3(1)In the Finance Act 1989 (c. 26), after section 83 insert—U.K.
(1)For the purposes of this section a contingent loan is made to an insurance company if—
(a)a deposit is received by the company from a reinsurer or arises out of insurance operations of the company,
(b)a debenture loan is made to the company, or
(c)an amount is borrowed by the company from a credit institution,
and the deposit, debenture loan or amount borrowed is taken into account as a receipt of the company under section 83(2) above.
(2)For the purposes of this section the time when a contingent loan is made to an insurance company is the time when the assets constituting the deposit, debenture loan or amount borrowed are received by the company.
(3)For the purposes of this section an insurance company has unrepaid contingent loan liabilities at any time if—
(a)one or more contingent loans have been made to the company at or before that time, and
(b)amounts will or may at some later time become repayable by the company in respect of the contingent loan or contingent loans.
(4)Where, at the end of the period of account of an insurance company (“the period of account in question”), the company has unrepaid contingent loan liabilities—
(a)subsection (5) below applies if the company did not have unrepaid contingent loan liabilities at the end of the period of account immediately preceding the period of account in question, and
(b)subsection (6) below applies if it did.
(5)Where this subsection applies, the appropriate amount for the period of account in question is allowed as a deduction in calculating the profits of the company for the period of account in question.
(6)Where this subsection applies—
(a)if the appropriate amount for the period of account in question exceeds the appropriate amount for the immediately preceding period of account, the excess is allowed as a deduction in calculating the profits for the period of account in question, but
(b)if the appropriate amount for the immediately preceding period of account exceeds the appropriate amount for the period of account in question, the excess is to be taken into account as a receipt of the period of account in question.
(7)For the purposes of subsections (5) and (6) above the appropriate amount for a period of account is the amount of the unrepaid contingent loan liabilities at the end of the period of account reduced (but not below nil) by the aggregate of—
(a)any relevant net transfers to shareholders, and
(b)any deficiencies of assets over liabilities received on relevant transferred business.
(8)In subsection (7)(a) above “relevant net transfers to shareholders” means the aggregate of the positive amounts brought into account as transfers to non-technical account for—
(a)the period of account,
(b)the period of account in which the relevant contingent loan was made to the company, and
(c)any period of account falling between the periods of account mentioned in paragraphs (a) and (b) above,
as reduced in accordance with subsection (9) below.
(9)The reduction to be made from the positive amount brought into account as a transfer to non-technical account for any of the periods of account mentioned in subsection (8) above is so much of the positive amount as does not exceed 12% of the amount allocated to policy holders as bonuses in relation to the period of account.
(10)In subsection (7)(b) above “deficiencies of assets over liabilities received on relevant transferred business” means any amount by which, on an insurance business transfer scheme having effect to transfer long-term business from a person (“the transferor”) to the company which has taken place since the time when the relevant contingent loan was made to the company—
(a)the amount of the liabilities to policy holders and annuitants transferred to the company, exceeded
(b)the element of the company’s line 15 figure representing the transferor’s long-term insurance fund.
(11)In subsections (8) and (10) above “the relevant contingent loan” means—
(a)if amounts will or may at some later time become repayable by the company in respect of only one contingent loan, that contingent loan, and
(b)if amounts will or may at some later time become repayable by the company in respect of more than one contingent loan, whichever of those contingent loans was made to the company first.
(12)In subsection (10)(b) above “the element of the company’s line 15 figure representing the transferor’s long-term insurance fund” means so much of the amount brought into account by the company as other income in the period of account in which the transfer took place as represents the assets transferred to the company.
(13)Where in a period of account of an insurance company—
(a)an amount becomes repayable under a contingent loan made to the company, and
(b)the amount repayable is brought into account as other expenses for the period of account,
so much of the amount repayable as does not exceed the amount specified in subsection (14) below is allowed as a deduction in calculating the profits of the company for the period of account.
(14)The amount referred to in subsection (13) above is the amount arrived at by deducting from the amount taken into account as a receipt of the company under section 83(2) above in relation to the contingent loan the aggregate of any amounts which—
(a)have become repayable in respect of the contingent loan in any earlier period of account, and
(b)have been allowed as a deduction in calculating the profits of the company for any such period.
(15)The references in subsections (8), (12) and (13) above to an amount being brought into account—
(a)in a case where the amount taken into account as a receipt of the company under section 83(2) above in relation to the contingent loan or loans in question is an amount brought into account in an account concerned wholly with non-participating business, are to its being brought into account in that account or in any other account concerned wholly with non-participating business, and
(b)in a case where the amount so taken into account is an amount brought into account in an account concerned wholly or partly with participating business, are to its being brought into account in that account or in any other account concerned wholly or partly with participating business.
(16)Where—
(a)a transfer to another fund brought into account for a period of account as other expenditure in any account concerned wholly with non-participating business is brought into account as other income in an account concerned wholly or partly with participating business, or
(b)a transfer to another fund brought into account for a period of account as other expenditure in any account concerned wholly or partly with participating business is brought into account as other income in an account concerned wholly with non-participating business,
subsection (8) above has effect as if it were a positive amount brought into account as transfers to non-technical account for that period of account in the account in which it is brought into account as other expenditure.
(17)For the purposes of subsections (15) and (16) above—
(a)an account is concerned wholly with non-participating business if it relates exclusively to policies or contracts under which the policy holders or annuitants are not eligible to participate in surplus, and
(b)an account is concerned wholly or partly with participating business if it relates wholly or partly to other policies or contracts.”.
(2)In paragraph 2 of Schedule 11 to the Finance Act 1996 (c. 8) (loan relationships: special provisions for insurers), after sub-paragraph (2) insert—
“(2A)Where an insurance company stands in the position of a debtor as respects a debt under a contingent loan made to the company (within the meaning of section 83ZA(1) of the Finance Act 1989), the debt is to be regarded for the purposes of this Chapter as not arising from a transaction for the lending of money.”.
(3)This paragraph has effect in relation to contingent loans made to an insurance company in a period of account beginning on or after 1st January 2003.