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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Reinsurance and other forms of risk transfer: financial reinsurance and alternative risk transfer (ART): tax treatment: mutuals

Financial reinsurance has been used for tax avoidance purposes by mutual insurers, for example by entering into a time and distance policy (GIM8220) to replace taxable investment income by a non-taxable insurance recovery. Such arrangements present a risk. They are abusive and may be challenged on a variety of grounds, including that the reinsurance operation is outside the circle of mutuality. The result of this is that either the profits from it are taxable, or alternatively that the reinsurance deprives the business of its mutual nature (see GIM9040).