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HMRC internal manual

General Insurance Manual

Technical provisions: periods of account beginning on or after 1 January 2000 and ending before 19 July 2007: General Insurance Reserves (Tax) Regulations: connected companies, reinsurance and novation

Regulation 3: Rule 4: connected companies: reinsurance and novation

Rule 4 of regulation 3 amended Rule 3 where business was reinsured with, or transferred by way of novation, to an offshore connected company (within the normal meaning in ICTA88/S839).

In its original form Rule 4 applied to a ‘qualifying contract’ or a series of such contracts, meaning a reinsurance contract or a chain of reinsurance transactions, between the general insurer and a connected company which is neither within the charge to CT, nor a Controlled Foreign Company.

The 2003 amendments to the Regulations added ‘relevant transactions’ (that is, fundamentally, contracts of novation) to the type of transaction caught by this Rule.

The Rule applied only to liabilities for which the insurer had previously had a tax deduction.

Where the Rule applied, the qualifying contract or relevant transaction was ignored for the purposes of Rule 3, and the calculations proceeded as if the reinsurance or novation had not taken place. The amended Rule 4 applied from 1 January 2004.

Rule 4 could be disapplied where there was a genuine transfer of business between UK companies, see GIM6340.