CFM47020 - Deemed loan relationships: investment life insurance contacts: scope and commencement: accounting treatment

Accounting treatment by holders of investment life insurance contracts

The tax treatment, under the loan relationships rules, of an investment life insurance contract owned by a company will follow the treatment of that contract within the company’s accounts. There are several different accountancy treatments that a company might use in accounting for an investment life insurance contract held including

IFRS and New UK GAAP

Fair value

Where a company accounts for a contract under New UK GAAP or IFRS it may use fair value accounting. Movements in fair value are recognised each year in profit or loss or equity.

Amortised cost

Under New UK GAAP or IFRS a company may account for an insurance contract using amortised cost accounting, with profits or losses recognised each year in profit or loss.

Old UK GAAP (including FRS 26)

Fair value

Where a company accounts for a contract under FRS 26, it may use fair value accounting. Movements in fair value are recognised each year in profit or loss or equity.

Amortised cost

Under FRS 26 a company may account for an insurance contract under amortised cost accounting, with profits or losses recognised each year in profit or loss.

Old UK GAAP (excluding FRS 26)

Historic cost basis

Under Old UK GAAP where the company does not apply FRS 26, the contract may be accounted for as a fixed asset investment or a current asset investment under the historic cost convention and normally any profits or losses on the contract will only be recognised on disposals of rights under the contract.

Current cost (for current asset investments)

Where a company adopts the alternative accounting rules as allowed under the Companies Act 2006 if the policy is a current asset it could account for a contract using ‘current cost’. This is effectively the same as market value and movements in the current cost will be recognised in the revaluation reserve each year until realised.

Valuation (for fixed asset investments)

Where a company adopts the alternative accounting rules as allowed under the Companies Act 2006, if the policy is a fixed asset it could account for the contract using either market value, or directors’ valuation. Movements in the valuation will be recognised in the revaluation reserve each year until realised.