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HMRC internal manual

Lloyd's Manual

HM Revenue & Customs
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Names: other Lloyd’s-related expenditure: quota share contracts and Estate Protection Plans: FA 2002: general

FA02/SCH32 introduced new rules on the taxation of quota share (‘QS’) contracts and Estate Protection Plans (LLM5190) entered into after 16 April 2002. In summary

  • If the Name pays a cash call and enters into a QS contract before the loss which has been reinsured is declared, relief for the cash call can be claimed as well as relief for the premium. The relief is due in the year in which the contract takes effect.
  • If the Name enters into a QS contract after the loss has been declared but before it has been called, the amount of the premium for which relief can be claimed is restricted by the amount of the declared loss.
  • If the amount of the premium is less than the declared loss, the difference is taxable as income.

The broad intention of the legislation is to give relief for the amount the Name pays out in respect of losses and QS premiums. Under the previous rules where a loss was declared and the Name entered a QS contract to reinsure those same losses after declaration but before they were called, a double deduction could be claimed, firstly for the declared losses and secondly for the premium. Conversely, where cash calls were paid and a QS policy taken out before the loss was declared, the losses would be taken over by Centrewrite and the Name would get relief for the premium but not for the losses or any amounts already paid by way of cash call.

The rules for EPPs follow the same principles, with a modification to reflect the fact that such policies only come into effect if the Name dies. If the contract has not come into effect at the time the Name wants to make a tax return the premium paid can be claimed as a provisional figure. Any further amounts payable are allowed in the underwriting year when the contingent event (the member’s death) which triggers the policy occurs.