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HMRC internal manual

General Insurance Manual

The investment return: investment gains: accounting periods beginning before 1 January 2002: portfolio assets and trading stock: periods ending before 1 April 1996

The rules in GIM5160 also apply where an investment treated as ‘trading stock’ is appropriated by the insurer to be held otherwise than as ‘trading stock’, or vice versa.

A portfolio asset that a composite insurance company disposes of may at an earlier period have formed part of the company’s long term business fund. If it was transferred out of the long-term business fund after 31 December 1989, ICTA88/S440 (as inserted by FA90/SCH6) will have required a deemed disposal for all CT purposes at market value. This means that the general side of the business will have acquired the asset for trade purposes at its market value at the date of transfer, and any gain on realisation will be based on that value.

Where a composite transfers a portfolio asset from its general side to the long term business fund after 31 December 1989, there is a deemed disposal at market value for the purposes of computing the trade profit, restoring the rule in Sharkey v Wernher 36TC275 (subsequently enshrined in legislation by FA08/S37) that was removed by F2A75/S42.