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HMRC internal manual

General Insurance Manual

Taxation of general insurance: transfers of business: tax treatment

A portfolio of investments will often be transferred along with the insurance contracts, the value of the investments representing the consideration for the transfer of the (net) liabilities under the policies. Whether the realisation basis or mark to market applies for tax purposes, there is a realisation of the investments by the transferor. ICTA88/S100 may apply to fix the consideration for tax purposes at a different value from the investments’ accounts carrying value. If an election is made under FA02/S66, the transferee retains the realisation basis even if the assets are acquired after 31 December 2001. See GIM5210 for further details.

Where the whole of the transferor’s business is involved, it will cease to trade as a result of the transfer. A Case I deduction will be allowed to the transferor for any payment made as consideration for the transfer of its technical reserves and other current liabilities. In the case of a transferee which starts business as a result of the transfer, the liabilities assumed will be the opening provision and so a credit. The fair value of the assets acquired in consideration for the assumption of the liabilities will be the opening value where mark to market applies, and will (subject to ICTA88/S100) be the cost figure where the realisation or accruals basis continues to apply - see GIM5180.