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HMRC internal manual

General Insurance Manual

Taxation of the investment return: exceptions to the general rule: investment income not always taxed as trade profits

Despite the fact that the investment income of an insurer is, in general, a trading receipt it does not always fall to be included in the computation of trade profits, as the following paragraphs explain.

The exclusivity of the Schedules

Where the investment income is assessable as such under a Schedule other than Schedule D then the principle of the exclusivity of the Schedules, which was upheld in Salisbury House Estate Ltd v Fry 15TC266 applies.

For example, income which was assessable under Schedule C (before its abolition for accounting periods ending after 31 March 1996 by FA96/S79) could not properly be included in an assessment of trade profits.

Similarly, income from real property in the UK falls to be assessed under the normal income from property rules (although for periods or parts of periods ending after 1 April 1998 these rules follow the rules for calculating trade profits). See GIM5280 for the treatment of investment gains on land and property.

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Dividends and other qualifying distributions

The general rule for share dealing companies is that dividends and other qualifying distributions from UK companies are treated as franked investment income and are not subject to corporation tax. Share dealing companies generally are, however, chargeable (ICTA88/S95), but general insurance companies, though dealing companies for this purpose, are an exception (ICTA88/S95ZA), so they are treated like UK companies generally.