Office of Public Sector Information
PART II continued CHAPTER I continued
(1) In relation to an accounting period of an insurance company carrying on life assurance business, any reference to the shareholders' fraction or the policy holders' fraction is a reference to the appropriate fraction determined, subject to subsections (7) and (8) below, by the formulae in subsection (2) below.
(2) The formulae referred to in subsection (1) above are—
(a) for the shareholders' fraction,
and
(b) for the policy holders' fraction,
where “A” and “B” are determined in accordance with the following provisions of this section.
(3) In the formulae in subsection (2) above “A” is the profits of the company for the accounting period in respect of its life assurance business, computed in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D, and, if there are no such profits (or there is a loss), “A” is zero.
(4) Subject to subsection (6) below, in those formulae “B” is such a sum as, after deduction of corporation tax at the rate provided for by subsection (1) of section 88 above in relation to the policy holders' fraction of the company’s relevant profits for the accounting period (within the meaning of that subsection), is equal to the excess (if any) for the corresponding period of account of—
(a) the aggregate of—
(i) the closing liabilities to policy holders referable to the company’s basic life assurance business,
(ii) the sums paid to policy holders in the period in respect of claims referable to that business, and
(iii) any amounts allocated to policy holders in respect of that period which do not fall within sub-paragraph (i) or sub-paragraph (ii) above and which are referable to that business,
over
(b) the aggregate of the premiums receivable by the company for the period in respect of its basic life assurance business and the opening liabilities to policy holders referable to that business,
and, if there is no such excess, “B” is zero.
(5) The references in subsection (4) above to the opening and closing liabilities to policy holders are references to those liabilities including any such amount as is referred to in section 82(1)(b) above.
(6) In relation to an accounting period, references in subsection (4) above to the corresponding period of account are references,—
(a) if the accounting period coincides with a period of account, to that period; and
(b) in any other case, to the period of account in which the accounting period is comprised;
and, for the purpose of determining “B” in a case where paragraph (b) above applies, the aggregates referred to in paragraphs (a) and (b) of subsection (4) above shall each be proportionately reduced to reflect the length of the accounting period as compared with the length of the corresponding period of account.
(7) Subject to subsection (8) below, if in the case of any accounting period of a company both “A” and “B” in the formulae in subsection (2) above are zero,—
(a) the shareholders' fraction shall be taken to be the whole; and
(b) the policy holders' fraction shall be taken to be nil.
(8) In relation to an accounting period of an insurance company carrying on mutual life assurance business,—
(a) any reference to the shareholders' fraction is a reference to nil; and
(b) any reference to the policy holders' fraction is a reference to the whole.
Schedule 9 to this Act (which imposes tax on certain benefits relating to life policies, life annuities and capital redemption policies held by companies, and makes related provision) shall have effect.
(1) In section 725 of the Taxes Act 1988 (Lloyd’s underwriters) the following subsections shall be inserted after subsection (9)—
“(10) Subsection (11) below applies where the following state of affairs exists at the beginning of 1st January of any year or the end of 31st December of any year—
(a) securities have been transferred by the trustees of a premiums trust fund in pursuance of an arrangement mentioned in section 129(1) or (2),
(b) the transfer was made to enable another person to fulfil a contract or to make a transfer,
(c) securities have not been transferred in return, and
(d) section 129(3) applies to the transfer made by the trustees.
(11) The securities transferred by the trustees shall be treated for the purposes of subsections (1) to (6) above as if they formed part of the premiums trust fund at the beginning of 1st January concerned or the end of 31st December concerned (as the case may be).”
(2) In section 142A of the [1979 c. 14.] Capital Gains Tax Act 1979 (assets in premiums trust fund) the following subsections shall be inserted after subsection (4)—
“(4A) Subsection (4B) below applies where the following state of affairs exists at the beginning of an accounting period or the end of an accounting period—
(a) securities have been transferred by the trustees of a premiums trust fund in pursuance of an arrangement mentioned in section 129(1) or (2) of the Taxes Act 1988 (stock lending),
(b) the transfer was made to enable another person to fulfil a contract or to make a transfer,
(c) securities have not been transferred in return, and
(d) the transfer made by the trustees constitutes a disposal which by virtue of section 149B(9) below is to be disregarded as there mentioned.
(4B) The securities transferred by the trustees shall be treated for the purposes of subsection (3) above as if they formed part of the premiums trust fund at the beginning concerned or the end concerned (as the case may be).”
(3) This section applies where the transfer by the trustees of a premiums trust fund is made after the date specified as mentioned in section 129(6) of the Taxes Act 1988.
(1) In section 451(1A) of the Taxes Act 1988 (regulations about underwriters) for the words from “with respect to” to the end there shall be substituted the words “with respect to any year or years of assessment; and the year (or any of the years) may be the one in which the regulations are made or any year falling before or after that year.”
(2) The following subsection shall be inserted after section 451(1A) of that Act—
“(1B) But the regulations may not make provision with respect to any year of assessment which precedes the next but one preceding the year of assessment in which the regulations are made.”
(3) In section 142A of the [1979 c. 14.] Capital Gains Tax Act 1979 (regulations about premiums trust funds) subsection (5)(c) shall be omitted and the following subsections shall be inserted after subsection (5)—
“(6) Regulations under subsection (5) above may make provision with respect to any year or years of assessment; and the year (or any of the years) may be the one in which the regulations are made or any year falling before or after that year.
(7) But the regulations may not make provision with respect to any year of assessment which precedes the next but one preceding the year of assessment in which the regulations are made.”
(4) Subsection (5) below applies in the case of any provision of the Tax Acts, the [1970 c. 9.] Taxes Management Act 1970, the Capital Gains Tax Act 1979, or any other enactment relating to capital gains tax, which imposes a time limit for making a claim or an election or an application.
(5) The Board may by regulations provide that where the claim or election or application falls to be made by an underwriting member of Lloyd’s or his spouse (or both) the provision shall have effect as if it imposed such longer time limit as is specified in the regulations.
(6) Regulations under subsection (5) above—
(a) shall be made by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons;
(b) may make different provision for different provisions or different purposes.
(7) Regulations under subsection (5) above may make provision with respect to any year or years of assessment; and the year (or any of the years) may be the one in which the regulations are made or any year falling before or after that year.
Schedule 10 to this Act (which amends Schedule 4 to the Taxes Act 1988) shall have effect.
Schedule 11 to this Act (which contains provisions about securities capable of yielding a deep gain) shall have effect.
(1) Section 126 of the Taxes Act 1988 (tax not to be charged on certain securities in respect of discount under Case III of Schedule D) shall be amended as mentioned in subsections (2) and (3) below.
(2) In subsection (2) (the securities affected) for the words “except Treasury bills” there shall be substituted the words “except—
(a) Treasury bills,
(b) relevant deep discount securities, and
(c) deep gain securities.”
(3) The following subsection shall be inserted after subsection (2)—
“(3) For the purposes of subsection (2) above—
(a) a relevant deep discount security is a security falling within paragraph 1(1)(dd) of Schedule 4 to this Act, and
(b) a deep gain security is a security which is a deep gain security for the purposes of Schedule 11 to the Finance Act 1989.”
(4) The preceding provisions of this section shall apply—
(a) in the case of a deep discount security, where there is a disposal (within the meaning of Schedule 4 to the Taxes Act 1988) on or after 14th March 1989;
(b) in the case of a deep gain security, where there is a transfer within the meaning of Schedule 11 to this Act, or a redemption, on or after 14th March 1989.
(5) Subsection (7) below applies where—
(a) by virtue of paragraph 19(2) of Schedule 4 to the Taxes Act 1988, a security falls to be treated as a deep discount security as there mentioned, and
(b) after the time mentioned in paragraph 19(1)(d) of that Schedule there is a disposal (within the meaning of that Schedule) of the security.
(6) Subsection (7) below also applies where—
(a) by virtue of paragraph 20(2) of Schedule 11 to this Act, a security falls to be treated as a deep gain security as there mentioned, and
(b) after the time mentioned in paragraph 20(1)(d) of that Schedule there is a transfer (within the meaning of that Schedule) or a redemption of the security.
(7) In a case where this subsection applies, section 126 of the Taxes Act 1988 shall not apply in the case of the disposal, transfer or redemption (as the case may be).
(1) In section 452(8) of the Taxes Act 1988 (special reserve funds) for the words from “In paragraph (a) above” to the end there shall be substituted—
“In paragraph (a) above “income” includes—
annual profits or gains chargeable to tax by virtue of section 714(2) or 716(3),
amounts treated as income chargeable to tax by virtue of paragraph 4 of Schedule 4, and
amounts treated as income chargeable to tax by virtue of paragraph 5 of Schedule 11 to the Finance Act 1989.”
(2) In section 687 of the Taxes Act 1988 (payments under discretionary trusts) the following shall be inserted after subsection (3)(g)—
“(h) the amount of any tax on an amount which is treated as income of the trustees by virtue of paragraph 4 of Schedule 4 and is charged to tax at a rate equal to the sum of the basic rate and the additional rate by virtue of paragraph 17 of that Schedule;
(i) the amount of any tax on an amount which is treated as income of the trustees by virtue of paragraph 5 of Schedule 11 to the Finance Act 1989 and is charged to tax at a rate equal to the sum of the basic rate and the additional rate by virtue of paragraph 11 of that Schedule;”.
(3) The following subsections shall be inserted at the end of section 132A of the [1979 c. 14.] Capital Gains Tax Act 1979 (deep discount securities)—
“(5) Where by virtue of paragraph 18(3) of Schedule 4 to the Taxes Act 1988 trustees are deemed for the purposes of that Schedule to dispose of a security at a particular time—
(a) they shall be deemed to dispose of the security at that time for the purposes of this Act, and
(b) the disposal deemed by paragraph (a) above shall be deemed to be at the market value of the security.
(6) Where by virtue of paragraph 18(4) of Schedule 4 to the Taxes Act 1988 trustees are deemed for the purposes of that Schedule to acquire a security at a particular time—
(a) they shall be deemed to acquire the security at that time for the purposes of this Act, and
(b) the acquisition deemed by paragraph (a) above shall be deemed to be at the market value of the security.”
(4) The new paragraphs (b) and (c) inserted by subsection (1) above, and subsection (2) above, shall apply—
(a) in the case of a deep discount security, where there is a disposal (within the meaning of Schedule 4 to the Taxes Act 1988) on or after 14th March 1989;
(b) in the case of a deep gain security, where there is a transfer within the meaning of Schedule 11 to this Act, or a redemption, on or after 14th March 1989.
(1) In section 240 of the Taxes Act 1988 (set-off of company’s ACT against subsidiary’s liability to corporation tax) at the end of subsection (5) (set-off not to be made against subsidiary’s liability to corporation tax for any accounting period in which, or in any part of which, it was not a subsidiary of the surrendering company) there shall be added the words “unless throughout that period or part both companies were subsidiaries of a third company”.
(2) This section shall have effect in relation to accounting periods ending on or after 14th March 1989.
(1) After section 245 of the Taxes Act 1988 there shall be inserted—
(1) This section applies if—
(a) there is a change in the ownership of a company (“the relevant company”);
(b) by virtue of section 240 the relevant company is treated as having paid an amount of advance corporation tax in respect of a distribution made by it at any time before the change; and
(c) within the period of six years beginning three years before the change, there is a major change in the nature or conduct of a trade or business of the company which is for the purposes of section 240 the surrendering company in relation to that amount.
(2) No advance corporation tax which the relevant company is treated by virtue of section 240 as having paid in respect of a distribution made by it in an accounting period beginning before the change of ownership shall be treated under section 239(4) as paid by it in respect of distributions made in an accounting period ending after the change of ownership; and this subsection shall apply to an accounting period in which the change of ownership occurs as if the part ending with the change of ownership, ad the part after, were two separate accounting periods.
(3) Subsections (4) and (5) of section 245 shall apply also for the purposes of this section and as if the reference in subsection (4) of section 245 to the period of three years mentioned in subsection (1)(a) of that section were a reference to the period mentioned in subsection (1)(c) above.
(4) Sections 768(8) and (9) and 769 shall apply also for the purposes of this section and as if in subsection (3) of section 769 the reference to the benefit of losses were a reference to the benefit of advance corporation tax.
(1) Subsection (4) below applies if—
(a) there is a change in the ownership of a company (“the relevant company”);
(b) any advance corporation tax paid by the relevant company in respect of distributions made by it in an accounting period beginning before the change is treated under section 239(4) as paid by it in respect of distributions made by it in an accounting period ending after the change;
(c) after the change the relevant company acquires an asset from another company in such circumstances that section 273(1) of the Taxes Act 1970 applies to the acquisition; and
(d) a chargeable gain accrues to the relevant company on the disposal of the asset within the period of three years beginning with the change of ownership.
(2) Subsection (1)(b) above shall apply to an accounting period in which the change of ownership occurs as if the part ending with the change of ownership, and the part after, were two separate accounting periods.
(3) For the purposes of subsection (1)(d) above an asset acquired by the relevant company as mentioned in subsection (1)(c) above shall be treated as the same as an asset owned at a later time by that company if the value of the second asset is derived in whole or in part from the first asset, and in particular where the second asset is a freehold, and the first asset was a leasehold and the lessee has acquired the reversion.
(4) In relation to the accounting period in which the chargeable gain accrues to the relevant company (“the relevant period”), section 239 shall have effect as if the limit imposed by subsection (2) of that section on the amount of advance corporation tax to be set against the relevant company’s liability to corporation tax were reduced by whichever is the lesser of—
(a) the amount of advance corporation tax that would have been payable (apart from section 241) in respect of a distribution made at the end of the relevant period of an amount which, together with the advance corporation tax so payable in respect of it, is equal to the chargeable gain, and
(b) the amount of surplus advance corporation tax in relation to the accounting period which by virtue of subsection (2) above is treated for the purposes of subsection (1)(b) above as ending with the change of ownership.
(5) Sections 768(8) and (9) and 769 shall apply also for the purposes of this section and as if in subsection (3) of section 769 the reference to the benefit of losses were a reference to the benefit of advance corporation tax.”
(2) This section shall have effect where the change in the ownership of the relevant company occurs on or after 14th March 1989.
(1) Section 247 of the Taxes Act 1988 (dividends etc. paid by one member of a group to another) shall be amended in accordance with this section.
(2) In subsection (1) for paragraph (b) there shall be substituted—
“(b) a trading or holding company which does not fall within subsection (1A) below and which is owned by a consortium the members of which include the receiving company,”.
(3) After subsection (1) there shall be inserted—
“(1A) A company falls within this subsection if—
(a) it is a 75 per cent. subsidiary of any other company, or
(b) arrangements of any kind (whether in writing or not) are in existence by virtue of which it could become such a subsidiary.”
(4) After subsection (8) there shall be inserted—
“(8A) Notwithstanding that at any time a company (“the subsidiary company”) is a 51 per cent. subsidiary of another company (“the parent company”) it shall not be treated at that time as such a subsidiary for the purposes of this section unless, additionally, at that time—
(a) the parent company would be beneficially entitled to more than 50 per cent. of any profits available for distribution to equity holders of the subsidiary company; and
(b) the parent company would be beneficially entitled to more than 50 per cent. of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.”
(5) For subsection (9)(c) there shall be substituted—
“(c) a company is owned by a consortium if 75 per cent. or more of the ordinary share capital of the company is beneficially owned between them by companies resident in the United Kingdom of which none—
(i) beneficially owns less than 5 per cent. of that capital,
(ii) would be beneficially entitled to less than 5 per cent. of any profits available for distribution to equity holders of the company, or
(iii) would be beneficially entitled to less than 5 per cent. of any assets of the company available for distribution to its equity holders on a winding-up,
and those companies are called the members of the consortium.”
(6) After subsection (9) there shall be inserted—
“(9A) Schedule 18 shall apply for the purposes of subsections (8A) and (9)(c) above as it applies for the purposes of section 413(7).”
(7) This section shall have effect in relation to dividends and other sums paid on or after the day on which this Act is passed.
(1) Section 769 of the Taxes Act 1988 (which contains rules for determining whether for the purposes of sections 245 and 768 of that Act there is a change in the ownership of a company) shall be amended in accordance with this section.
(2) For subsection (6) there shall be substituted—
“(6) If there is a change in the ownership of a company, including a change occurring by virtue of the application of this subsection but not a change which is to be disregarded under subsection (5) above, then—
(a) in a case falling within subsection (1)(a) above, the person mentioned in subsection (1)(a) shall be taken for the purposes of this section to acquire at the time of the change any relevant assets owned by the company;
(b) in a case falling within subsection (1)(b) above but not within subsection (1)(a) above, each of the persons mentioned in subsection (1)(b) shall be taken for the purposes of this section to acquire at the time of the change the appropriate proportion of any relevant assets owned by the company; and
(c) in any other case, each of the persons mentioned in paragraph (c) of subsection (1) above (other than any whose holding is disregarded under that paragraph) shall be taken for the purposes of this section to acquire at the time of the change the appropriate proportion of any relevant assets owned by the company.
(6A) In subsection (6) above—
“the appropriate proportion”, in relation to one of two or more persons mentioned in subsection (1)(b) or (c) above, means a proportion corresponding to the proportion which the percentage of the ordinary share capital acquired by him bears to the percentage of that capital acquired by all those persons taken together; and
“relevant assets”, in relation to a company, means—
any ordinary share capital of another company, and
any property or rights which under subsection (3) above may be taken into account instead of ordinary share capital of another company.
(6B) Notwithstanding that at any time a company (“the subsidiary company”) is a 75 per cent. subsidiary of another company (“the parent company”) it shall not be treated at that time as such a subsidiary for the purposes of this section unless, additionally, at that time—
(a) the parent company would be beneficially entitled to not less than 75 per cent. of any profits available for distribution to equity holders of the subsidiary company; and
(b) the parent company would be beneficially entitled to not less than 75 per cent. of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.
(6C) Schedule 18 shall apply for the purposes of subsection (6B) above as it applies for the purposes of section 413(7).”
(3) Subsection (7)(b) and (c) shall cease to have effect.
(4) This section shall have effect where the change of ownership of a company would be treated as occurring on or after 14th March 1989.
(1) Paragraph 1 of Schedule 18 to the Taxes Act 1988 (which contains definitions relating to group relief) shall be amended in accordance with this section.
(2) For sub-paragraph (3)(b) there shall be substituted—
“(b) do not carry any right either to conversion into shares or securities of any other description except—
(i) shares to which sub-paragraph (5A) below applies,
(ii) securities to which sub-paragraph (5B) below applies, or
(iii) shares or securities in the company’s quoted parent company,
or to the acquisition of any additional shares or securities;”.
(3) For sub-paragraph (5)(a) there shall be substituted—
“(a) which does not carry any right either to conversion into shares or securities of any other description except—
(i) shares to which sub-paragraph (5A) below applies,
(ii) securities to which sub-paragraph (5B) below applies, or
(iii) shares or securities in the company’s quoted parent company,
or to the acquisition of any additional shares or securities;”.
(4) After sub-paragraph (5) there shall be inserted—
“(5A) This sub-paragraph applies to any shares which—
(a) satisfy the requirements of sub-paragraph (3)(a), (c) and (d) above, and
(b) do not carry any rights either to conversion into shares or securities of any other description, except shares or securities in the company’s quoted parent company, or to the acquisition of any additional shares or securities.
(5B) This sub-paragraph applies to any securities representing a loan of or including new consideration and—
(a) which satisfies the requirements of sub-paragraph (5)(b) and (c) above, and
(b) which does not carry any such rights as are mentioned in sub-paragraph (5A)(b) above.
(5C) For the purposes of sub-paragraphs (3) and (5) to (5B) above a company (“the parent company”) is another company’s “quoted parent company” if and only if—
(a) the other company is a 75 per cent. subsidiary of the parent company,
(b) the parent company is not a 75 per cent. subsidiary of any company, and
(c) the parent company’s ordinary shares (or, if its ordinary share capital is divided into two or more classes, its ordinary shares of each class) are quoted on a recognised stock exchange or dealt in on the Unlisted Securities Market;
and in this sub-paragraph “ordinary shares” means shares forming part of ordinary share capital.
(5D) In the application of sub-paragraphs (3) and (5) to (5B) above in determining for the purposes of sub-paragraph (5C)(a) above who are the equity holders of the other company (and, accordingly, whether section 413(7) prevents the other company from being treated as a 75 per cent. subsidiary of the parent company for the purposes of sub-paragraph (5C)(a)), it shall be assumed that the parent company is for the purposes of sub-paragraphs (3) and (5) to (5B) above the other company’s quoted parent company.”
(5) In sub-paragraph (6) for the words “to (5)” there shall be substituted the words “to (5D)”.
(6) This section, so far as relating to Schedule 18 of the Taxes Act 1988 in its application (by virtue of section 138 below) for the purposes of subsections (1D) and (1E) of section 272 of the Taxes Act 1970, shall be deemed to have come into force on 14th March 1989.
(1) Subsection (2) below applies where—
(a) there falls to be made to a company (“the surrendering company”) which is a member of a group throughout the appropriate period a tax refund relating to an accounting period of the company (“the relevant accounting period”), and
(b) another company (“the recipient company”) which is a member of the same group throughout the appropriate period also has the relevant accounting period as an accounting period.
(2) Where this subsection applies the two companies may, at any time before the refund is made to the surrendering company, jointly give notice to the inspector in such form as the Board may require that subsection (4) below is to have effect in relation to the refund or to any part of the refund specified in the notice.
(3) In subsection (1) above—
“appropriate period” means the period beginning with the relevant accounting period and ending on the day on which the notice under subsection (2) above is given, and
“tax refund relating to an accounting period” means, in relation to a company—
a repayment of corporation tax paid by the company for the period,
a repayment of income tax in respect of a payment received by the company in the period, or
a payment of the whole or part of the tax credit comprised in any franked investment income received by the company in the period.
Finance Act 1989