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HMRC internal manual

Lloyd's Manual

Syndicate accounts: taxation: premium trust fund assets: gains and losses on disposal

Before amendment made by Finance Act 1993, gains on PTF assets were subject to capital gains tax. Since 1994, changes in the value of PTF assets are taxed as part of the trading result, following FA93/S172 (1)(b) for individual members and FA94/S219 for corporate members.

PTF assets are accounted for on a mark-to-market basis, based on the value at 31 December each year: that is, their market value is restated annually. In accordance with FA93/S174 for individual members and by FA94/S222 for corporate members, tax follows the same basis.

The following elements contribute to the capital appreciation or depreciation for a year of account

  • for assets sold during the year, the difference between disposal proceeds and market value at 1 January (or cost if acquired after 1 January)
  • for assets acquired during the year, the difference between the cost of acquisition and market value at 31 December (or disposal proceeds if sold before 31 December)
  • for assets held throughout the year, the difference in market value between 1 January and 31 December.

Changes in value of current assets are added to the investment income for the year to produce the aggregate investment return. At any one time a syndicate will typically have three years of account open – more if it is in run-off - and will normally manage the premium trust fund investments relating to those years of account together. To allocate the aggregate investment return for each calendar year equitably between the years of account, a formula is required. See LLM2210.

FA93/S172 (1)(b) and FA94/S220 (2)(b)(i) provide for allocation “under the rules or practices of Lloyd’s”. The allocation method is therefore acceptable for tax purposes.

Illinois and Kentucky Funds

Lloyd’s is required by the States of Illinois and Kentucky in the USA (under the terms of its licence in those States) to hold investments there in order to be allowed to underwrite licensed direct insurance business. These funds are provided by the syndicates in proportion to their involvement in such underwriting centrally through Lloyd’s and the investment return passed back to them and included in syndicate accounts.

Regulatory deposits in foreign countries

Money paid out of the fund as a regulatory deposit in a country outside the UK is treated as remaining part of the fund - FA93/S174 (1)(b) and FA94/S222 (1)(b).