PART XII SPECIAL CLASSES OF COMPANIES AND BUSINESSES

Chapter 5ASpecial rules for long funding leases of plant or machinery: corporation tax

F1Insurance 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)

long-term business which is not life assurance business,

section 432A (apportionment of insurance companies' income) is to have effect in relation to the amount as it has effect in relation to the income arising from an asset.

This subsection is subject to subsections (5) and (6) below.

(5)

Before applying subsection (4) above in a case where—

(a)

that subsection applies by virtue of subsection (3)(a) above in relation to an amount of rental earnings, and

(b)

there is an amount which is deductible as a revenue expense by virtue of section 502C(3)(b) (long funding finance lease: lessor's exceptional items),

the amount so deductible is to be given effect by applying it, so far as possible, in reducing the amount of the rental earnings.

(6)

Before applying subsection (4) above by virtue of subsection (3)(c) above in relation to an amount of rental income,—

(a)

any deduction falling to be made under section 502E, or

(b)

any reduction falling to be made under section 502F,

is to be given effect by applying it, so far as possible, in reducing (or further reducing) the amount of the rental income.

(7)

Where, after applying amounts in making reductions required by subsection (5) or (6) above, there remains unapplied an amount in respect of—

(a)

a deduction falling to be made under section 502E,

(b)

a reduction falling to be made under section 502F, or

(c)

an amount deductible as a revenue expense by virtue of section 502C(3)(b),

the amount is to be apportioned under section 432A in the same way as income.

(8)

Where—

(a)

the leased asset is an asset of the company's long-term insurance fund, and

(b)

a computation falling within subsection (9) below falls to be made,

subsection (10) below applies to the computation.

(9)

A computation falls within this subsection if it is a computation of profits of—

(a)

life assurance business carried on by the company, or

(b)

any category of life assurance business carried on by the company,

and falls to be made in accordance with the provisions of this Act applicable to Case I of Schedule D.

(10)

In making the computation, no amount shall be brought into account by virtue of any of the following provisions—

(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).