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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Taxation of general insurance: historical background

Insurance is classified for regulatory purposes into long term business and general business (see GIM1020). The different tax treatment of certain types of insurance goes back well into the nineteenth century, long before any tax legislation on the topic. The main aim of the Revenue was to tax the commercial profits of those types of business which provided a mechanism for sharing financial loss, and to tax the investment return accruing for the benefit of policy holders, and shareholders if there were any, where the business provided a medium for savings. Companies carrying on life insurance and various other types of investment business were taxed on their investment income, and companies carrying on general insurance business on the balance of their profits.

Composites (companies carrying on both long term and general business) were a problem because a company which carries on several classes of insurance business, or both long term and general business, nevertheless carries on only one undivided trade (see Last v London Assurance Corporation 2TC100). The difficulty was eventually resolved by Finance Act 1915 which provided among other things that life insurance was to be treated as a separate business, a provision still in the Taxes Acts. Since 2007 it appears at ICTA88/S431H (2), which distinguishes between

  • life assurance business, and
  • any other insurance business.

See GIM4250 for more details on composites.