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HMRC internal manual

General Insurance Manual

From
HM Revenue & Customs
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Taxation of the investment return: general overview

The assets of a general insurer, like those of most other traders, will consist both of fixed assets and circulating, or current, assets.

The profits or losses on fixed assets will be within the charge to corporation tax on chargeable gains only, but on current assets the profits or losses will come into a computation of trading profits.

An insurer’s fixed (or ‘structural’) assets resemble those of most other traders: premises, plant and machinery, most shares in subsidiaries and the like.

Its current assets, by contrast, will consist of items which, outside the financial sector, would commonly be regarded as investments and therefore fixed assets. These are the funds which an insurer needs to maintain and invest to enable it to meet claims as they arise, as well as to satisfy regulators and potential customers as to its solvency and financial strength.

Investment income and gains taxed as trading income

GIM5020+ explains the basis on which investment income and gains are, in general, included as part of the trading profit of a general insurer.

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Debt and financial instruments

GIM5090+ deals with the taxation of investment income and gains from debt and other financial instruments held by general insurers, which, for accounting periods ending after 31 March 1996, will fall within the statutory rules on government and corporate debt, loan relationships, financial instruments and derivatives.

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Equities and other non-debt assets

GIM5150+ deals with the taxation of investment gains arising on assets other than debt.

Outside the area of loan relationships, current assets held by an insurer as part of its trade will mostly consist of shares, but may also include land, interests in OEICs and unit trusts, and other collective investment vehicles, and derivatives not falling within the financial instruments rules. For accounting periods beginning before 1 January 2002, such assets were taxed on the ‘realisation basis’ (GIM5180).