Corporation Tax: long-term insurance business
Published 9 December 2015
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Who is likely to be affected
Life insurance companies that carry on life assurance and other long-term business.
General description of the measure
The measure simplifies how life insurance companies use debits from intangible fixed assets and trading losses from their basic life assurance and general annuity business (BLAGAB). It also ensures that the deemed income which arises if BLAGAB trade profits exceed BLAGAB investment return is fully brought into charge.
Policy objective
Finance Act (FA) 2012 introduced legislation for taxing life insurance companies to deliver rules that were simpler, fairer and more closely aligned with commercial reality than the rules they replaced.
These changes simplify or amend the specific treatment of intangible fixed assets, trade losses and deemed income to ensure a fairer outcome.
Background to the measure
Following the introduction of the new tax regime, industry and HM Revenue and Customs (HMRC) worked together to review its operation and consider how well it delivered the policy objectives. The intangible fixed assets, BLAGAB trade losses and deemed income rules were identified as not fully delivering these objectives. Solutions for each were identified and this measure amends the legislation accordingly.
Additionally, HMRC and industry have also reviewed the tax rules within FA 2012 for intra-group transfers of long-term insurance business. Amendments to these rules will made by regulations.
Detailed proposal
Operative date
The measure will have effect in relation to accounting periods beginning on or after Royal Assent to Finance Bill 2016.
Current law
Current law is included in Part 2 of FA 2012.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to amend section 73 of FA 2012 to ensure that deemed income arising under section 93 (5) (a) of that Act (a minimum profits charge) cannot be reduced by any remaining non-trading loan relationships deficit.
Section 88 of FA 2012 is amended to allow excess debits over credits arising from intangible fixed assets referable to a company’s basic life assurance and general annuity business, to be deductible in the period they arise.
Section 126 of FA 2012 is amended to allow a life insurance company to use a trade loss arising from its basic life assurance and general annuity business without having to reduce that loss by its net position on derivative contracts for that period.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|---|
| - | 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 economic impacts.
Impact on individuals, households and families
There is no impact on individuals because this is a change that affects life Insurance companies only.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will impact upon people with protected characteristics.
Impact on business including civil society organisations
As businesses familiarise themselves with the regulations they will incur negligible one-off costs. There will be no additional administrative burdens.
This measure is expected to have no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
It is not anticipated that implementing this change will incur any additional cost or savings for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax receipts and returns.
Further advice
If you have any questions about this change, please contact Darryl Wall on Telephone: 03000 585977 or email: darryl.wall@hmrc.gsi.gov.uk.