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HMRC internal manual

Lloyd's Manual

HM Revenue & Customs
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Corporate members: syndicate capacity: accounting periods ending before 1 April 2002

The realisations basis

This basis applies to the taxation of transactions in capacity up to the introduction of the new rules on the taxation of intangible fixed assets introduced by FA02/SCH29. Any profit or loss against original cost is realised only on disposal. GIM5000+ in the General Insurance Manual (see LLM10000) has more on the realisations basis.

For accounting periods ending before 1 April 2002, where accounts reflect transactions in capacity, tax computations should be based on the following principles

  • a profit or loss does not arise for tax purposes until the capacity is disposed of: it follows that pre-emptions and de-emptions (LLM1130) will not cause an amount to be brought to account
  • amortisation of capacity (required by FRS 10) is not an allowable deduction; this is in accordance with first principles - ICTA88/S74 (1)(f) and ICTA88/S817 (2)
  • a profit on the sale of capacity in one syndicate cannot be rolled over or otherwise set off against the cost of other capacity, either in that syndicate or any other syndicate - the cost of that new capacity will only feature in the tax computations if it is later sold.

Connected companies

Until 2001 the official view was that if disposals of syndicate capacity were made between connected companies, market value should be brought into the tax computations in place of the actual consideration paid (if any), following the principles in Petrotim Securities Ltd v Ayres (41TC389) - see BIM33610 (LLM10000).

In October 2001 it was accepted that the disposal value for tax purposes should follow the accountancy treatment provided this did not conflict with normal accounting practice. Intra-group transfers at net book value will give rise to a taxable profit or loss based on the acquisition cost less the net book value at transfer. The acquiring company will be treated as acquiring the capacity at the same value. The revised view applied to intra-group transfers of capacity where the computations were not settled at the date of the announcement.

Nil value claims

Where the disposal was made following the principles in Petrotim discussed above, it was occasionally argued that the capacity was of no value and therefore that no sale proceeds should be brought to account. The argument that, as disposals of syndicate capacity between connected companies often take place other than at auction time, a value cannot be placed on the capacity is considered unsound.

There are circumstances where the value of assets cannot readily be realised - minority shareholdings in private companies for example. It does not follow that the assets have no value. In such cases other information may be available to give a guide price (see LLM8020) and Shares and Assets Valuation can advise if necessary.