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HMRC internal manual

General Insurance Manual

Taxation of the investment return: UK dividends and other distributions: history and basic rule

Section 95 ICTA 1988

Before 2 July 1997 - own share repurchase

An insurance company may be party, as seller, to a purchase by another company of that company’s own shares. Where the proceeds of sale of those shares were treated as a trading receipt (see GIM5150), the insurance company was not entitled to a tax credit in respect of the distribution represented by the purchase price.

The distribution was brought within the trade profit (ICTA88/S95 (1) as it then stood, dealing with own share purchases). Share buybacks occurring on or after 8 October 1996 did not in any event give rise to a tax credit (FA97/SCH7/PARA2).

This treatment was extended to certain other distributions made in connection with transactions in securities and made on or after 26 November 1996 (FA97/SCH7/PARA8 amending ICTA88/S95).

On or after 2 July 1997 - non application of dealer rule to general insurance company dividend receipts

ICTA88/S95 was amended in F2A97 in relation to distributions made after 1 July 1997 so as to require dealers in shares - those whose proceeds of disposal are treated as trading receipts - to bring the actual amount of any distributions they receive from UK companies into their computation of trade profits also.

This rule is, however, specifically disapplied in relation to insurance business (F2A97/S24 (6) inserting ICTA88/S95 (2A)). The treatment of distributions from UK companies in the hands of a general insurance company is therefore the same as for non-financial traders. A different treatment applies to corporate members of Lloyd’s - LLM2130 and LLM4110.