Citation, commencement and effect

1. —(1) This Order may be cited as the Insurance Companies (Corporation Tax Acts) (Amendment) (No. 2) Order 2008 and shall come into force on 27th December 2008.

(2) This Order has effect in relation to transfers of long-term business made on or after that date.

Amendment of section 432YA of the Income and Corporation Taxes Act 1988

2. —(1) Amend section 432YA of the Income and Corporation Taxes Act 1988(long-term business other than life assurance business – adjustment consequent on change in Insurance Prudential Sourcebook)( 2 ) as follows.

(2) In subsection (2), for “long-term business which is not life assurance business” substitute “PHI business”.

(3) For subsection (6) substitute—

“ (6) This section is subject to sections 82E and 82F of the Finance Act 1989 (treatment of transferors and transferees under insurance business transfer schemes) ( 3 ) and those sections shall apply in relation to this section as if—

(a) any reference in them to a provision of section 82D of that Act (treatment of profits: life assurance – adjustment consequent on change in Insurance Prudential Sourcebook) were a reference to the corresponding provision of this section, and

(b) the reference to life assurance business in section 82E was a reference to PHI business. ” .

(4) In the heading, for “long-term business other than life assurance business” substitute “PHI business”.

Amendment of section 82E of the Finance Act 1989

3. —(1) Amend section 82E of the Finance Act 1989(section 82D: treatment of transferors under insurance business transfer schemes) as follows.

(2) For subsection (4) substitute—

“ (4) The transferor may make an election under this subsection if—

(a) the transferee is a company which is a non-profit company, or

(b) the transfer is to a non-profit fund of a company which is a not a non-profit company,

and (in either case) the transferee carries on life assurance business otherwise than on a mutual basis in the period of account of the transferee in which the transfer takes place and the profits of that business for that period are charged to tax under the I minus E basis. ” .

(3) For subsections (6) and (7) substitute—

“ (6) Where the transferor makes an election under subsection (4) above, then for any period of account of the transferor ending on or after the transfer—

(a) in the case of a transfer of the whole of the long-term business, no amount shall be brought into account under section 82D(2)(b) above;

(b) in the case of a transfer of part of the long-term business, the amount to be so brought into account shall be reduced by the appropriate amount mentioned in section 82F(4) below.

(7) Where the transferor does not make an election under subsection (4) above, then in computing profits for the purposes of the Taxes Act 1988 in accordance with the provisions applicable to Case I of Schedule D—

(a) in the case of a transfer of the whole of the long-term business—

(i) the aggregate of all the amounts that would have been brought into account under section 82D(2)(b) above for periods of account of the transferor subsequent to the transfer if the transfer had not taken place shall be brought into account as a trading receipt of the transferor for the period of account ending immediately before the transfer, and

(ii) in relation to periods of account of the transferor subsequent to the transfer, section 82D(2)(b) above shall have no effect;

(b) in the case of a transfer of part of the long-term business—

(i) the transferor’s relevant proportion of the aggregate referred to in paragraph (a)(i) above shall be brought into account as a trading receipt of the transferor for the period of account ending immediately before the transfer, and

(ii) in relation to periods of account of the transferor subsequent to the transfer, the amount to be brought into account under section 82D(2)(b) above shall be reduced by the transferor’s relevant proportion. ” .

(4) After subsection (7) add—

“ (8) The transferor’s relevant proportion referred to in subsection (7) above is that proportion which the total amount of the liabilities of the transferor to policy holders and annuitants transferred to the transferee or the transferees bears to the total of such liabilities of the transferor immediately before the transfer.

(9) But in the case of a transfer where the total amount of the liabilities of the transferor so transferred is below nil, the transferor’s relevant proportion is such proportion of the aggregate referred to in subsection (7)(a)(i) above as is just and reasonable. ” .

Amendment of section 82F of the Finance Act 1989

4. —(1) Amend section 82F of the Finance Act 1989(section 82D: treatment of transferees under insurance business schemes)( 4 ) as follows.

(2) In subsection (1)(b), for “does not make” substitute “makes”.

(3) In subsection (5A), for “negative” substitute “below nil”.

(4) In subsection (6), after “transferred to the transferee” insert “(or if more than one, all of the transferees)”.

(5) After subsection (6) insert—

“ (6A) But where the total amount of the liabilities of the long-term business of the transferor transferred to all the transferees is below nil, the appropriate amount is such proportion of XA as is just and reasonable to attribute to all the transferees. ” .