Part II Income Tax, Corporation Tax and Capital Gains Tax

Chapter I General

Insurance companies and friendly societies

I146 Annual deemed disposal of holdings of unit trusts etc.

1

Where at the end of an accounting period the assets of an insurance company’s long term business fund include—

a

rights under an authorised unit trust, or

b

relevant interests in an offshore fund,

then, subject to the following provisions of this section and to section 47 below, the company shall be deemed for the purposes of corporation tax on capital gains to have disposed of and immediately re-acquired each of the assets concerned at its market value at that time.

2

Subsection (1) above shall not apply to assets linked solely to pension business or to assets of the overseas life assurance fund, and in relation to other assets (apart from assets linked solely to F1basic life assurance and general annuity business) shall apply only to the relevant chargeable fraction of each class of asset.

3

For the purposes of subsection (2) above “the relevant chargeable fraction” in relation to linked assets is the fraction of which—

a

the denominator is the mean of such of the opening and closing long term business liabilities as are liabilities in respect of benefits to be determined by reference to the value of linked assets, other than assets linked solely to F2basic life assurance and general annuity business or pension business and assets of the overseas life assurance fund; and

b

the numerator is the mean of such of the opening and closing liabilities within paragraph (a) above as are liabilities of business the profits of which are not charged to tax under Case I or Case VI of Schedule D (disregarding section 85 of the Finance Act 1989).

4

For the purposes of subsection (2) above “the relevant chargeable fraction” in relation to assets other than linked assets is the fraction of which—

a

the denominator is the aggregate of—

i

the mean of the opening and closing long term business liabilities, other than liabilities in respect of benefits to be determined by reference to the value of linked assets and liabilities of the overseas life assurance business, and

ii

the mean of the opening and closing amounts of the investment reserve; and

b

the numerator is the aggregate of—

i

the mean of such of the opening and closing liabilities within paragraph (a) above as are liabilities of business the profits of which are not charged to tax under Case I or Case VI of Schedule D (disregarding section 85 of the M1Finance Act 1989), and

ii

the mean of the appropriate parts of the opening and closing amounts of the investment reserve.

5

For the purposes of this section an interest is a “relevant interest in an offshore fund” if—

a

it is a material interest in an offshore fund for the purposes of Chapter V of Part XVII of the Taxes Act 1988, or

b

it would be such an interest if the shares and interests excluded by subsections (6) and (8) of section 759 of that Act were limited to shares or interests in trading companies.

6

For the purposes of this section the amount of an investment reserve and the “appropriate part” of it shall be determined in accordance with section 432A(8) and (9) of the Taxes Act 1988.

7

In this section—

  • “authorised unit trust” has the same meaning as in section 468 of the Taxes Act 1988;

  • “market value” has the same meaning as in the M2Capital Gains Tax Act 1979;

  • “trading company” means a company—

a

whose business consists of the carrying on of insurance business, or the carrying on of any other trade which does not consist to any extent of dealing in commodities, currency, securities, debts or other assets of a financial nature, or

b

whose business consists wholly or mainly of the holding of shares or securities of trading companies which are its 90 per cent. subsidiaries;

and in this section and section 47 below other expressions have the same meanings as in Chapter I of Part XII of the Taxes Act 1988.

8

Schedule 8 to this Act (which contains transitional provisions relating to the charge imposed by this section) shall have effect.

9

Subject to the provisions of Schedule 8, this section shall have effect in relation to accounting periods beginning on or after 1st January 1991 or, where the Treasury by order appoint a later day, in relation to accounting periods beginning on or after that day (and not in relation to any earlier accounting period, even if the order is made after 1st January 1991 and the period has ended before it is made).