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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Taxation of the investment return: corporate and government debt: accounting periods ending after 31 March 1996: rules for insurance companies

An insurance company, in common with other companies, is required to use for tax purposes its Companies Act accounts. It should not use the figures in its FSA return.

In general, the accounting Regulations SI2008/410 require the use of fair value, subject to a company using the accruals basis for certain securities (see GIM2200).

Where the parties to a loan relationship are connected there is a prohibition against using fair value. An amortised cost basis, must be used even where fair value is used in the accounts - FA96/S87. But this rule does not apply where a general insurer holds an asset that was acquired in the course of activities forming an integral part of its trade and the company which issued the asset (debtor) is connected with it (this, for example, enables an insurer to hold shares in its parent in the course of its ordinary dealing activities without disadvantage) - FA96/S88. This will be the case where any profit on disposal of the asset would have been treated as a trading receipt in accounting periods ending before 1 April 1996. There are other conditions to be met before fair value can be used for such assets - see CFM5420+ (and CTM53880+ for accounting periods beginning before 1 October 2002).

Other special loan relationships rules do not apply where a disposal of the asset concerned would be a disposal in the course of activities which form an integral part of its trade, or the asset is held in the course of such activities. These are FA96/S92 and FA96/S92A (convertible securities); FA96/S93 (assets linked to the value of chargeable assets); and FA96/S96 (excluded gilts).

For periods beginning on or after 1 January 2005 special rules apply to convertible securities and assets linked to the value of chargeable assets - regulation 11 of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (SI2004/3256). LAM4B.431 gives further details.