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HMRC internal manual

Lloyd's Manual

Corporate members: taxation of assets employed in connection with underwriting

Assets employed in connection with the underwriting business

FA94/S219 (3)(b) applies the Case I charge to all profits and chargeable gains arising on all assets comprising Funds at Lloyd’s or otherwise employed in, or in connection with, the underwriting business.

Assets backing letter of credit or bank guarantee

The Funds at Lloyd’s of a corporate member is often satisfied by the lodging at Lloyd’s of a letter of credit or a bank guarantee. If the assets which back the letter of credit or the bank guarantee are owned by the corporate member, profits arising on them will be brought within Case I of Schedule D by FA94/S219 (3)(b) as those assets will be employed in connection with its underwriting business.

If the assets which underlie the letter of credit or the bank guarantee are owned by another person, for example by another company in the group, or by the company’s shareholders, a Case I charge does not arise on the corporate member on the profits arising on such assets. In these cases, profits on the assets will arise to their owner and not to the corporate member as the opening words of section 219(3) require. Nor in such cases are the underlying assets themselves part of an ATF.

Third party deposits

Sometimes the Lloyd’s Deposit is provided by a third party on behalf of the corporate member. Again, section 219(3) does not operate to bring profits on those funds within Case I on the corporate member because the profits do not arise to the corporate member.

Syndicate capacity

The main type of asset falling within the category of an asset employed by it in, or in connection with, its underwriting business is likely to be syndicate capacity. Taxation of transactions in syndicate capacity is discussed in more detail at LLM4170 onwards.