86 Spreading of relief for acquisition expenses.U.K.
(1)For the purposes of this section, the acquisition expenses for any period of an insurance company carrying on life assurance business are such of the following expenses of management as are for that period attributable to the company’s [F1basic life assurance and general annuity business],—
(a)commissions (however described), other than commissions in respect ofindustrial life assurance business carried on by the company,
(b)any other expenses of management which are disbursed solely for the purpose of the acquisition of business, and
(c)so much of any other expenses of management which are disbursed partly for the purpose of the acquisition of business and partly for other purposes as are properly attributable to the acquisition of business,
less any such repayments or refunds falling within section 76(1)(c) ofthe Taxes Act 1988 as are received in the period [F2and less any reinsurance commission falling withinsection 76(1)(ca) of that Act].
(2)The exclusion from paragraph (a) of subsection (1) above of commissionsin respect of industrial life assurance business shall not prevent such commissions constituting expenses of management for the purposes of paragraph(b) or paragraph (c) of that subsection.
(3)Nothing in subsections (1) and (2) above applies to commissions (however described) in respect of insurances made before 14th March 1989, but without prejudice to the application of those subsections to any commission attributable to a variation on or after that date in a policy issued in respect of an insurance made before that date; and, for this purpose, the exercise of any rights conferred by a policy shall be regarded as a variation of it.
[F3(3A)Nothing in subsection (1), (2) or (3) above applies to commissions (however described) in respect of annuity contracts made in accounting periods beginning before 1st January 1992, but without prejudice to the application of subsections (1) and (2) above to any commission attributable to a variation, in an accounting period beginning on or after that date, of an annuity contract so made; and for this purpose the exercise of any rights conferred by an annuity contract shall be regarded as a variation of it.]
(4)In subsection (1) above “the acquisition of business” includes
[F4(a)] the securing on or after 14th March 1989 of the payment of increasedor additional premiums in respect of a policy of insurance issued in respect of an insurance already made (whether before, on or after that date) [F5and
(b)the securing, in an accounting period beginning on or after 1st January 1992, of the payment of increased or additional consideration in respect of an annuity contract already made (whether in an accounting period beginning before, or on or after, that date)].
(5)In relation to any period, the expenses of management attributable to a company’s [F1basic life assurance and general annuity business] are expenses—
(a)which are disbursed for that period (disregarding any treated as so disbursed by section 75(3) of the Taxes Act 1988); and
(b)which, disregarding subsection (6) below, are deductible as expenses of management in accordance with sections 75 and 76 of the Taxes Act 1988.
[F6(5A)References in this section to expenses of management do not include any amounts treated as additional expenses of management by virtue of section 434D(6)(a) of the Taxes Act 1988 (capital allowances in respect of expenditure on management assets).]
(6)Notwithstanding anything in sections 75 and 76 of the Taxes Act 1988 but subject to subsection (7) below, only one-seventh of the acquisition expenses for any accounting period (in this section referred to as “the base period”) shall be treated as deductible under those sections for the base period, and in subsections (8) and (9) below any reference to the full amount of the acquisition expenses for the base period is a reference to the amount of those expenses which would be deductible for that period apart from this subsection.
(7)In the case of the acquisition expenses for an accounting period or part of an accounting period falling wholly within 1990, subsection (6) above shall have effect as if for “one-seventh” there were substituted “five-sevenths”; and, in the case of the acquisition expenses for an accounting period or part of an accounting period falling wholly within 1991,1992 or 1993, the corresponding substitution shall be “four-sevenths”, “three-sevenths” or “two-sevenths” respectively.
(8)Where, by virtue of subsection (6) (and, where appropriate, subsection(7)) above, only a fraction of the full amount of the acquisition expenses for the base period is deductible under sections 75 and 76 of the Taxes Act 1988 for that period, then, subject to subsection (9) below, a further one-seventh of the full amount shall be so deductible for each succeeding accounting period after the base period until the whole of the full amount has become so deductible, except that, for any accounting period of less than a year, the fraction of one-seventh shall be proportionately reduced.
(9)For any accounting period for which the fraction of the full amount of the acquisition expenses for the base period which would otherwise be deductible in accordance with subsection (8) above exceeds the balance of those expenses which has not become deductible for earlier accounting periods, only that balance shall be deductible.
(10)This section has effect for accounting periods beginning on or after 1stJanuary 1990 (including the 1990 component period).
Textual Amendments
F1Words in s. 86(1) and (5) substituted(for accounting periods beginning on or after 01.01.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 13(1), 18.
F2Finance Act 1990 (c. 29), s. 44(2)(4)(5)—deemed always to have had effect but not to apply to commissions in respect ofreinsurance liabilites in respect of insurances made before 14 March 1989: the amendment may apply to any reinsurance commission attributable to any variation, or exercise of rights, made on or after 14 March 1989
F3S. 86(3A) inserted(for accounting periods beginning on or after 01.01.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 13(2), 18.
F4S. 86(4)"(a)" inserted(for accounting periods beginning on or after 01.01.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 13(3), 18.
F5S. 86(4)(b) and word preceding it inserted(for accounting periods beginning on or after 01.01.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 48, Sch. 7 paras. 13(3), 18.
F6S. 86(5A) inserted (1.5.1995) by 1995 c. 4, s. 51, Sch. 8 Pt. I para. 23(3) (with Sch. 8 paras. 55(2), 57(1))
Modifications etc. (not altering text)
C1S. 86 modified (retrospective to 1.1.1995) by S.I. 1997/473, regs. 1(2), 39