant period referred to in paragraph (c) above is referred to as “the adjustment period”.

4

Where this subsection applies—

a

there shall be redetermined for the purposes of subsections (5) and (6) below the amount of the expenditure referred to in subsection (3)(a) above which would have been taken into account as mentioned in subsection (3)(b) if the circumstances referred to in subsection (3)(c) had existed in the initial period; and

b

according to whether the amount as so redetermined is greater or less than the amount actually taken into account as mentioned in subsection (3)(b), the difference is in subsections (5) and (6) below referred to as the increase or the reduction in the allowance.

5

If there is an increase in the allowance, then, for the purposes of the provisions referred to in subsection (3)(b) above, an amount of capital expenditure equal to the increase shall be deemed to have been incurred by the person concerned in the adjustment period on an extension of or addition to the asset referred to in subsection (3)(a) above.

6

If there is a reduction in the allowance, then, for the purpose of determining the liability to income tax or corporation tax of the person concerned, he shall be treated as having received in the adjustment period, as income of the trade in connection with which the expenditure referred to in subsection (3)(a) above was incurred, a sum equal to the amount of the reduction in the allowance.

7

In this section—

“regional development grant” means a grant made under the provisions of Part II of the M143Industrial Development Act 1982 or Part I of the M144Industry Act 1972 or such grant made under an enactment of the Parliament of Northern Ireland or Measure of the Northern Ireland Assembly as has been or may be declared by the Treasury under section F292153 of the 1990 Act to correspond to a grant made under those provisions; and
“relevant period” means an accounting period of a company or a year of assessment.

496 Tariff receipts.

1

Any sum which—

a

constitutes a tariff receipt of a person who is a participator in an oil field, and

b

constitutes consideration in the nature of income rather than capital, and

c

would not, apart from this subsection, be treated for the purposes of this Chapter as a receipt of the separate trade referred to in section 492(1),

shall be so treated for those purposes.

2

To the extent that they would not otherwise be so treated, the activities of a participator in an oil field or a person connected with him in making available an asset in a way which gives rise to tariff receipts of the participator shall be treated for the purposes of this Chapter as oil extraction activities.

3

In determining for the purposes of subsection (1) above whether any sum constitutes a tariff receipt of a person who is a participator, no account shall be taken of any sum which—

a

is in fact received or receivable by a person connected with the participator, and

b

constitutes a tariff receipt of the participator,

but in relation to the person by whom such a sum is actually received, subsection (1) above shall have effect as if he were a participator and as if the condition in paragraph (a) of that subsection were fulfilled.

4

References in this section to a person connected with a participator include references to a person with whom the person is associated within the meaning of paragraph 11 of Schedule 2 to M145the Oil Taxation Act 1983.

496AF100Exploration expenditure supplement

Schedule 19B to this Act (exploration expenditure supplement) shall have effect.

F101496BRing fence expenditure supplement

Schedule 19C to this Act (ring fence expenditure supplement) shall have effect.

that, as against other shares in the company, they carry a preferential entitlement to a dividend or to any assets in a winding up or both;

b

that, by virtue of the terms of their issue, the exercise of a right by any person or the existence of any arrangements, they are liable to be redeemed, cancelled or repaid, in whole or in part;

c

that, by virtue of any material arrangements, the holder has a right to require another person to acquire the shares or is obliged in any circumstances to dispose of them or another person has a right or is in any circumstances obliged to acquire them.

7

For the purposes of paragraph (a) of subsection (6) above, shares are to be treated as carrying a preferential entitlement to a dividend as against other shares if, by virtue of any arrangements, there are circumstances in which a minimum dividend will be payable on those shares but not on others; and for the purposes of paragraph (c) of that subsection arrangements relating to shares are material arrangements if the company which issued the shares or a company associated with that company is a party to the arrangements.

498 Limited right to carry back surrendered ACT.

1

In any case where,—

a

on a date not earlier than 17th March 1987, a company which is the surrendering company for the purposes of section 240 paid a dividend; and

b

at no time in the accounting period of the surrendering company in which that dividend was paid was the surrendering company under the control of a company resident in the United Kingdom (construing “control” in accordance with section 416); and

c

under section 240(1) the benefit of the advance corporation tax paid in respect of that dividend was surrendered to a subsidiary of the surrendering company; and

d

that advance corporation tax is not such that the restriction in paragraph (a) or paragraph (b) of section 497(2) applies with respect to it; and

e

in one or more of the accounting periods of the subsidiary beginning in the six years preceding the accounting period in which falls the date referred to in paragraph (a) above, the subsidiary has a liability to corporation tax in respect of profits which consist of or include ring fence profits,

sections 239 and 240 shall have effect subject to subsections (3) to (7) below.

2

Where the conditions in subsection (1) above are fulfilled, the subsidiary to which the benefit of the advance corporation tax is surrendered is in the following provisions of this section referred to as a “qualifying subsidiary”; and in those provisions—

a

“the surrendering company” has the same meaning as in section 240;

b

“surrendered advance corporation tax” means advance corporation tax which, by virtue of section 240(2), a qualifying subsidiary is treated as having paid in respect of a distribution made on a particular date; and

c

“the principal accounting period” means the accounting period of the qualifying subsidiary in which that date falls.

3

So much of section 240(4) as would prevent surrendered advance corporation tax being set against a qualifying subsidiary’s liability to corporation tax under section 239(3) shall not apply, but section 239(3) shall instead have effect subject to the following provisions of this section.

4

Surrendered advance corporation tax may not under section 239(3) be set against a qualifying subsidiary’s liability to corporation tax for an accounting period earlier than the principal accounting period unless throughout—

a

that period,

b

the principal accounting period, and

c

any intervening accounting period,

the qualifying subsidiary was carrying on activities which, under and for the purposes specified in section 492, constitute a separate trade.

5

Subject to subsection (6) below, for each accounting period of the surrendering company in which is paid a dividend the advance corporation tax on which gives rise, under section 240, to surrendered advance corporation tax, the total amount of that surrendered advance corporation tax in respect of which claims may be made under section 239(3) (whether by one qualifying subsidiary of the surrendering company or by two or more taken together) shall not exceed whichever of the following limits is appropriate to the accounting period of the surrendering company—

a

then, for the purposes of the application of section 239(2) (as modified by subsection (4) above) in relation to that later accounting period, the excess of the surrendered advance corporation tax shall be treated as resulting from a surrender by that one of the consortium members referred to in paragraph (a) above.

7

Where section 240 has effect as mentioned in subsection (2) above, subsection (11) of that section shall have effect with the omission of paragraph (b) (and the word “and” immediately preceding it).

8

Notwithstanding the provisions of subsection (1) above the consortium company shall not be regarded as a subsidiary for the purposes of section 498.

Where any amount of petroleum revenue tax paid by a participator in an oil field is, under any provision of Part I of the 1975 Act, repaid to him with interest, the amount of the interest paid to him shall be disregarded in computing the amount of his income for the purposes of corporation tax.

which, under generally accepted accounting practice,—

i

fall (or would fall) to be treated, in the accounts of the lessee or a person connected with the lessee, as a finance lease or a loan, or

ii

are comprised in arrangements which fall (or would fall) to be so treated.

9

For the purposes of applying subsection (8)(b) above, the lessee and any person connected with the lessee are to be treated as being companies which are incorporated in a part of the United Kingdom.

10

In this section “accounts”, in relation to a company, includes any accounts which—

a

relate to two or more companies of which that company is one, and

b

are drawn up in accordance with—

i

section 227 of the Companies Act 1985, or

ii

Article 235 of the Companies (Northern Ireland) Order 1986.

F103501B Assessment, recovery and postponement of supplementary charge

1

Subject to subsection (3) below, the provisions of section 501A(1) relating to the charging of a sum as if it were an amount of corporation tax shall be taken as applying, subject to the provisions of the Taxes Acts, and to any necessary modifications, all enactments applying generally to corporation tax, including—

a

those relating to returns of information and the supply of accounts, statements and reports;

b

those relating to the assessing, collecting and receiving of corporation tax;

c

those conferring or regulating a right of appeal; and

d

those concerning administration, penalties, interest on unpaid tax and priority of tax in cases of insolvency under the law of any part of the United Kingdom.

2

Accordingly (but without prejudice to subsection (1) above) the Management Act shall have effect as if any reference to corporation tax included a reference to a sum chargeable under section 501A(1) as if it were an amount of corporation tax.

3

In any regulations made under section 32 of the Finance Act 1998 (as at 17th April 2002, the Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999)—

a

references to corporation tax do not include a reference to a sum chargeable on a company under section 501A(1) as if it were corporation tax; and

b

references to profits charged to corporation tax do not include a reference to adjusted ring fence profits, within the meaning of section 501A(1).

4

In this section “the Taxes Acts” has the same meaning as in the Management Act.

502 Interpretation of Chapter V.

1

In this Chapter—

“the 1975 Act” means the Oil Taxation Act 1975 M147;
“oil” means any substance won or capable of being won under the authority of a licence granted under either the Petroleum (Production) Act 1934 or the M148Petroleum (Production) Act (Northern Ireland) 1964, other than methane gas won in the course of operations for making and keeping mines safe;
“oil extraction activities” means any activities of a person—
1. a
  in searching for oil in the United Kingdom or a designated area or causing such searching to be carried out for him; or
2. b
  in extracting or causing to be extracted for him oil at any place in the United Kingdom or a designated area under rights authorising the extraction and held by him or, if the person in question is a company, by the company or a company associated with it; or
3. c
  in transporting or causing to be transported for him F299 . . . oil extracted at any such place not on dry land under rights authorising the extraction and so held F300where the transportation is—
  1. i
    to the place where the oil is first landed in the United Kingdom, or
  2. ii
    to the place in the United Kingdom or, in the case of oil first landed in another country, the place in that or any other country (other than the United Kingdom) at which the seller in a sale at arm’s length could reasonably be expected to deliver it or, if there is more than one such place, the one nearest to the place of extraction; or
4. d
  in effecting or causing to be effected for him the initial treatment or initial storage of oil won from any oil field under rights authorising its extraction and so held;
“oil field” has the same meaning as in Part I of the 1975 Act;
“oil rights” means rights to oil to be extracted at any place in the United Kingdom or a designated area, or to interests in or to the benefit of such oil;
“participator” has the same meaning as in Part I of the 1975 Act; and
“ring fence income” means income arising from oil extraction activities or oil rights; and
“ring fence profits” has the F301 meaning given by subsection (1A) below or, in any case where that subsection does not apply, means ring fence income; F298 and
“ring fence trade” means activities which—
1. a
  fall within any of paragraphs (a) to (c) of subsection (1) of section 492; and
2. b
  constitute a separate trade (whether by virtue of that subsection or otherwise).

F3021A

Where in accordance with section 197(3) of the 1992 Act a person has an aggregate gain for any chargeable period, that gain and his ring fence income (if any) for that period together constitute his ring fence profits for the purposes of this Chapter.

2

For the purposes of subsection (1) above—

a

“designated area” means an area designated by Order in Council under section 1(7) of the M149Continental Shelf Act 1964;

b

“initial treatment” has the same meaning as in Part I of the 1975 Act; and

c

the definition of “initial storage” in section 12(1) of the 1975 Act shall apply but, in its application for those purposes in relation to the person mentioned in subsection (1)(d) above and to oil won from any one oil field shall have effect as if the reference to the maximum daily production rate of oil for the field as there mentioned were a reference to that person’s share of that maximum daily production rate, that is to say, a share thereof proportionate to his share of the oil won from that field.

3

For the purposes of this Chapter two companies are associated with one another if—

a

one is a 51 per cent. subsidiary of the other;

b

each is a 51 per cent. subsidiary of a third company; or

c

one is owned by a consortium of which the other is a member.

Section 413(6) shall apply for the purposes of paragraph (c) above.

4

Without prejudice to subsection (3) above, for the purposes of this Chapter, two companies are also associated with one another if one has control of the other or both are under the control of the same person or persons; and in this subsection “control” shall be construed in accordance with section 416.

Chapter 5ASpecial rules for long funding leases of plant or machinery: corporation tax

F114Introductory

Annotations:

Amendments (Textual)

F114

Pt. 12 Ch. 5A (ss. 502A-502L) inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 11

502AScope of Chapter 5A

This Chapter has effect for the purposes of corporation tax only.

Lessors under long funding finance leases

C97 C98502BLessor under long funding finance lease: rental earnings

1

This section applies for determining for the purposes of corporation tax the profits of a company for any period of account in which it is the lessor of any plant or machinery under a long funding finance lease.

2

The amount to be brought into account as the lessor's taxable income from the lease for the period of account is the amount of the rental earnings in respect of the lease for the period of account.

3

The “rental earnings” for any period is the amount which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as the gross return on investment for that period in respect of the lease where it meets the finance lease test.

4

If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan in the accounts in question, so much of the rentals under the lease as fall (or would fall) to be treated as interest are to be treated for the purposes of this section as rental earnings.

in any other statement of items brought into account in computing the company's profits or losses for that period.

502DLessor under long funding finance lease making termination payment

1

This section applies for determining the liability to corporation tax of a company which is or has been the lessor under a long funding finance lease.

2

Where—

a

the lease terminates, and

b

a sum calculated by reference to the termination value is paid to the lessee,

no deduction in respect of the sum paid to the lessee is allowed in computing the profits of the company.

3

This section does not prevent a deduction in respect of a sum to the extent that the sum is brought into account in determining the company's rental earnings.

Lessors under long funding operating leases

502ELessor under long funding operating lease: periodic deduction

1

This section applies for determining for the purposes of corporation tax the profits of a company for any period of account—

a

for the whole of which, or

b

for any part of which,

the company is the lessor of any plant or machinery under a long funding operating lease.

2

A deduction is allowed in computing the profits of the company for the period of account.

3

The amount of the deduction for any period of account is to be determined as follows.

4

First, find the “relevant value” for the purposes of subsection (6)(a) below, which is—

a

if the only use of the plant or machinery by the lessor has been the leasing of it under the long funding operating lease as a qualifying activity, cost;

b

if the last previous use of the plant or machinery by the lessor was the leasing of it under another long funding operating lease as a qualifying activity, market value;

c

if the last previous use of the plant or machinery by the lessor was the leasing of it under a long funding finance lease as a qualifying activity, the recognised value;

d

if the last previous use of the plant or machinery by the lessor was for the purposes of a qualifying activity other than leasing under a long funding lease, the lower of cost and market value;

e

if the lessor owns the plant or machinery as a result of having incurred expenditure on its provision for purposes other than those of a qualifying activity, but—

i

the plant or machinery is brought into use by the lessor for the purposes of a qualifying activity on or after 1st April 2006, and

ii

that qualifying activity is the leasing of the plant or machinery under the long funding operating lease,

the relevant value is the lower of first use market value and first use amortised value.

5

In subsection (4) above—

“cost” means the amount of the expenditure incurred by the lessor on the provision of the plant or machinery;
“first use amortised value” means the value that the plant or machinery would have at the time when it is first brought into use for the purposes of the qualifying activity, on the assumption that—
1. a
  the cost of acquiring the plant or machinery had been written off on a straight line basis over the remaining useful economic life of the plant or machinery, and
2. b
  any further capital expenditure incurred had been written off on a straight line basis over so much of the remaining economic life of the plant or machinery as remains at the time when the expenditure is incurred;
“first use market value” means the market value of the plant or machinery at the time when it is first brought into use for the purposes of the qualifying activity;
“market value” means the market value of the plant or machinery at the commencement of the term of the long funding operating lease;
“recognised value” means the value at which the plant or machinery is recognised in the books or other financial records of the lessor at the commencement of the long funding operating lease.

6

From—

a

the relevant value determined in accordance with subsection (4) above,

subtract

b

the amount which, at the commencement of the term of the lease, is (or, in a case falling within subsection (4)(e) above, would have been) expected to be the residual value of the plant or machinery,

to find the expected gross reduction in value over the term of the lease.

7

Apportion the amount of that expected gross reduction in value to each period of account in which any part of the term of the lease falls.

8

The apportionment must be on a time basis according to the proportion of the term of the lease that falls in each period of account.

9

The amount of the deduction for any period of account is the amount so apportioned to that period.

502FLong funding operating lease: lessor's additional expenditure

1

This section applies if in any period of account—

a

a company is the lessor of any plant or machinery under a long funding operating lease,

b

the company incurs capital expenditure in relation to the plant or machinery, and

c

that capital expenditure (the “additional expenditure”) is not reflected in the market value of the plant or machinery at the commencement of the term of the lease.

2

In a case falling within section 502E(4)(e) above, subsection (1)(c) above has effect as if the reference to the commencement of the term of the lease were a reference to the time when the plant or machinery is first brought into use by the lessor for the purposes of the qualifying activity.

3

Where this section applies, an additional deduction is allowed in computing the profits of the company for each post-expenditure period of account in which the company is the lessor of the plant or machinery under the lease.

4

The amount of the deduction for any such period of account is to be determined as follows.

5

Find ARV, CRV, PRV, and TRV where—

“ARV” is the amount which, at the time when the additional expenditure is incurred, is expected to be the residual value of the plant or machinery;
“CRV” is the amount which, at the commencement of the term of the lease, is expected to be the residual value of the plant or machinery;
“PRV” is the sum of any amounts that fell to be taken into account as RRV (see subsection (6)) in the application of this section in relation to any previous additional expenditure incurred by the company in relation to the leased plant or machinery;
“TRV” is the total of CRV and PRV.

6

Find RRV, where—

a

if ARV exceeds TRV, RRV is the portion of the excess that is a result of the additional expenditure, but

b

if ARV does not exceed TRV, RRV is nil.

7

From—

a

the amount of the additional expenditure,

subtract

b

RRV,

to find the expected partial reduction in value over the remainder of the term of the lease.

8

Apportion the amount of that expected partial reduction in value to each post-expenditure period of account in which any part of the term of the lease falls.

9

The apportionment must be on a time basis according to the proportion of the term of the lease that falls in each post-expenditure period of account.

10

The amount of the additional deduction for any period of account is the amount so apportioned to that period.

11

In this section “post-expenditure period of account” means any period of account ending after the incurring of the additional expenditure.

those amounts, and any other amounts which (as a result of this section) are to be so taken into account, are subject to such adjustments as are just and reasonable.

5

All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (4).

F104502GBCases where ss. 502B to 502G do not apply: lessor also lessee under non-long funding lease

1

This section applies if—

a

a company is the lessee of any plant or machinery under a lease (“lease A”) that is not a long funding lease,

b

it enters into a lease (“lease B”) of any of that plant or machinery (as lessor), and

c

lease B is a long funding lease.

2

Sections 502B to 502G do not apply in relation to lease B.

3

If by virtue of section 70H of the Capital Allowances Act (tax return by lessee treating lease as long funding lease) lease A becomes a long funding lease (and does not cease to be such a lease), treat this section as never having applied in relation to lease B.

if entered into independently of the other or others, would not have taken the same form or been on the same terms.

9

If—

a

at any time any of sections 502B to 502G has applied for determining the amounts to be taken into account in calculating the profits or losses of the company for the purposes of corporation tax, and

b

conditions A to C are met at any subsequent time,

those amounts, and any other amounts which (as a result of this section) are to be so taken into account, are subject to such adjustments as are just and reasonable.

10

All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (9).

F106502GDF107Cases where ss 502B to 502G do not apply: films

1

If a company is or has been a lessor under a long funding lease of a film, sections 502B to 502G do not apply in respect of the lease.

2

“Film” has the same meaning as in Part 15 of CTA 2009 (see section 1181 of that Act).

Insurance company as lessor

502HInsurance company as lessor

1

This section applies to a company carrying on life assurance business if it is the lessor under a long funding lease in a period of account.

2

In this section—

a

subsections (3) to (7) have effect in relation to—

i

basic life assurance and general annuity business, and

ii

long-term business which is not life assurance business, and

b

subsections (8) to (10) have effect in relation to certain computations falling to be made in accordance with the provisions of this Act applicable to Case I of Schedule D.

3

Subsection (4) below applies in the case of each of the following amounts—

a

an amount of rental earnings which the company is required by section 502B (long funding finance lease) to bring into account as taxable income,

b

an amount treated under section 502C(3)(a) (long funding finance lease: lessor's exceptional items) as a profit arising to the company,

c

an amount of rental income arising to the company from a long funding operating lease,

d

an amount treated under section 502G(8)(a) (long funding operating lease: lessor's excess termination amount) as a profit arising to the company,

but only if the leased asset is an asset of the company's long-term insurance fund.

4

In determining for the purposes of the Corporation Tax Acts in any such case the extent to which any such amount is referable to—

a

basic life assurance and general annuity business, or

b

a

section 502B (long funding finance lease: rental earnings),

b

section 502C(3)(a) or (b) (long funding finance lease: profit or loss in respect of exceptional items),

c

section 502E (long funding operating lease: periodic deduction),

d

section 502F (long funding operating lease: lessor's additional expenditure),

e

section 502G(8)(a) or (b) (long funding operating lease: lessor's profit or loss in respect of termination amount).

Lessees under long funding finance leases

502ILessee under long funding finance lease: limit on deductions

1

This section applies for determining for the purposes of corporation tax the profits of a company for any period of account in which it is the lessee of any plant or machinery under a long funding finance lease.

2

In calculating the company's profits for the period of account,—

a

the amount deducted in respect of amounts payable under the lease,

must not exceed

b

the amounts which, in accordance with generally accepted accounting practice, fall (or would fall) to be shown in the company's accounts as finance charges in respect of the lease.

3

If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, subsection (2) above applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

502JLessee under long funding finance lease: termination

1

This section applies where—

a

a company is or has been the lessee under a long funding finance lease, and

b

in connection with the termination of the lease, a payment calculated by reference to the termination value falls to be made to the company.

2

The payment is not to be brought into account in determining for the purposes of corporation tax the profits of the company for any period of account.

3

Subsection (2) above does not affect the amount of any disposal value that falls to be brought into account by the company under the Capital Allowances Act.

Lessees under long funding operating leases

502KLessee under long funding operating lease

1

2

The deductions that may be allowed in computing the profits of the company for the period of account are to be reduced in accordance with the following provisions of this section.

3

The amount of the reduction for any period of account is to be determined as follows.

4

First, find the “relevant value” for the purposes of subsection (6)(a) below, which is—

a

the market value of the plant or machinery at the commencement of the term of the lease, unless paragraph (b) below applies;

b

if the lessee—

i

has the use of the plant or machinery as a result of having incurred expenditure on its provision for purposes other than those of a qualifying activity, but

ii

brings the plant or machinery into use for the purposes of a qualifying activity on or after 1st April 2006,

the lower of first use market value and first use amortised market value.

5

In subsection (4) above—

“first use amortised market value” means the value that the plant or machinery would have—
1. a
  at the time when it is first brought into use for the purposes of the qualifying activity, but
2. b
  on the assumption that the market value of the plant or machinery at the commencement of the term of the lease had been written off on a straight line basis over the remaining useful economic life of the plant or machinery;
“first use market value” means the market value of the plant or machinery at the time when it is first brought into use for the purposes of the qualifying activity.

6

From—

a

the relevant value determined in accordance with subsection (4) above,

subtract

b

the amount which, at the commencement of the term of the lease, is (or, in a case falling within subsection (4)(b) above, would have been) expected to be the market value of the plant or machinery at the end of the term of the lease,

to find the expected gross reduction over the term of the lease.

7

Apportion the amount of that expected gross reduction to each period of account in which any part of the term of the lease falls.

8

The apportionment must be on a time basis according to the proportion of the term of the lease that falls in each period of account.

9

The amount of the reduction for any period of account is the amount so apportioned to that period.

Interpretation of Chapter

502LInterpretation of this Chapter

1

This section has effect for the interpretation of this Chapter.

2

In this Chapter—

“qualifying activity” has the same meaning as in Part 2 of the Capital Allowances Act;
“residual value”, in relation to any plant or machinery leased under a long funding operating lease, means—
1. a
  the estimated market value of the plant or machinery on a disposal at the end of the term of the lease,
less
1. b
  the estimated costs of that disposal.

3

Any reference in this Chapter to a sum being written off on a straight line basis over a period of time (the “writing-off period”) is a reference to—

a

the sum being apportioned between each of the periods of account in which any part of the writing-off period falls,

b

that apportionment being made on a time basis, according to the proportion of the writing-off period that falls in each of the periods of account, and

c

the sum being written off accordingly.

4

Chapter 6A of Part 2 of the Capital Allowances Act (interpretation of provisions about long funding leases) applies in relation to this Chapter as it applies in relation to that Part.

CHAPTER VI MISCELLANEOUS BUSINESSES AND BODIES

C86503 Letting of furnished holiday accommodation treated as a trade.

1

M151Subject to the following provisions of this section, for the purposes of sections 5(2), 380 to 390, 393, F303393A(1), 401, 623(2)(c), 644(2)(c) and 833(4)(c) . . . F304—

a

the commercial letting of furnished holiday accommodation in the United Kingdom in respect of which the profits or gains are chargeable under Case VI of Schedule D shall be treated as a trade; and

b

all such lettings made by a particular person or partnership or body of persons shall be treated as one trade.

2

M152In their application by virtue of subsection (1) above sections 390(1) and 401(1) shall have effect as if for the references in those sections to Case I of Schedule D there were substituted references to Case VI of that Schedule.

3

No relief shall be given to an individual under section 381 as it has effect by virtue of subsection (1) above, in respect of a loss sustained in any year of assessment, if any of the accommodation in respect of which the trade is carried on in that year was first let by him as furnished accommodation more than three years before the beginning of that year of assessment.

4

Relief shall not be given for the same loss or the same portion of a loss both under any provision of Chapters I and II of Part X except sections 391, 392, 395 and 396, as those Chapters apply by virtue of this section, and under any other provision of the Tax Acts.

5

M153In computing the profits or gains arising from the commercial letting of furnished holiday accommodation which are chargeable to tax under Case VI of Schedule D, such expenditure may be deducted as would be deductible if the letting were a trade and those profits or gains were accordingly to be computed in accordance with the rules applicable to Case I of that Schedule.

6

M154Where there is a letting of accommodation only part of which is holiday accommodation such apportionments shall be made for the purposes of this section as appear to the inspector, or on appeal the Commissioners, to be just and reasonable.

7

Where a person has been charged to income tax or corporation tax otherwise than in accordance with the provisions of this section, such assessment, reduction or discharge of an assessment or, where a claim for repayment is made, such repayment, shall be made as may be necessary to give effect to those provisions.

For the purposes of this section a person lets accommodation if he permits another person to occupy it, whether or not in pursuance of a lease; and “letting” and “tenant” shall be construed accordingly.

F111504ALetting of furnished holiday accommodation treated as trade for certain income tax purposes

1

For the purposes specified in subsection (2)—

a

a UK property business which consists in, or so far as it consists in, the commercial letting of furnished holiday accommodation is treated as if it were a trade the profits of which are chargeable to income tax under Part 2 of ITTOIA 2005, and

b

all such lettings made by a particular person or partnership or body of persons are treated as one trade.

The “commercial letting of furnished holiday accommodation” has the same meaning as it has for the purposes of Chapter 6 of Part 3 of ITTOIA 2005.

2

Subsection (1) applies for the purposes of—

a

Chapter 1 of Part 10 (loss relief for income tax),

b

section 833(4)(c) (income regarded as earned income), and

c

section 189(2)(b) of the Finance Act 2004 (income regarded as relevant UK earnings for pension purposes).

gains which apart from section F306256 of the 1992 Actwould be chargeable gains together with any gains which are chargeable gains notwithstanding that section.

6

M159Where by virtue of subsection (3) above there is an amount of a charity’s relevant income and gains for which relief under subsection (1) above and section F306256 of the 1992 Act is not available, the charity may, by notice to the Board, specify which items of its relevant income and gains are, in whole or in part, to be attributed to that amount, and, for this purpose, all covenanted payments to charity (within the meaning of section 660(3)) shall be treated as a single item; and if within 30 days of being required to do so by the Board, a charity does not give notice under this subsection, the items of its relevant income and gains which are to be attributed to the amount in question shall be such as the Board may determine.

7

Where it appears to the Board that two or more charities acting in concert are engaged in transactions of which the main purpose or one of the main purposes is the avoidance of tax (whether by the charities or by any other person), the Board may by notice given to the charities provide that, for such chargeable periods as may be specified in the notice, subsection (3) above shall have effect in relation to them with the omission of paragraph (a).

8

An appeal may be brought against a notice under subsection (7) above as if it were notice of the decision of the Board on a claim made by the charities concerned.

506 Qualifying expenditure and non-qualifying expenditure.

C901

M160In this section, section 505 and Schedule 20—

“charity” means any body of persons or trust established for charitable purposes only;
“qualifying expenditure”, in relation to a chargeable period of a charity, means, subject to subsection (3) below, expenditure incurred in that period for charitable purposes only; and
“non-qualifying expenditure” means expenditure which is not qualifying expenditure.

2

M161For the purposes of section 505 and subsection (1) above, where expenditure which is not actually incurred in a particular chargeable period properly falls to be charged against the income of that chargeable period as being referable to commitments (whether or not of a contractual nature) which the charity has entered into before or during that period, it shall be treated as incurred in that period.

3

A payment made (or to be made) to a body situated outside the United Kingdom shall not be qualifying expenditure by virtue of this section unless the charity concerned has taken such steps as may be reasonable in the circumstances to ensure that the payment will be applied for charitable purposes.

4

M162If in any chargeable period a charity—

a

invests any of its funds in an investment which is not a qualifying investment, as defined in Part I of Schedule 20; or

b

makes a loan (not being an investment) which is not a qualifying loan, as defined in Part II of that Schedule;

then, subject to subsection (5) below, the amount so invested or lent in that period shall be treated for the purposes of this section as being an amount of expenditure incurred by the charity, and, accordingly, as being non-qualifying expenditure.

5

If, in any chargeable period, a charity which has in that period made an investment or loan falling within subsection (4) above—

a

realises the whole or part of that investment; or

b

is repaid the whole or part of that loan;

any further investment or lending in that period of the sum realised or repaid shall, to the extent that it does not exceed the sum originally invested or lent, be left out of account in determining the amount which, by virtue of subsection (4) above, is treated as non-qualifying expenditure incurred in that period.

6

If the aggregate of the qualifying and non-qualifying expenditure incurred by a charity in any chargeable period exceeds the relevant income and gains of that period, Part III of Schedule 20 shall have effect to treat, in certain cases, some or all of that excess as non-qualifying expenditure incurred in earlier periods.

F112506ATransactions with substantial donors

1

This section applies to the following transactions—

a

the sale or letting of property by a charity to a substantial donor,

b

the sale or letting of property to a charity by a substantial donor,

c

the provision of services by a charity to a substantial donor,

d

the provision of services to a charity by a substantial donor,

e

an exchange of property between a charity and a substantial donor,

f

the provision of financial assistance by a charity to a substantial donor,

g

the provision of financial assistance to a charity by a substantial donor, and

h

investment by a charity in the business of a substantial donor.

2

For the purposes of this section a person is a substantial donor to a charity in respect of a chargeable period if—

a

the charity receives relievable gifts of at least £25,000 from him in a period of 12 months in which the chargeable period wholly or partly falls, or

b

the charity receives relievable gifts of at least £100,000 from him in a period of six years in which the chargeable period wholly or partly falls;

and if a person is a substantial donor to a charity in respect of a chargeable period by virtue of paragraph (a) or (b), he is a substantial donor to the charity in respect of the following five chargeable periods.

3

A payment made by a charity to a substantial donor in the course of or for the purposes of a transaction to which this section applies shall be treated for the purposes of section 505 as non-charitable expenditure.

4

If the terms of a transaction to which this section applies are less beneficial to the charity than terms which might be expected in a transaction at arm's length, the charity shall be treated for the purposes of section 505 as incurring non-charitable expenditure equal to that amount which the Commissioners for Her Majesty's Revenue and Customs determine as the cost to the charity of the difference in terms.

5

A payment by a charity of remuneration to a substantial donor shall be treated for the purposes of section 505 as non-charitable expenditure unless it is remuneration, for services as a trustee, which is approved by—

a

the Charity Commission,

b

another body with responsibility for regulating charities by virtue of legislation having effect in respect of any Part of the United Kingdom, or

c

a court.

both are wholly owned, or subject to control, by the same person.

F112506CSections 506A and 506B: supplemental

1

A gift is “relievable” for the purposes of section 506A(2) if relief is available in respect of it under—

a

section 83A,

b

section 339,

c

sections 587B and 587C,

d

section 25 of the Finance Act 1990 (individual gift aid),

e

section 257 of the 1992 Act (gifts of chargeable assets),

f

section 63 of the Capital Allowances Act (gifts of plant and machinery),

g

sections 713 to 715 of ITEPA 2003 (payroll giving),

h

section 108 of ITTOIA 2005 (gifts of trading stock), or

i

sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested trusts).

2

A charity is treated as incurring expenditure in accordance with section 506A(4) at such time (or times) as the Commissioners determine.

3

Section 506A applies to a transaction entered into in a chargeable period with a person who is a substantial donor in respect of that period, even if it was not until after the transaction was entered into that he first satisfied the definition of “substantial donor” in respect of that period.

4

Either or both of subsections (3) and (4) of section 506A may be applied to a single transaction; but any amount of non-charitable expenditure which a charity is treated as incurring under section 506A(3) in respect of a transaction shall be deducted from any amount which it would otherwise be treated as incurring under section 506A(4) in respect of the transaction.

5

Two or more connected charities shall be treated as a single charity for the purposes of section 506A and 506B and this section; and for this purpose “connected” means connected in a matter relating to the structure, administration or control of a charity.

6

Where remuneration is paid otherwise than in money, section 506A(5) shall apply as to a payment in money of the amount that would, under Part 3 of ITEPA 2003, be the cash equivalent of the remuneration as a benefit.

7

In sections 506A and 506B and this section—

a

a reference to a substantial donor or other person includes a reference to a person connected with him within the meaning of section 839,

b

“financial assistance” includes, in particular—

i

the provision of a loan, guarantee or indemnity, and

ii

entering into alternative finance arrangements within the meaning of section 46 of the Finance Act 2005, and

c

a reference to a gift of a specified amount includes a reference to a non-monetary gift of that value.

8

On an appeal against an assessment the Special Commissioners may review a decision of the Commissioners in connection with section 506A.

9

The Treasury may by regulations vary a sum, or a period of time, specified in section 506A(2).

507 The National Heritage Memorial Fund, the Historic Buildings and Monuments Commission for England and the British Museum.

C911

M163There shall on a claim in that behalf to the Board be allowed in the case of—

a

the Trustees of the National Heritage Memorial Fund;

b

the Historic Buildings and Monuments Commission for England;

F307c

the Trustees of the British Museum;

d

the Trustees of the F308Natural History Museum;

F309e

the United Kingdom Ecolabelling Board;

such exemption from tax as falls to be allowed under section 505 in the case of a charity the whole income of which is applied to charitable purposes.

2

M164The Trustees of the British Museum and the Trustees of the British Museum (Natural History)shall each be entitled, on a claim in that behalf to the Board, to the following exemptions—

a

exemption from tax under Schedules A and D in respect of any land, or interest in or right over land, vested in them; and

b

the like exemptions in respect of any dividends of stock vested in them, or in any other person for their use, and in respect of distributions charged under Schedule F, as are granted to charities under section 505 F310.

508 Scientific research organisations.

1

M165Where—

a

an Association which has as its object the undertaking of scientific research which may lead to or facilitate an extension of any class or classes of trade is approved for the purposes of this section by the Secretary of State; and

b

the memorandum of association or other similar instrument regulating the functions of the Association precludes the direct or indirect payment or transfer to any of its members of any of its income or property by way of dividend, gift, division, bonus or otherwise howsoever by way of profit;

there shall, on a claim in that behalf to the Board, be allowed in the case of the Association such exemption from tax as falls to be allowed under section 505 in the case of a charity the whole income of which is applied to charitable purposes.

2

The condition specified in paragraph (b) of subsection (1) above shall not be deemed not to be complied with in the case of any Association by reason only that the memorandum or other similar instrument regulating its functions does not prevent the payment to its members of reasonable remuneration for goods, labour or power supplied, or for services rendered, of reasonable interest for money lent, or of reasonable rent for any premises.

3

In this section “scientific research” means any activities in the fields of natural or applied science for the extension of knowledge.

deductible (otherwise than as a debit brought into account under Chapter II of Part IV of the Finance Act 1996) in the computation of any income of the company, or of its total profits, for that period, and

ii

referable to, or to activities connected with, the letting by the company on assured tenancies of dwelling-houses that are eligible properties when so let,

and

b

any amount that is so referable that would represent a non-trading deficit on the company’s loan relationships for that period.

4

For the purposes of subsection (3) above any question—

a

whether for any period there is an amount referable to any matter that would represent a non-trading deficit on a company’s loan relationships, or

b

as to what that amount is for that period,

shall be determined by computing whether and to what extent there would for that period have been a non-trading deficit on the company’s loan relationships if debits and credits fell to be brought into account under Chapter II of Part IV of the Finance Act 1996 to the extent only that they are referable to that matter.

any consideration given by a person connected with the company for the acquisition of any such interest in the dwelling-house as—

i

is subsequently acquired by the company, or

ii

is held by such a person at the same time as the company holds its interest in the premises.

6

Where a company has acquired any interest in a dwelling house from a person connected with that company—

a

amounts expended by that person as mentioned in paragraph (a) of subsection (5) above, and

b

the amount of any consideration given by that person for an interest in the dwelling-house,

shall be treated by virtue of that subsection as included in the consideration given by the company to the extent only that the aggregate of those amounts exceeds the consideration given by that company to that person for the interest acquired from that person by the company.

7

In section 508A and this section—

“associate” has the meaning given by subsections (3) and (4) of section 417;
“assured tenancy” means—
1. a
  any letting which is an assured tenancy for the purposes of the M190Housing Act 1988 or the M191Housing (Scotland) Act 1988, or
2. b
  any tenancy in Northern Ireland which complies with such requirements or conditions as may be prescribed by regulations made by the Department of the Environment for Northern Ireland;
“letting” includes a letting by virtue of an agreement for a lease or under a licence, and “let” shall be construed accordingly;
“long lease”, in relation to the interest of a company in any dwelling-house, means a lease for a term of years certain of which at least 21 years remains unexpired at the time when that interest was acquired by the company;
“low rent” means a rent at an annual rate not exceeding—
1. a
  £1,000, in the case of a dwelling-house in Greater London; and
2. b
  £250, in any other case;
“rent” has the same meaning as it has for the purposes of Schedule A in its application to companies within the charge to corporation tax;
“shorthold tenancy” means any letting which is an assured shorthold tenancy for the purposes of the M192Housing Act 1988 or a short assured tenancy for the purposes of the M193Housing (Scotland) Act 1988;
“statutory shorthold tenancy” means—
1. a
  a statutory periodic tenancy within the meaning of the Housing Act 1988 which arose on the coming to an end of an assured shorthold tenancy which was a fixed term tenancy, or
2. b
  a statutory assured tenancy within the meaning of the Housing (Scotland) Act 1988 which arose on the coming to an end of a short assured tenancy;
“statutory tenancy”—
1. a
  in relation to England and Wales, has the same meaning as in the M194Rent Act 1977;
2. b
  in relation to Scotland, has the same meaning as in the M195Rent (Scotland) Act 1984; and
3. c
  in relation to Northern Ireland, has the same meaning as in the M196Rent (Northern Ireland) Order 1978.

8

Section 839 shall apply for the purposes of this section.

9

Section 508A shall have effect where—

a

a company acquires an interest in any dwelling-house, and

b

a person connected with the company has previously acquired an interest in the dwelling-house, being an interest subsequently acquired by the company or one held by that person at the same time as the company holds its interest,

as if references in this section (except in subsection (3) above) to the time when the company first acquired an interest in the premises included references to the time when the person connected with the company first acquired his interest.

10

The Treasury may, if they think fit, by order vary the figures for the time being specified in paragraph (e) of subsection (1) above; and an order under this subsection may make different provision for different localities in Greater London or elsewhere.

11

In the application of this section to Scotland—

a

references to acquiring an interest shall be construed, if there is a contract to acquire the interest, as references to entering into that contract;

b

references to the freehold interest shall be construed as references to the estate or interest of the proprietor of thedominium utile or, in the case of property other than feudal property, of the owner;

c

in the definition of “long lease” in subsection (7) above, the word “certain” shall be omitted.

12

Regulations made for the purposes of paragraph (b) of the definition of “assured tenancy” in subsection (7) above shall be made by statutory rule for the purposes of the M197Statutory Rules (Northern Ireland) Order 1979, and shall be subject to negative resolution within the meaning of section 41(6) of the M198Interpretation Act (Northern Ireland) 1954.

509 Reserves of marketing boards and certain other statutory bodies.

C921

M166Where a body established by or under any enactment and having as its object, or one of its objects, the marketing of an agricultural product or the stabilising of the price of an agricultural product is required, by or under any scheme or arrangements approved by or made with a Minister of the Crown or government department, to pay the whole or part of any surplus derived from its trading operations or other trade receipts into a reserve fund satisfying the conditions specified in subsection (2) below, then, in computing for the purposes of tax the profits or gains or losses of the body’s trade—

a

there shall be allowed as deductions any sums so required to be paid by the body into the reserve fund out of the profits or gains of the trade, and

b

there shall be taken into account as trading receipts any sums withdrawn by the body from the fund, except so far as they are so required to be paid to a Minister or government department, or are distributed to producers of the product in question or refunded to persons paying any levy or duty.

2

The conditions to be satisfied by the reserve fund are as follows—

a

that no sum may be withdrawn from the fund without the authority or consent of a Minister of the Crown or government department; and

b

that where money has been paid to the body by a Minister of the Crown or government department in connection with arrangements for maintaining guaranteed prices, or in connection with the body’s trading operations, and is repayable to that Minister or department, sums afterwards standing to the credit of the fund are required as mentioned in subsection (1) above to be applied in whole or in part in repaying the money; and

c

that the fund is reviewed by a Minister of the Crown at intervals fixed by or under the scheme or arrangements in question, and any amount by which it appears to the Minister to exceed the reasonable requirements of the body is withdrawn therefrom.

3

In this section references to a Minister of the Crown or government department include references to a Head of a Department or a Department in Northern Ireland, and references to producers of a product include references to producers of one type or quality of a product from another.

510 Agricultural societies.

1

M167Profits or gains arising to an agricultural society from any exhibition or show held for the purposes of the society shall be exempt from tax if applied solely to the purposes of the society.

2

In this section “agricultural society” means any society or institution established for the purpose of promoting the interests of agriculture, horticulture, livestock breeding or forestry.

510AF108 European economic interest groupings.

1

M168In this section “grouping” means a European Economic Interest Grouping formed in pursuance of Council Regulation (EEC) No. 2137/85 of 25th July 1985, whether registered in Great Britain, in Northern Ireland, or elsewhere.

2

Subject to the following provisions of this section, for the purposes of charging tax in respect of income and gains a grouping shall be regarded as acting as the agent of its members.

3

In accordance with subsection (2) above—

a

for the purposes mentioned in that subsection the activities of the grouping shall be regarded as those of its members acting jointly and each member shall be regarded as having a share of its property, rights and liabilities; and

b

for the purposes of charging tax in respect of gains a person shall be regarded as acquiring or disposing of a share of the assets of the grouping not only where there is an acquisition or disposal of assets by the grouping while he is a member of it, but also where he becomes or ceases to be a member of a grouping or there is a change in his share of the property of the grouping.

4

Subject to subsection (5) below, for the purposes of this section a member’s share of any property, rights or liabilities of a grouping shall be determined in accordance with the contract under which the grouping is established.

5

Where the contract does not make provision as to the shares of members in the property, rights or liabilities in question a member’s share shall be determined by reference to the share of the profits of the grouping to which he is entitled under the contract (and if the contract makes no provision as to that, the members shall be regarded as having equal shares).

6

Subject to subsection (7) below, where any trade or profession is carried on by a grouping it shall be regarded for the purposes of charging tax in respect of income and gains as carried on in partnership by the members of the grouping.

7

Sections 111 and 114(4) shall not apply to the members of a grouping and section 112 shall have effect in relation to the members of a grouping as if the second reference in subsection (2) to the firm were a reference to the members and subsection (3) were omitted.

8

Notwithstanding subsection (7) above, where a trade or profession is carried on by a grouping, the amount of which the members are chargeable to income tax in respect of it shall be computed (but not assessed) jointly.

511 The Electricity Council and Boards, the Northern Ireland Electricity Service and the Gas Council.

1

M169For the purposes of the Corporation Tax Acts, the Electricity Council shall be treated as carrying on a trade, and those Acts shall have effect as if the trade carried on by the Central Electricity Authority at any time before 1st January 1958 had been the trade of the Electricity Council.

2

For the purposes of the Corporation Tax Acts—

a

any trade carried on by a Board shall be treated as if it were part of the trade carried on by the Electricity Council;

b

subject to paragraph (c) below, any property, rights or liabilities of a Board shall be treated as property, rights or liabilities of the Electricity Council, and anything done by or to a Board shall be deemed to have been done by or to the Electricity Council;

c

any rights, liabilities or things done —

i

of, by or to the Electricity Council against, to or by a Board, or

ii

of, by or to a Board against, to or by the Electricity Council or any other Board,

shall be left out of account;

and corporation tax shall be charged accordingly.

3

For the purposes of the operation of the Corporation Tax Acts in accordance with subsections (1) and (2) above, the Electricity Council shall be deemed to have been in existence as from 1st April 1948, and anything done by, to or in relation to the Central Electricity Authority shall be treated as if it had been done by, to or in relation to the Electricity Council.

F1094

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1095

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

M170In subsections (1) and (2) above “Board” means—

a

any Area Board established by or under the provisions of the M171Electricity Act 1947; and

b

in relation to any time on or after 1st January 1958, the Central Electricity Generating Board.

C937

M172The Corporation Tax Acts shall apply in relation to the trade of the Gas Council as if before the beginning of April 1962 it had consisted of the trades of the Area Boards (within the meaning of the M173Gas Act 1948), and (without prejudice to the generality of the foregoing) allowances and balancing charges shall be made to or on the Gas Council accordingly by reference to the capital expenditure of Area Boards and to the allowances made to Area Boards in respect of that expenditure.

512 Atomic Energy Authority and National Radiological Protection Board.

1

M174The United Kingdom Atomic Energy Authority and the National Radiological Protection Board shall be entitled to exemption from income tax and corporation tax—

a

under Schedules A,BF311 and C;

b

C945

No recommendation shall be made to Her Majesty in Council to make an order under this section unless a draft of the order has been laid before the House of Commons and has been approved by resolution of that House.

517 Issue departments of the Reserve Bank of India and the State Bank of Pakistan.

M183There shall be exempt from tax any profits or income arising or accruing to the issue department of the Reserve Bank of India constituted under an Act of the Indian legislature called the Reserve Bank of India Act 1934, or to the issue department of the State Bank of Pakistan constituted under certain orders made under section 9 of the M184Indian Independence Act 1947.

518 Harbour reorganisation schemes.

1

M185This section has effect where the trade of any body corporate other than a limited liability company is transferred to a harbour authority by or under a certified harbour reorganisation scheme which provides also for the dissolution of the transferor.

2

For the purposes of the Corporation Tax Acts, the trade shall not be treated as permanently discontinued, nor shall a new trade be treated as set up and commenced.

3

The transferee shall be entitled to relief from corporation tax under section 393(1), as for a loss sustained by it in carrying on the transferred trade or any trade of which it comes to form part, for any amount which, if the transferor had continued to carry it on, would have been available to the transferor for carry-forward against chargeable profits of succeeding accounting periods, but subject to any claim made by the transferor under section F313393A(1).

4

There shall be made to or on the transferee in accordance with the provisions of the Capital Allowances Acts all such allowances and charges as would, if the transferor had continued to carry on the trade, have fallen to be made to or on it under those Acts and the amount of any such allowance or charge shall be computed as if the transferee had been carrying on the trade since the transferor had begun to do so and as if everything done to or by the transferor had been done to or by the transferee.

5

No sale or transfer which on the transfer of the trade is made by the transferor to the transferee of any assets in use for the purposes of the trade shall be treated as giving rise to any such allowance or charge as is mentioned in subsection (4) above.

F3146

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

The transferee shall be entitled to relief from corporation tax in respect of chargeable gains for any amount for which the transferor would have been entitled to claim relief in respect of allowable losses if it had continued to carry on the trade.

8

M186Where part only of such trade is transferred to a harbour authority by or under a certified harbour organisation scheme, and the transferor continues to carry on the remainder of the trade, or any such trade is, by or under a certified harbour reorganisation scheme which provides also for the dissolution of the transferor, transferred in parts to two or more harbour authorities, this section shall apply as if the transferred part, or each of the transferred parts, had at all times been a separate trade.

9

Where a part of any trade is to be treated by virtue of subsection (8) above as having been a separate trade over any period there shall be made any necessary adjustments of accounting periods, and such apportionments as may be just of receipts, expenses, allowances or charges.

Subsection (10) of section 343 shall apply to any apportionment under this subsection as it applies to an apportionment under subsection (9) of that section.

10

M187In this section—

“harbour authority” has the same meaning as in the M188Harbours Act 1964;
“harbour reorganisation scheme” means any statutory provision providing for the management by a harbour authority of any harbour or group of harbours in the United Kingdom, and “certified”, in relation to any harbour reorganisation scheme, means certified by a Minister of the Crown or government department as so providing with a view to securing, in the public interest, the efficient and economical development of the harbour or harbours in question;
“limited liability company” means a company having a limit on the liability of its members;
“statutory provision” means any enactment, or any scheme, order or other instrument having effect under an enactment, and includes an enactment confirming a provisional order; and
“transferor”, in relation to a trade, means the body from whom the trade is transferred, whether or not the transfer is effected by that body.

C95519 Local authorities.

1

M189A local authority in the United Kingdom—

a

shall be exempt from all charge to income tax in respect of its income;

b

shall be exempt from corporation tax;

and so far as the exemption from income tax conferred by this subsection calls for repayment of tax, effect shall be given thereto by means of a claim.

2

Subsection (1) above shall apply to a local authority association as it applies to a local authority.

C963

In this Act “local authority association” means any incorporated or unincorporated association—

a

of which all the constituent members are local authorities, groups of local authorities or local authority associations, and

b

which has for its object or primary object the protection and furtherance of the interests in general of local authorities or any description of local authorities;

and for this purpose, if a member of an association is a representative of or appointed by any authority, group of authorities or association, that authority, group or association (and not he) shall be treated as a constituent member of the association.

F3154

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

519AF110 Health service bodies.

1

A health service body—

a

shall be exempt from income tax in respect of its income, and

b

shall be exempt from corporation tax,

and, so far as the exemption from income tax conferred by this subsection calls for repayment of tax, effect shall be given thereto by means of a claim.

2

In this section “health service body” means—

a

a health authority, within the meaning of the National Health Service Act 1977;

b

a National Health Service trust established under Part I of the National Health Service and Community Care Act 1990;

c

a Family Health Services Authority;

d

a Health Board or Special Health Board, the Common Services Agency for the Scottish Health Service and a National Health Service trust respectively constituted under sections 2, 10 and 12A of the National Health Service (Scotland) Act 1978;

e

a State Hospital Management Committee constituted under section 91 of the Mental Health (Scotland) Act 1984;

f

the Dental Practice Board;

g

the Scottish Dental Practice Board; F316 . . .

h

the Public Health Laboratory Service Board.

F317i

a Health and Social Services Board and the Northern Ireland Central Services Agency for the Health and Social Services established under Articles 16 and 26 respectively of the Health and Personal Social Services (Northern Ireland) Order 1972;

j

a special health and social services agency established under the Health and Personal Social Services (Special Agencies) (Northern Ireland) Order 1990; and

k

a Health and Social Services trust established under the Health and Personal Social Services (Northern Ireland) Order 1991.

PART XII SPECIAL CLASSES OF COMPANIES AND BUSINESSES

C53C54CHAPTER I INSURANCE COMPANIES, UNDERWRITERS AND CAPITAL REDEMPTION BUSINESS

C34Insurance companies: general

431 Interpretative provisions relating to insurance companies.

1

C22

F1252A

3

a

b

4

a

b

c

d

i

F127ii

iii

e

f

i

ii

5

a

b

c

6

F2431ZAElection that assets not be foreign business assets

1

2

3

F1431A Amendment of Chapter etc.

F3431AA Relevant benefits for purposes of section 431(4)(d) and (e).

1

a

b

2

a

b

3

a

b

4

a

b

5

a

b

6

a

b

432 Separation of different classes of business.

1

2

C4C5C6C7432AF130 Apportionment of income and gains.

1

a

b

i

ii

2

a

F131b

c

F131d

F132e

3

4

5

6

a

i

ii

b

i

ii

7

a

i

ii

C53 C54CHAPTER I INSURANCE COMPANIES, UNDERWRITERS AND CAPITAL REDEMPTION BUSINESS

C4 C5 C6 C7432AF130 Apportionment of income and gains.

C8 C98

C10 C11 C12432B [F137Apportionment of receipts brought into account.