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HMRC internal manual

General Insurance Manual

Mutual insurance: transfers of business by a mutual insurer

Transfers of business may occur under Part 7 Financial Services and Markets Act 2000 (formerly Schedule 2C Insurance Companies Act 1992) or as part of a scheme or arrangement under Part 26 Companies Act 2006 (formerly section 425 Companies Act 1985).

Transfers of business by a mutual general insurer to another mutual general insurer will not generally give rise to any tax difficulties. The transfer will represent a disposal for the purposes of TCGA92, generally including a disposal of goodwill, and a related transaction for the purposes of the loan relationships and derivative contracts legislation.

More common is likely to be a transfer of business by a mutual to a proprietary general insurer. In this case it is again unlikely that any tax issues will arise unless the transferee is in the same group within the meaning of TCGA92/S170 as the mutual. This may be the case if the transferee is a subsidiary of the mutual, and then there will be a no gain/no loss disposal for the purposes of TCGA92/S171, the transferee taking the assets at their base cost and history to the transferor. However, for trading income purposes in the hands of the transferee the assets are treated as having a cost equal to the values shown in its accounts, subject to ICTA88/S100, re-enacted as CTA09/S162.

Loan relationships and derivative contracts also transfer at no gain/no loss, unless the assets were accounted for on a market to market basis for transferor accounting periods beginning on or after 1 October 2002. See FA96/SCH9/PARA12, re-enacted as CTA09/S340 and CTA09/S341; and FA02/SCH26/PARA28, re-enacted as CTA09/S625.

Intra-group transfers of assets by a mutual general insurer

If a mutual general insurer transfers assets within the charge to corporation tax on chargeable gains to a company in its group which does not carry on a trade in which the assets are trading stock within the meaning of TCGA92/S288, the transfer is one to which TCGA92/S161 (2) applies by virtue of TCGA92/S173 (2). The mutual is treated as having appropriated the asset as other than stock. The effect of TCGA92/S161 (2) here is that the asset is treated as having been acquired by the mutual for the amount brought into the accounts of the mutual’s trade for tax purposes, which will be nil as there is no trading income. The acquiring company will then take the assets at nil base cost.