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HMRC internal manual

General Insurance Manual

From
HM Revenue & Customs
Updated
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Non-resident insurers: other taxation issues: FOTRA securities and War Loan

A non-resident general insurer is subject to certain special rules also applying to other non- resident financial concerns, including overseas life insurance companies and banks.

FOTRA securitiesAs a general rule where a non-resident company holds FOTRA (Free of Tax to Residents Abroad) securities, the interest and any profits or loss on sale or redemption are exempt from tax. This rule is limited, however, where the interest is part of the UK trading or business receipts of the company - the exemption does not apply to interest identified as non-exempt in the security prospectus under Treasury powers in F2A31/S22, modified by FA40/S60.

FA96/S154 made explicit the effect of the prospectuses for tax purposes. Profits or losses remain exempt except in relation to issues of FOTRA securities after July 1996 whose prospectus has been recast to permit taxation of any profit (and relief for any loss) on the sale of such securities. The interest and profits/losses will be included in the credits and debits given by Chapter 2 Part 4 FA 1996 for accounting periods ending after 31 March 1996 (see GIM5090).

War LoanThere remains one security, 3½% War Loan 1952 Or After, which was issued before the modifications permitted by FA 1940, and where the interest as well as any profit or loss on sale remain exempt. Where a non-resident general insurer holds such stock, FA96/S154 (6) provides that no expenses incurred in connection with the holding of the security, or any transaction relating to it, such as a sale or purchase, are brought into account for corporation tax purposes, and nor is any loan relationships debit (within Chapter 2 Part 4 FA96) brought into account in respect of it. This rule replaced, for accounting periods ending after 31 March 1996, ICTA88/S474 (2) which disallowed expenses incurred in connection with the holding of the security, or any transaction relating to it.

War Loan may also give rise to an adjustment under ICTA88/S475. Relief as a debit under Chapter 2 Part 4 FA 1996 for interest on borrowed money may be restricted in accordance with a formula set out in ICTA88/S475 (3) to (5).