Income and Corporation Taxes Act 1988

438 Pension business: exemption from tax. U.K.

(1) M1 Exemption 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 [F1 long term business fund] as is referable to pension business.

(2) M2 The 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) Subject 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 [F2 —

(a)] as part of the profits in computing under section 436 income from pension business[F3 , 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.

[F4 (3AA) Subject to subsection (6B) below, the exclusion by section 208 from the charge to corporation tax of foreign income dividends shall not prevent such dividends being taken into account

[F5 (a)]] as part of the profits in computing under section 436 income from pension business[F6 , 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.]

(4) M3 If 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.

(5) 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) M4 If 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 [F7 relevant]] franked investment income arising in that period, F8 . . . subsections (3) to (5) above shall not apply to the franked investment income to which the election relates.

[F9 (6A) 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.]

[F10 (6B) If 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 the relevant foreign income dividends arising to it in that period, subsection (3AA) above shall not apply to the foreign income dividends to which the election relates.

(6C) In subsection (6B) above “relevant foreign income dividends” means the shareholders’ share of foreign income dividends within subsection (1) above; and for this purpose “the shareholders’ share” of any foreign income dividends is so much of the income they represent as is the shareholders’ share within the meaning of section 89 of the Finance Act 1989.

(6D) If in the same accounting period both relevant franked investment income and relevant foreign income dividends arise to the company—

(a) only one election may be made under subsections (6) and (6B) above;

(b) the election may be made as regards both relevant franked investment income and relevant foreign income dividends (subject to paragraph (c) below);

(c) the election may not be made as regards relevant foreign income dividends unless the election is made as regards all the company’s relevant franked investment income arising in the period.

(6E) Where an election is made under one or both of subsections (6) and (6B) above, the elected amount must not exceed the amount of the profit which (apart from the election) arises to the company for the accounting period from pension business and is computed under section 436; and the elected amount is—

(a) the amount of franked investment income to which the election relates (where the election is made under subsection (6) alone);

(b) the amount of the foreign income dividends to which the election relates (where the election is made under subsection (6B) alone);

(c) the aggregate amount of the franked investment income and the foreign income dividends to which the election relates (where the election is made under subsections (6) and (6B)).]

(7) An election under [F11 this section] 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) M5 Nothing in sections [F12 431B(2)(c)] or 643(2) of this Act or section [F13 271(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.

[F14 (9) In a case where the profits of a company’s life assurance business are charged to tax in accordance with Case I of Schedule D this section has effect with the modification specified in section 440B(2).]

Textual Amendments

F1 Words in s. 438(1) substituted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 4(2) (with Sch. 8 para. 55(2))

F2 Words in s. 438(3) renumbered as s. 438(3)(a) (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by virtue of Finance Act 1995 (c. 4), Sch. 8 para. 29 (with Sch. 8 para. 55(2))

F3 S. 438(3)(b) and preceding word inserted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 29 (with Sch. 8 para. 55(2))

F4 S. 438(3AA) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 6(2)

F5 Words in s. 438(3AA) renumbered as s. 438(3AA)(a) (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by virtue of Finance Act 1995 (c. 4), Sch. 8 para. 29 (with Sch. 8 para. 55(2))

F6 S. 438(3AA)(b) and preceding word inserted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 29 (with Sch. 8 para. 55(2))

F7 1990 s.45(9).

F8 Words in s. 438(6) repealed (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 6(3), Sch. 26 Pt. 5(16)

F9 1990 s.45(9).

F10 S. 438(6B)-(6E) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 6(4)

F11 Words in s. 438(7) substituted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 6(5)

F12 Words in s. 438(8) substituted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 4(3) (with Sch. 8 para. 55(2))

F13 Words in s. 438(8) substituted (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. 289, 290(1), Sch. 10 para. 14(21) (with ss. 60, 101(1), 171, 201(3))

F14 S. 438(9) inserted (with effect in accordance with Sch. 8 para. 57(1) of the amending Act) by Finance Act 1995 (c. 4), Sch. 8 para. 28(2) (with Sch. 8 para. 55(2))

Modifications etc. (not altering text)

C1 S. 438 modified (3.5.1994) by Finance Act 1994 (c. 9), Sch. 18 para. 1(5)

C2 S. 438 amended (27.7.1993) by 1993 c. 34, s. 78(6)(11)

C3 S. 438(5) amended (27.7.1993) by 1993 c. 34, s. 78(7)

Marginal Citations

M1 Source—1970 s.314(1); 1970(F) Sch.5 Part III 11(3), (6)(c)

M2 Source—1970 s.314(2)

M3 Source—1972 Sch.18 4(1), (2)

M4 Source—1970 s.314(4); 1970(F) Sch.5 Part III 11(3); 1972 Sch.18 4(2)

M5 Source—1987 (No.2) s.39(3)