Equalisation reserves for corporate and partnership members: equivalent Lloyd’s reserve
The relief (FA09/S47) operates through the application of the main equalisation tax relief provisions (ICTA88/S444BA) to an ‘equivalent Lloyd’s reserve’ subject to adaptations set out in regulations made under a Treasury power conferred by FA09/S47. These regulations are The Lloyd’s Underwriters (Equalisation Reserves) (Tax) Regulations 2009, SI2009/2039.
The reserve, to be an equivalent Lloyd’s reserve, must be “maintained by a corporate or partnership member for purposes, or in a manner, such as to make it equivalent to an equalisation reserve maintained by equalisation reserves rules”. The equalisation reserve rules for this purpose are those laid down by the Financial Services Authority in chapter 1.4 of the INSPRU sourcebook. The reference to “in a manner” is important. It means that the Lloyd’s member may maintain the equalisation reserve purely as part of its tax computations and not as a requirement of any regulatory authority or recognised accounting practice, so long as it is maintained in the appropriate manner, that is, as though the equalisation reserve rules applied to it.
The de minimis limit described at GIM7050 does not apply, as the reserve may be maintained in the manner of the INSPRU rules without regard to INSPRU 1.4.18, which is a maintenance requirement that does not apply to equivalent Lloyd’s reserves.