Co-ownership authorised contractual schemes — changes to the capital gains deemed disposal rules for life insurance companies
Published 26 February 2025
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Who is likely to be affected
Life insurance companies investing in co-ownership authorised contractual schemes (CoACS).
General description of the measure
This measure makes changes to the existing tax rules for the treatment of capital allowances within the annual deemed disposal rules for life insurance companies investing in a CoACS.
Policy objective
This measure ensures that where a life insurance company invests in a CoACS, they are in a similar tax position to that applying if they had invested in the underlying assets directly, in particular regarding the tax treatment of capital allowances in the capital gains computation.
Background to the measure
These changes are being introduced together with rules to provide for a new type of investment fund, the Reserved Investor Fund. The changes will ensure that the rules work fairly and as intended for life insurance companies investing in Reserved Investor Funds and CoACS.
The changes address anomalies that can arise for life insurance companies on computing a gain or loss on a deemed disposal of units in a CoACS. The first anomaly concerns the restriction of a loss where capital allowances have been claimed. The second anomaly concerns how structures and buildings allowances are clawed back. Under the current rules there is no effective relief for structures and buildings allowances for a life insurance company investor in a CoACS.
Draft provisions addressing the issues were included within the draft Co-ownership Contractual Schemes (Tax) Regulations, published on GOV.UK on 2 April 2024. The government has continued to work with stakeholders to ensure that the regulations best deliver the desired outcome.
At Autumn Budget 2024, the government announced it would proceed with the introduction of the Reserved Investor Fund and would also make minor amendments to the tax rules in respect of CoACS, with legislation to be brought forward before the end of the tax year 2024 to 2025.
A tax information and impact note was published in relation to the Reserved Investor Fund at Spring Budget 2024. This tax information and impact note is in respect of the CoACS amendments.
Detailed proposal
Operative date
This measure will take effect for accounting periods commencing on or after 19 March 2025.
Current law
Current law is at section 212 (Annual deemed disposal of holdings of unit trusts etc.) and section 103D (Application of Act to tax transparent funds) Taxation of Chargeable Gains Act 1992 (TCGA92).
Proposed revisions
The proposed revisions amend section 212 TCGA92, specifying that section 103D(3A) TCGA92 and section 103D(9) TCGA92 do not apply for the purpose of computing a gain or loss arising under section 212 TCGA92 on a deemed disposal of units in a CoACS. Instead, section 103D(3A) and section 103D(9) TCGA92 will apply when there is an actual disposal of the units in CoACS, with the capital allowances given throughout the period of ownership being taken into account at that disposal.
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| negligible | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The changes are expected to have no impact on individuals as they only affect life insurance companies.
The measure is not expected to impact on family formation, stability or breakdown.
Customer experience is expected to stay the same as this measure does not alter how individuals interact with HMRC.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on an estimated 50 life insurance companies investing in CoACS.
One-off costs for these businesses will include familiarisation with the new rules. There are not expected to be any continuing costs.
Customer experience is expected to stay the same as this measure does not alter how businesses interact with HMRC.
The measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
The changes are not expected to have any HMRC operational impacts.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through regular communication with industry groups.
Further advice
If you have any questions about this change, contact the Financial Services Policy Team by email: financialservicesbai@hmrc.gov.uk.
Declaration
Emma Reynolds MP, Economic Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.