CG41600 - Companies and groups of companies: particular types of company or organisation: friendly societies
General
The legislation dealing with friendly societies is at ICTA88/S459 - ICTA88/S466. It is lengthy and complex, and these instructions deal only with certain capital gains aspects of friendly societies. More extensive instructions can be found at CTM40300 onwards.
Friendly societies can be
- registered
- unregistered
- incorporated
All friendly societies are companies for the purposes of Corporation Tax; registered and unregistered friendly societies come within the definition of company as unincorporated associations, while incorporated friendly societies are companies in their own right. Although they are within the charge to Corporation Tax, friendly societies enjoy a number of specific exemptions. Files for societies that have income or profits outside these exemptions should be dealt with by one of the specialist insurance districts. (See CTM40315 for further instructions on the general scheme of taxation of friendly societies).
Registered friendly societies
A registered society is one registered by the Registrar of Friendly Societies under section 8 of the Friendly Societies Act 1974 and will have a registration number.
Subject to certain restrictions, see CTM40320 to CTM40330, a friendly society carrying on life and endowment business (excluding pension business) is exempt from Corporation Taxon income or chargeable gains arising from that business by virtue of ICTA88/S460 (1). A friendly society registered on or before 31 May 1973 carrying on business other than life or endowment business is exempted from Corporation Tax on income or chargeable gains arising from that business by ICTA88/S461 (1). It is possible, but unlikely, that a friendly society registered after 31 May 1973 may also be exempt from Corporation Tax on the income or chargeable gains arising from its business other than life or endowment business, see CTM40335.
Unregistered friendly societies
An unregistered friendly society with income not exceeding £160 is exempt from CT (FA12/S17). This exemption covers both income and chargeable gains. When a society first claims exemption under this section its file, including the rules of the society, should be referred to CTIS (Insurance).
Incorporated friendly societies
The Friendly Societies Act 1992 introduced a corporate structure within which friendly societies can be set up. From 1 February 1993 all new societies will only be able to register if they are incorporated. Incorporated friendly societies enjoy the same exemptions as other registered friendly societies.
Incorporation of previously registered societies
TCGA92/S217A - TCGA92/S217C deal with the situation where a previously registered society incorporates under the provisions of the Friendly Societies Act 1992. The broad effects of these provisions as far as the society is concerned are
- any assets which pass from the registered society to the newly incorporated society do so on a no gain/no loss basis
- where the incorporated society subsequently disposes of any asset acquired in this way, TCGA92/S41 (restriction of allowable loss by reference to capital allowances) will apply as if any capital allowances made to the registered society had been made to the incorporated society.
The incorporation of a registered friendly society does not involve any disposal or acquisition of membership interests (TCGA92/S217B). Rights which a member holds after incorporation are treated for capital gains purposes as the same asset as the rights held before incorporation.