After section 439A of the Taxes Act 1988 (inserted by paragraph 26 above) insert—

“439BLife reinsurance business: separate charge on profits.

(1)

Where a company carries on life reinsurance business and the profits arising from that business are not charged to tax in accordance with the provisions applicable to Case I of Schedule D, then, subject as follows, those profits shall be treated as income within Schedule D and be chargeable to tax under Case VI of that Schedule, and for that purpose—

(a)

that business shall be treated separately, and

(b)

subject to paragraph (a) above, the profits from it shall be computed in accordance with the provisions of this Act applicable to Case I of Schedule D.

(2)

Subsection (1) above does not apply to so much of reinsurance business of any description excluded from that subsection by regulations made by the Board.

Regulations under this subsection may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.

(3)

In making the computation referred to in subsection (1) above—

(a)

sections 82(1), (2) and (4) and 83 of the Finance Act 1989 shall apply with the necessary modifications and in particular with the omission of the words “tax or” in section 82(1)(a),

(b)

section 83(3) of that Act shall not apply, and

(c)

there may be set off against the profits any loss, to be computed on the same basis as the profits, which has arisen from life reinsurance business in any previous accounting period beginning on or after 1st January 1995.

(4)

Section 396 shall not be taken to apply to a loss incurred by a company on life reinsurance business.

(5)

Nothing in section 128 or 399(1) shall affect the operation of this section.

(6)

Gains accruing to a company which are referable to its life reinsurance business shall not be chargeable gains.

(7)

In ascertaining whether or to what extent a company has incurred a loss on its life reinsurance business, franked investment income and foreign income dividends shall be taken into account (notwithstanding anything in section 208) as part of the profits of that business.”.