Corporate members: taxation of premium trust fund (PTF) income and gains: aligned member syndicates
As explained at LLM1095, with effect from 1 July 2007 aligned corporate members may hold ‘member capital’ in the syndicate PTF that would formerly have been held in the personal reserve fund as part of their Funds at Lloyd’s - see LLM1200. In order to continue the same timing basis treatment for profits or losses arising on this capital, as described at LLM4110, Regulations (SI1616/2007) were made to amend FA94/S220 (2)(b). In its amended form, the subsection ensures that, for a particular underwriting (calendar) year, the profits or losses effective for tax purposes for a corporate member originating from assets forming part of a PTF are taken to be
- those declared in that year, which have been allocated under the process described at LLM4090 to previous years under Lloyd’s practice
- those actually arising in the year, not subject to the allocation process.
This has the effect of applying the declaration basis (LLM4100) to the ordinary syndicate PTF profits or losses, and the normal arising basis (LLM4110) to the profits or losses originating from member capital held in the syndicate PTF.
For example, an aligned member may hold in its PTF
- capital which comprises insurance premiums received, and so is normal PTF capital, the return on which is allocated (perhaps using the Riesco formula - LLM2210) to 2007, and
- capital which is part of their Funds at Lloyd’s, and would formerly have been held in a personal reserve fund, the return on which arises in 2007.
Income and gains from a. is within the declaration basis and will not be taxed until 2010. In terms of FA94/S220 (2)(b)(i) 2010 is ‘that [underwriting] year’ in which profits or losses are declared, but which have been allocated under the rules or practice of Lloyd’s to a previous year (2007).
But income and gains from b. will be taxed in 2007, even though the originating capital is held in a PTF, because they arise in 2007 and are not allocated to any previous year or years, that is, to any years before that whose profits are being assessed or loss allowed.