Income and Corporation Taxes Act 1988

434 Franked investment income etc. U.K.

(1) M1 Section 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.

(2) In ascertaining for the purposes of section 393 or [F1 393A(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.

[F2 (3) Subject to sections 437 and 438, the [F3 policy 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 [F3 policy holders’ share] of that franked investment income [F4 from 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 [F5 to that income excluding the amount within paragraph (a) above].

(3A) The policy holders’ [F6 share] 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) M2 Subject 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”. F7

(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. F7

(6) M3 For 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 [F8 the policy holders’ share of the relevant profits].

[F9 (6A) 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) M4 For the purposes of subsection [F10 (3)] above “unrelieved income” means income which has not been excluded from charge to tax by virtue of any provision and against which [F11 disregarding relief under section 242] no relief has been allowed by deduction or set-off.

(8) M5 Where 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.

Textual Amendments

F1 Words in s. 434(2) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 73(3)-(5), Sch. 15 para.15

F2 1989 s.84and Sch.8 para.3(1),and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).Previously

“(3) Any such part of the franked investment income from investments held in connection with a company's life assurance business as is specified in subsection (4) below (“the specified part”) shall not be used under Chapter V of Part VI to frank distributions made by the company.”.

F3 1990 s.45(4)(a).Previously

“policy holders' fraction”.

F4 1990 s.45(4)(b).

F5 1990 s.45(4)(c).Previously

“only to the shareholders' fraction of that income.”.

F6 1990 s.45(5).Previously

“fraction”.

F7 Repealed by 1989 ss.84and 187and Sch.8 para.3(2)and Sch.17 Part IVwith respect to accounting periods beginning on or after 1January 1990.

F8 1990 s.45(6).Previously

“therefrom [the policyholders' fraction thereof (1989 s.84and Sch.8 para.3(3),and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).Previously

“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 I of Schedule D.”.)].”.

F9 1990 s.45(7).

F10 1989 s.84and Sch.8 para.3(4),and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).Previously

“(4).”

F11 1989 s.84and Sch.8 paras.3(4), 4,respectively and subject to s.84(6),has effect with respect to accounting periods beginning on or after 1January 1990 (including the 1990component period).

Modifications etc. (not altering text)

C1 S. 434 amended (27.7.1993) by 1993 c. 34, s. 78(6)(11)

C2 S. 434(2) restricted (retrospectively) by Finance (No. 2) Act 1992 (c. 48), s. 65(2)(a)(5)(6)

Marginal Citations

M1 Source—1970 s.308(1), (2)

M2 Source—1970 s.310(6)

M3 Source—1972 Sch.18 2(4); 1987 (No.2) s.75(1)(b)

M4 Source—1970 s.310(7); 1984 s.18(5)

M5 Source—1972 Sch.18 2(5)