Office of Public Sector Information

Explanatory Note

(This note is not part of the Order)

This Order amends various life insurance tax provisions as a consequence of changes made by the Financial Services Authority (“FSA”) to their Handbook, and in particular gives effect to changes introduced by the EC reinsurance directive (No. 2005/68/EC) in relation to insurance special purpose vehicles.

Article 1 provides for citation, commencement and effect. Authority for the retrospective effect of article 2 of the Order is given by section 431A(2) of the Income and Corporation Taxes Act 1988 (c. 1) (“ICTA”) as the changes made to the FSA Handbook were retrospective.

Article 2 amends provisions of ICTA in relation to all insurance special purpose vehicles. Paragraph (2) makes provision that a company that becomes an insurance special purpose vehicle in the course of an accounting period will be treated as an insurance special purpose vehicle for the whole of the accounting period in which the conversion occurs. Paragraph (3) makes a transitional provision to bring into account amounts which would have been brought into account had the company produced a periodical return but which are not reflected in equivalent entries in the IAD or IAS accounts.

Article 3 makes provision amending ICTA in relation to insurance special purpose vehicles which carry on basic life assurance and general annuity business (“BLAGAB group reinsurers”). Paragraphs (2) and (3) insert a new section 440D and Schedule19ABA into ICTA which modify the life assurance tax provisions of ICTA and the Finance Act 1989 (c. 26) in relation to BLAGAB group reinsurers to take account the fact that these companies do not produce periodical returns.

Paragraph 1 of the inserted Schedule ABA defines a BLAGAB group reinsurer. Paragraphs 2 to 11 of that Schedule modify provisions of ICTA as follows.

Paragraph 2 introduces the modifications. Paragraph 3 modifies section 76 (expenses of insurance companies) to substitute references relevant to Form 40 in the periodical return to IAD and IAS accounts and make other consequential amendments to the expenses calculation.

Paragraph 4 modifies section 431 (interpretation) to insert definitions of terms used in relation to BLAGAB group reinsurers and amend existing definitions based on periodical return entries. The definition of “insurance company” is amended in order to apply the life assurance tax provisions to BLAGAB group reinsurers. The definition of “period of account” is omitted so that section 832(1) applies.

Paragraph 5 modifies section 432B (apportionment of receipts brought into account) and paragraphs 6 and 7 omit section 432E (section 432B apportionment: participating funds) and section 432F (section 432B apportionment: supplementary provisions) respectively.

Paragraph 8 omits section 444AA (transfers of business: deemed periodic return) as it is based only on periodical return entries.

Paragraphs 9 to 11 modify section 804C (insurance companies: allocation of expenses etc in computations under Case 1 of Schedule D), section 804D (interpretation of section 804C in relation to life insurance business) and section 804E (interpretation of section 804C in relation to other insurance business) as only section 432C will apply to BLAGAB group reinsurers.

Paragraphs 12 to 24 modify provisions of the Finance Act 1989 as follows.

Paragraphs 13 to 17 omit section 82B (unappropriated surplus on valuation), section 82D (treatment of profits: life assurance—adjustment consequent on change in Insurance Prudential Sourcebook), section 82E (section 82D: treatment of transferors under insurance business transfer schemes), section 82F (section 82D: treatment of transferees under insurance business transfer schemes) and section 83 (receipts to be taken into account) subsections (2A) to (2E) as these provisions based on periodical returns.

Paragraph 18 modifies section 83XA (structural assets) to refer to Council Directive 91/674.

Paragraph 19 and 20 omit section 83YA (changes in value of assets brought into account: non-profit companies) and section 83YB (meaning of “appropriate line 51” amount for purposes of section 83YA) as these are based on periodical return entries.

Paragraph 21 modifies section 83A (meaning of “brought into account”) to refer to IAD and IAS accounts.

Paragraph 22 omits section 83B (changes in recognised accounts: attribution of amounts carried forward under section 432F of Taxes Act 1988) as this is based on section 432F which is omitted.

Paragraph 23 makes consequential modifications to section 85A (excess adjusted Case 1 profits).

Paragraph 24 and 25 omit section 86 (spreading of relief for acquisition expenses) and section 89(6) (policy holders’ share of profits) which are based on periodical returns.

A full regulatory impact assessment has not been produced for this instrument as no impact on the private or voluntary sectors is foreseen.