Part II Income Tax, Corporation Tax and Capital Gains Tax
CHAPTER I General
Life assurance
C182 Calculation of profits.
C21
Where the profits of an insurance company in respect of its life assurance business are, for the purposes of the Taxes Act 1988, computed in accordance with the provisions of that Act applicable to Case I of Schedule D, then, in calculating the profits for any period of account,—
a
C3b
if, at the end of the period, the company has an unappropriated surplus on valuation, as shown in F4the return deposited with the Financial Services Authority under section 9.6 of the Prudential Sourcebook (Insurers), then, subject to subsection (3) below, the closing liabilities of the period may include such amount, forming part of that surplus, as is required to meet the reasonable expectations of policyholders or annuitants with regard to bonuses or other additions to benefit of a discretionary nature.
F51A
In subsection (1)(b) above “the Prudential Sourcebook (Insurers)” means the Interim Prudential Sourcebook for Insurers made by the Financial Services Authority under the Financial Services and Markets Act 2000.
C22
For the purposes of this section an amount is allocated to policy holders or annuitants if, and only if,—
a
bonus payments are made to them; or
b
reversionary bonuses are declared in their favour or a reduction is made in the premiums payable by them;
and the amount of the allocation is, in a case within paragraph (a)above, the amount of the payments and, in a case within paragraph (b) above, the amount of the liabilities assumed by the company in consequence of the declaration or reduction.
3
The amount which, apart from this subsection, would be included in the closing liabilities of a period of account by virtue of subsection (1)(b)above shall be reduced or, as the case may be, extinguished by deducting there from the total of the amounts which—
a
for periods of account ending before 14th March 1989 have been excluded, by virtue of section 433 of the Taxes Act 1988, as being reserved for policyholders or annuitants, and
b
have not before that date either been allocated to or expended on behalf of policy holders or annuitants or been treated as profits of an accounting period on ceasing to be so reserved.
C24
Where the closing liabilities of a period of account include an amount by virtue of subsection (1)(b) above, the like amount shall be included in the opening liabilities of the next following period of account.
5
This section has effect with respect to periods of account ending on or after 14th March 1989; and the following provisions of this section shall apply for the purposes of the application of this section to any such period which begins before that date (in this section referred to as a “straddling period”).
6
For the purposes referred to in subsection (5) above, it shall be assumed that the straddling period consists of two separate periods of account,—
a
the first beginning at the beginning of the straddling period and ending on 13th March 1989 (in this section referred to as “the first notional period”); and
b
the second beginning on 14th March 1989 and ending at the end of thestraddling period (in this section referred to as “the second notionalperiod”);
and any reference in subsection (7) or subsection (8) below to a time apportionment is a reference to an apportionment made by reference to the respective lengths of the two notional periods.
7
To determine the profits of the first notional period and the amount excluded from the profits of that period by virtue of section 433 of the Taxes Act 1988 as being reserved for policy holders or annuitants,—
a
in the first instance the profits of the straddling period and the amount so excluded from those profits shall be computed as if subsections (1) to (4)above did not apply with respect to any part of the straddling period; and
b
there shall then be determined that part of the profits and the amount computed under paragraph (a) above which, on a time apportionment, is properly attributable to the first notional period.
8
To determine the profits of the second notional period,—
a
in the first instance the profits of the straddling period shall be computed as if subsections (1) to (4) above applied to the whole of the straddling period; and
b
there shall then be determined that part of the profits computed under paragraph (a) above which, on a time apportionment, is properly attributable to the second notional period.