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HMRC internal manual

Lloyd's Manual

Corporate members: taxation of ancillary trust fund (ATF) income and gains

A corporate member may have other profits arising from its underwriting business in addition to those arising directly from syndicate membership or from premium trust fund assets (LLM4090).

FA94/S219 (3)(a) and (b) provides that profits which arise to a corporate member from assets forming part of an ancillary trust fund (ATF), or from assets employed by it in, or in connection with, its underwriting business are to be charged to tax as trading income (Part 3 of CTA09), unless they fall within any other of the rules in CTA09.

The main significance of this provision is that gains on assets used in connection with underwriting, which fall within the capital gains tax regime for individual members (LLM8170), fall to be treated as trading income for corporate members.

The ‘declaration basis’ in FA94/S220 applies to profits or losses arising directly from membership of syndicates and to returns from assets held in the premium trust fund. Other profits or gains are subject to assessment according to the usual corporation tax basis of assessment rules.

This section deals with income from ATF assets. LLM4120 deals with income and gains on assets employed in or in connection with underwriting.

Profits on ATF assets

Ancillary trust funds are defined in FA94/S230 (1) - see LLM1200. A corporate member is, like an individual member, treated as absolutely entitled as against the trustees to the assets forming part of an ATF belonging to it (FA94/S223). The ATF assets of a corporate member often consist only of the Lloyd’s Deposit. Corporate members do not usually provide additional Funds at Lloyd’s through personal reserves as individual members have traditionally done.

Distributions on ATF and other non-PTF assets

LLM2130 explains that most dividends and other distributions received on or after 1 July 2009 on assets held within a syndicate premium trust fund by a corporate member are exempt. This exemption also applies to UK and foreign dividends arising on assets held in the ATF.

Distributions from UK resident companies received by a corporate member before 1 July 2009 (and after 2 July 1997) on assets held in an ATF or employed by the corporate member in, or in connection with, its underwriting business were treated as trading income by virtue of FA94/S219 (4A). This was repealed by FA09/SCH14/PARA18. Only the distribution was taken into account as trading income, without addition of tax credit.

Forex, derivative contracts, and loan relationships

The normal corporation tax rules on the taxation of foreign exchange, derivative contracts and loan relationships apply to assets held in the ATF, in contrast to the position with PTF assets - see LLM4090.

Forex adjustments covering the period between close of account and distribution of profits are covered at LLM2110. These adjustments will actually be made in the syndicate tax computations, but an adjustment may also be shown in the computations of members as part of the process of adjusting the profit shown in the accounts to the taxable profit.