Finance Act 2000

Insurance U.K.

107 General insurance reserves. U.K.

(1) Where an amount representing the whole or any part of the technical provisions which are made by a general insurer for a period of account is taken into account in computing for tax purposes the profits of his trade for that period—

(a) subsection (2) below applies if it becomes apparent in a later period of account that the amount taken into account was excessive; and

(b) subsection (3) below applies if it becomes apparent in such a period that that amount was insufficient.

(2) For the purpose of making good to the Exchequer the loss occasioned by the excess, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the excess shall be treated as a receipt of the general insurer’s trade in computing for tax purposes the profits of that trade for the later period of account.

(3) For the purpose of making good to the general insurer the loss occasioned by the deficiency, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the deficiency shall be treated as an expense of the general insurer’s trade in computing for tax purposes the profits of that trade for the later period of account.

(4) A general insurer may, before the end of a prescribed period, elect that any part of the technical provisions made by him for a period of account shall not be taken into account in computing for tax purposes the profits of his trade for that period; and where he does so, the profits of his trade for the next period of account shall be adjusted accordingly for the purposes of any computation for tax purposes.

(5) The Board may by regulations make provision for giving effect to subsections (1) to (4) above.

(6) The regulations may, in particular—

(a) exclude from the operation of subsections (1) to (4) above such descriptions of general insurer as may be prescribed;

(b) make such provision as appears to the Board to be appropriate for determining for the purposes of subsections (1) to (3) above whether any amount taken into account was excessive or insufficient and, if so, the amount of the excess or deficiency, including—

(i) provision requiring discounting at a prescribed rate; and

(ii) provision allowing a prescribed margin for error;

(c) make provision for applying subsections (1) to (3) above, to such extent and with such modifications as appear to the Board to be appropriate, to cases where it becomes apparent—

(i) that any amount taken into account was or has become insufficient; or

(ii) that any amount treated as a receipt or expense of a trade was excessive;

(d) make such provision as appears to the Board to be appropriate for dealing with cases where a general insurer transfers his general business to, or enters into a qualifying contract with, another person; and

(e) in the event of any changes in the rules or practice of Lloyd’s, make such amendments of this section as appear to the Board to be expedient having regard to those changes.

(7) In this section—

• “closing year”, in relation to a syndicate, has the same meaning as in Chapter III of Part II of the M1 Finance Act 1993 or Chapter V of Part IV of the M2 Finance Act 1994;

• [F1 “general business” means business which consists of the effecting or carrying out of contracts that fall within Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;]

• “general insurer” means any of the following which carries on general business—

  (a)

  a person (other than a friendly society) who has permission under Part 4 of the Financial Services and Markets Act 2000 to effect or carry out contracts that fall within Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

  (b)

  an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to that Act which has permission under paragraph 15 of Schedule 3 to that Act (as a result of qualifying for authorisation under paragraph 12(1) of that Schedule) to effect or carry out such contracts;

  (ba)

  [F2 a firm which has permission under paragraph 4 of Schedule 4 to that Act (as a result of qualifying for authorisation under paragraph 2 of that Schedule) to effect or carry out such contracts;]

  (c)

  a controlled foreign company within the meaning of Chapter IV of Part XVII of the Taxes Act 1988; and

  (d)

  an underwriting member of Lloyd’s (“an underwriting member”);

• “period of account”—

  (a)

  except in relation to an underwriting member, means a period for which an account is made up;

  (b)

  in relation to such a member, means an underwriting year in which profits or losses are declared for an earlier underwriting year;

• “prescribed” means prescribed by regulations under this section;

• “qualifying contract”, in relation to a general insurer, means a contract for reinsuring the liabilities to which any technical provisions of his relate;

• “reinsurance to close contract” means a contract where, in accordance with the rules or practice of Lloyd’s and in consideration of the payment of a premium, one underwriting member agrees with another to meet liabilities arising from the latter’s underwriting business for an underwriting year so that the accounts of the business for that year may be closed;

• “syndicate” means a syndicate of underwriting members of Lloyd’s formed for an underwriting year;

• “technical provisions”, except in relation to an underwriting member, means any of the following—

  (a)

  provisions for claims outstanding;

  (b)

  provisions for unearned premiums;

  (c)

  provisions for unexpired risks;

  and in this definition expressions which are used in Schedule 9A to the M3 Companies Act 1985 have the same meanings as in that Schedule;

• “technical provisions”, in relation to an underwriting member, means—

  (a)

  so much of the premiums paid, or treated (in accordance with the rules or practice of Lloyd’s) as paid, by him under reinsurance to close contracts; and

  (b)

  so much of any provisions made for the unpaid liabilities of an open syndicate of which he is a member,

  as may be determined by or under regulations made by the Board;

• “underwriting year” means the calendar year;

and for the purposes of this section a syndicate is an open syndicate at any time after the end of its closing year if, at that time, the accounts of its business for the underwriting year for which it was formed have not been closed.

(8) Regulations under this section may—

(a) make different provision for different cases or descriptions of case, including different provision for different entitlements to participate in the general business carried on by syndicates; and

(b) make such supplementary, incidental, consequential and transitional provision as appears to the Board to be appropriate.

(9) An amount which under subsection (2) or (3) above is treated as a receipt or expense of an underwriting member’s trade—

(a) shall not be included in the aggregate amount mentioned in paragraph 1 of Schedule 19 to the M4 Finance Act 1993; but

(b) shall be regarded as arising directly from his membership of one or more syndicates for the purposes of section 172(1)(a) of the Finance Act 1993 or section 220(2)(a) of the M5 Finance Act 1994.

(10) Nothing in paragraph 7 of Schedule 19 to the Finance Act 1993 shall be taken to affect the operation of subsection (2) or (3) above or the exercise of the power conferred by subsection (4) above.

(11) Section 177 of the M6 Finance Act 1993 and section 224 of the M7 Finance Act 1994 (which are superseded by this section) shall cease to have effect.

(12) In this section—

(a) subsections (1) to (3), subsections (5) to (8) and (10) so far as relating to those subsections and subsection (9) have effect where—

(i) the first period of account mentioned in subsection (1) begins on or after 1st January 2000; and

(ii) the later period of account mentioned in that subsection begins on or after 1st January 2001;

(b) subsection (4), and subsections (5) to (8) and (10) so far as relating to that subsection, have effect in relation to periods of account beginning on or after 1st January 2000;

(c) subsection (11) has effect in relation to profits of underwriting members’ trades which are declared in periods of account beginning on or after that date.

Textual Amendments

F1 S. 107(7): definition of “general business" substituted (1.12.2001) by S.I. 2001/3629, arts. 1(2), 106

F2 S. 107(7): paras. (a)(b)(ba) in definition of “general insurer" substituted (1.12.2001) for paras. (a)(b) by S.I. 2001/3629, arts. 1(2), 106

Modifications etc. (not altering text)

C1 S. 107(1)-(4) restricted (29.5.2001 with effect as mentioned in art. 1 of the amending S.I.) by S.I. 2001/1757, arts 1, 6

Marginal Citations

M1 1993 c. 34.

M2 1994 c. 9.

M3 1985 c. 6.

M4 1993 c. 34.

M5 1994 c. 9.

M6 1993 c. 34.

M7 1994 c. 9.

107 General insurance reserves. U.K.

(1) Where an amount representing the whole or any part of the technical provisions which are made by a general insurer for a period of account is taken into account in computing for tax purposes the profits of his trade for that period—

(a) subsection (2) below applies if it becomes apparent in a later period of account that the amount taken into account was excessive; and

(b) subsection (3) below applies if it becomes apparent in such a period that that amount was insufficient.

(2) For the purpose of making good to the Exchequer the loss occasioned by the excess, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the excess shall be treated as a receipt of the general insurer’s trade in computing for tax purposes the profits of that trade for the later period of account.

(3) For the purpose of making good to the general insurer the loss occasioned by the deficiency, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the deficiency shall be treated as an expense of the general insurer’s trade in computing for tax purposes the profits of that trade for the later period of account.

(4) A general insurer may, before the end of a prescribed period, elect that any part of the technical provisions made by him for a period of account shall not be taken into account in computing for tax purposes the profits of his trade for that period; and where he does so, the profits of his trade for the next period of account shall be adjusted accordingly for the purposes of any computation for tax purposes.

(5) The Board may by regulations make provision for giving effect to subsections (1) to (4) above.

(6) The regulations may, in particular—

(a) exclude from the operation of subsections (1) to (4) above such descriptions of general insurer as may be prescribed;

(b) make such provision as appears to the Board to be appropriate for determining for the purposes of subsections (1) to (3) above whether any amount taken into account was excessive or insufficient and, if so, the amount of the excess or deficiency, including—

(i) provision requiring discounting at a prescribed rate; and

(ii) provision allowing a prescribed margin for error;

(c) make provision for applying subsections (1) to (3) above, to such extent and with such modifications as appear to the Board to be appropriate, to cases where it becomes apparent—

(i) that any amount taken into account was or has become insufficient; or

(ii) that any amount treated as a receipt or expense of a trade was excessive;

(d) make such provision as appears to the Board to be appropriate for dealing with cases where a general insurer transfers his general business to, or enters into a qualifying contract with, another person; and

(e) in the event of any changes in the rules or practice of Lloyd’s, make such amendments of this section as appear to the Board to be expedient having regard to those changes.

(7) In this section—

• “closing year”, in relation to a syndicate, has the same meaning as in Chapter III of Part II of the M10 Finance Act 1993 or Chapter V of Part IV of the M11 Finance Act 1994;

• “general business” has the same meaning as in the M12 Insurance Companies Act 1982;

• “general insurer” means any of the following which carries on general business—

  (a)

  a company to which Part II of the M13 Insurance Companies Act 1982 applies;

  (b)

  an EC company (within the meaning of section 6(2) of that Act) which carries on general business through a branch or agency in the United Kingdom;

  (c)

  a controlled foreign company within the meaning of Chapter IV of Part XVII of the Taxes Act 1988; and

  (d)

  an underwriting member of Lloyd’s (“an underwriting member”);

• “period of account”—

  (a)

  except in relation to an underwriting member, means a period for which an account is made up;

  (b)

  in relation to such a member, means an underwriting year in which profits or losses are declared for an earlier underwriting year;

• “prescribed” means prescribed by regulations under this section;

• “qualifying contract”, in relation to a general insurer, means a contract for reinsuring the liabilities to which any technical provisions of his relate;

• “reinsurance to close contract” means a contract where, in accordance with the rules or practice of Lloyd’s and in consideration of the payment of a premium, one underwriting member agrees with another to meet liabilities arising from the latter’s underwriting business for an underwriting year so that the accounts of the business for that year may be closed;

• “syndicate” means a syndicate of underwriting members of Lloyd’s formed for an underwriting year;

• “technical provisions”, except in relation to an underwriting member, means any of the following—

  (a)

  provisions for claims outstanding;

  (b)

  provisions for unearned premiums;

  (c)

  provisions for unexpired risks;

  and in this definition expressions which are used in Schedule 9A to the M14 Companies Act 1985 have the same meanings as in that Schedule;

• “technical provisions”, in relation to an underwriting member, means—

  (a)

  so much of the premiums paid, or treated (in accordance with the rules or practice of Lloyd’s) as paid, by him under reinsurance to close contracts; and

  (b)

  so much of any provisions made for the unpaid liabilities of an open syndicate of which he is a member,

  as may be determined by or under regulations made by the Board;

• “underwriting year” means the calendar year;

and for the purposes of this section a syndicate is an open syndicate at any time after the end of its closing year if, at that time, the accounts of its business for the underwriting year for which it was formed have not been closed.

(8) Regulations under this section may—

(a) make different provision for different cases or descriptions of case, including different provision for different entitlements to participate in the general business carried on by syndicates; and

(b) make such supplementary, incidental, consequential and transitional provision as appears to the Board to be appropriate.

(9) An amount which under subsection (2) or (3) above is treated as a receipt or expense of an underwriting member’s trade—

(a) shall not be included in the aggregate amount mentioned in paragraph 1 of Schedule 19 to the M15 Finance Act 1993; but

(b) shall be regarded as arising directly from his membership of one or more syndicates for the purposes of section 172(1)(a) of the Finance Act 1993 or section 220(2)(a) of the M16 Finance Act 1994.

(10) Nothing in paragraph 7 of Schedule 19 to the Finance Act 1993 shall be taken to affect the operation of subsection (2) or (3) above or the exercise of the power conferred by subsection (4) above.

(11) Section 177 of the M17 Finance Act 1993 and section 224 of the M18 Finance Act 1994 (which are superseded by this section) shall cease to have effect.

(12) In this section—

(a) subsections (1) to (3), subsections (5) to (8) and (10) so far as relating to those subsections and subsection (9) have effect where—

(i) the first period of account mentioned in subsection (1) begins on or after 1st January 2000; and

(ii) the later period of account mentioned in that subsection begins on or after 1st January 2001;

(b) subsection (4), and subsections (5) to (8) and (10) so far as relating to that subsection, have effect in relation to periods of account beginning on or after 1st January 2000;

(c) subsection (11) has effect in relation to profits of underwriting members’ trades which are declared in periods of account beginning on or after that date.

Modifications etc. (not altering text)

C2 S. 107(1)-(4) restricted (29.5.2001 with effect as mentioned in reg. 1 of the amending S.I.) by S.I. 2001/1757, regs. 1, 6

Marginal Citations

M10 1993 c. 34.

M11 1994 c. 9.

M12 1982 c. 50.

M13 1982 c. 50.

M14 1985 c. 6.

M15 1993 c. 34.

M16 1994 c. 9.

M17 1993 c. 34.

M18 1994 c. 9.

108 Overseas life assurance business. U.K.

(1) In subsection (1) of section 431D of the Taxes Act 1988 (meaning of “overseas life assurance business”), for “or life reinsurance business" there shall be substituted “ , life reinsurance business or business of any description excluded from this section by regulations made by the Board ”.

(2) For subsections (2) to (8) of that section there shall be substituted—

“(2) Regulations under subsection (1) above may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.

(3) The Board may by regulations—

(a) make provision as to the circumstances in which a trustee who is a policy holder or annuitant residing in the United Kingdom is to be treated for the purposes of this section as not so residing; and

(b) provide that nothing in Chapter II of Part XIII shall apply to a policy or contract which constitutes overseas life assurance business by virtue of any such provision as is mentioned in paragraph (a) above.

(4) Regulations under subsection (1) or (3) above may contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate.”.

(3) Where the policy or contract for any life assurance business was made before such day as the Treasury may by order appoint, the amendments made by this section (and any regulations made under them) shall not have effect for determining whether the business is overseas life assurance business.

109 Insurance business: apportionment rules. U.K.

(1) In subsection (4)(b) of section 432ZA of the Taxes Act 1988 (linked assets), for the words from “the proportion which" to the end there shall be substituted—

“the proportion A/B where—

A is the total of the linked liabilities of the company which are liabilities of the internal linked fund in which the asset is held and are referable to that category of business;

B is the total of the linked liabilities of the company which are liabilities of that fund.”.

(2) For subsection (6) of that section there shall be substituted—

“(6) In this section—

• “internal linked fund”, in relation to an insurance company, means an account—

  (a)

  to which linked assets are appropriated by the company; and

  (b)

  which may be divided into units the value of which is determined by the company by reference to the value of those assets;

• “linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.”.

(3) In the subsections mentioned in subsection (4) below—

(a) in paragraph (a), after “reduced" there shall be inserted “ (but not below nil) ” and for “values" there shall be substituted “ net values ”; and

(b) for paragraph (b) there shall be substituted—

“(b) the denominator is the aggregate of—

(i) the numerator given by paragraph (a) above; and

(ii) the numerators given by that paragraph in relation to the other categories of business.”.

(4) The subsections are—

(a) subsection (6) of section 432A of the Taxes Act 1988 (apportionment of income and gains);

(b) subsection (4) of section 432C of that Act (section 432B apportionment: income of non-participating funds); and

(c) subsection (3) of section 432D of that Act (section 432B apportionment: value of non-participating funds).

(5) For subsection (8) of section 432A there shall be substituted—

“(8) In subsection (6) above “appropriate part”, in relation to the investment reserve, means—

(a) where none (or none but an insignificant proportion) of the liabilities of the long term business are with-profits liabilities, the part of that reserve which bears to the whole the proportion A/B where—

A is the amount of the liabilities of the category of business in question;

B is the whole amount of the liabilities of the long term business; and

(b) in any other case, the part of that reserve which bears to the whole the proportion C/D where—

C is the amount of the with-profits liabilities of the category of business in question;

D is the whole amount of the with-profits liabilities of the long term business.”.

(6) After subsection (9) of that section there shall be inserted—

“(9A) In this section and sections 432C and 432D “net value”, in relation to any assets, means the excess of the value of the assets over any liabilities which—

(a) represent a money debt; and

(b) are liabilities of an internal linked fund in which the assets are held;

and in this subsection “internal linked fund” has the same meaning as in section 432ZA.

(9B) In this section—

• “investment reserve”, in relation to an insurance company, means the excess of the value of the assets of the company’s long term business over the aggregate of—

  (a)

  the liabilities of that business; and

  (b)

  any liabilities of the long term business fund which represent a money debt;

• “money debt” has the same meaning as in Chapter II of Part IV of the M8 Finance Act 1996.”.

(7) In subsection (5)(b) of section 432C, after “subsection (1)" there shall be inserted “ or (2) ”.

(8) In Schedule 11 to the M9 Finance Act 1996 (loan relationships: special provisions for insurers), after paragraph 3 there shall be inserted—

“3A (1) This paragraph applies where—

(a) any money debt of an insurance company is represented by a liability which is a liability of the long term business fund of the company; and

(b) any question arises for the purposes of the Corporation Tax Acts as to the extent to which any debits or credits given for the purposes of this Chapter in respect of that debt or liability are referable to any category of the company’s long term business.

(2) If any debits relate to interest payable in respect of the late payment of any benefits, they are referable to the category of long term business which comprises the effecting and carrying out of the policies or contracts under which the benefits are payable.

(3) If the liability is a liability of an internal linked fund of the company, any debits or credits are referable—

(a) to the category of long term business to which the fund relates; or

(b) where the fund relates to two or more categories of such business, to those categories in the same proportion as the linked assets in the fund are apportioned to them under section 432ZA(4) of the Taxes Act 1988 (linked assets).

(4) In any case not falling within sub-paragraph (2) or (3) above, there shall be referable to any category of long term business the relevant fraction of any debits or credits.

(5) For the purpose of determining that fraction, subsections (6) and (8) of section 432A of the Taxes Act 1988 (apportionment of income and gains) shall have effect as if—

(a) the debits or credits were income not directly referable to any category of business;

(b) the reference in subsection (6)(a) to assets directly referable to a category of business were a reference to assets linked to that category of business; and

(c) subsection (9) of that section were omitted.

(6) In this paragraph “internal linked fund” has the same meaning as in section 432ZA of the Taxes Act 1988 (linked assets).”.

(9) In consequence of the preceding provisions of this section—

(a) in section 431(2) of the Taxes Act 1988 (interpretative provisions in relation to insurance companies), the definition of “investment reserve" shall cease to have effect;

(b) in paragraph 4(2) of Schedule 19AA to that Act (overseas life assurance fund), after “investment reserve" there shall be inserted “ (within the meaning of section 432A) ”; and

(c) in paragraph 7(3) of Schedule 19AC to that Act (modification of Act in relation to overseas life insurance companies)—

(i) in paragraph (b), for “value" there shall be substituted “ net value ”; and

(ii) paragraph (c) shall cease to have effect.

(10) This section shall have effect in relation to accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.

Marginal Citations

M8 1996 c. 8.

M9 1996 c. 8.