Finance Act 2008

Expenses: fronting reinsurance commissions etc U.K.

5 (1) Section 76 of ICTA (expenses of insurance companies) is amended as follows. U.K.

(2) In subsection (7), in Step 2, omit “or” at the end of paragraph (b) and insert at the end “or

(d) required to be deducted by subsection (9A) below.”

(3) After subsection (9) insert—

“(9A) The amount required to be deducted at paragraph (d) of Step 2 is the total of the amounts (if any) arrived at under subsection (9C) below in relation to the fronting reinsurance contracts (if any) made by the company.

(9B) A fronting reinsurance contract is a contract of reinsurance forming part of a fronting reinsurance arrangement; and a fronting reinsurance arrangement is an arrangement under which the company—

(a) enters into a contract constituting term assurance with a person, and

(b) reinsures all, or substantially all, of the liabilities under that contract with a reinsurer which—

(i) does not meet the BLAGAB group reinsurance conditions in paragraph 1(3) of Schedule 19ABA to this Act, and

(ii) is connected with that person or with a person entitled to commission from the company in respect of the contract.

(9C) The amount referred to in subsection (9A) above in relation to any fronting reinsurance contract made by the company is the relevant reinsurance fraction of so much of the amount found at Step 1 as relates to policies and contracts which are relevant reinsured policies and contracts in relation to the fronting reinsurance contract.

(9D) For the purposes of subsection (9C) above “the relevant reinsurance fraction” is—

where—

RL is so much of TL as is reinsured under the fronting reinsurance contract, and

TL is the amount of the total liabilities under the relevant reinsured policies and contracts at the end of the accounting period.

(9E) For the purposes of subsections (9B) and (9C) above policies and contracts are relevant reinsured policies and contracts in relation to a fronting reinsurance contract if—

(a) they are attributable to the company's basic life assurance and general annuity business, and

(b) any or all of the risks under them are reinsured under the fronting reinsurance contract.”

(4) The amendments made by this paragraph have effect in relation to policies and contracts made on or after 9 October 2007.

(5) For the purposes of the operation of Step 6 in section 76(7) of ICTA in relation to an accounting period of an insurance company beginning on or after 9 October 2007, the adjusted amount of the acquisition expenses (within the meaning of section 86(6) of FA 1989) of the company for any earlier accounting period which is relevant for those purposes (a “relevant earlier accounting period”) is to be arrived at as if the amendments made by this paragraph had effect in relation to policies and contracts whenever made.

(6) And for those purposes, if the relevant earlier accounting period is a period which began before 1 April 2004 the amount which would be required to be deducted for that period at paragraph (d) of Step 2 by the subsection (9A) inserted by sub-paragraph (3) is to be treated as an amount to be deducted from the amount treated as the expenses of management of the company for that period under section 75 of ICTA as it applied in relation to the relevant earlier accounting period by virtue of section 76 of that Act.

(7) In the application of the subsection (9C) inserted by sub-paragraph (3) by virtue of sub-paragraph (6) the reference to Step 1 is to be read as a reference to section 75 (as it so applied).

6 (1) Section 85 of FA 1989 (charge of certain receipts of BLAGAB under Case VI) is amended as follows. U.K.

(2) In subsection (2), for paragraph (b) substitute—

“(b) any sum received under a reinsurance contract, except for reinsurance commissions, however described, (but subject to subsection (2ZA) below) and any sum calculated to any extent by reference to expenses of the company brought into account at Step 1 in section 76(7) of the Taxes Act 1988; or”.

(3) In paragraph (f) of that subsection, after “Scheme” insert “ , or from another insurance company, ”.

(4) After that subsection insert—

“(2ZA) The reference in subsection (2)(b) above to reinsurance commissions does not include so much of the relevant reinsurance fraction (see subsection (9D) of section 76 of the Taxes Act 1988) of any reinsurance commissions received from the reinsurer under a fronting reinsurance contract (within the meaning of subsection (9B) of that section) as does not exceed the amount arrived at under subsection (9C) of that section in relation to the contract.”

(5) The amendments made by this paragraph have effect in relation to accounting periods beginning on or after 9 October 2007.