Namecos are taxable as corporate members under FA 1994
The first Namecos admitted to Lloyd’s underwrote on the 1997 underwriting year. In most cases shares in the company will have been issued to the Name, who will be the principal shareholder, in consideration of cash and/or the transfer of the Name’s syndicate capacity.
They are subject to the same accounting and regulatory regime as applies to larger corporate underwriters. For tax purposes, Namecos are corporate members of Lloyd’s, subject to the FA 1994 rules explained in LLM4000 onwards.
Namecos will generally be ‘close companies’ within Part XI of ICTA 1988 (CTM60000, see LLM10000). In most cases the former Name will be the principal shareholder and director of the Nameco and amounts received from the Nameco will be taxable as distributions in the normal way. As with CCVs (LLM6030) the shareholder/director is not taxable under the rules in FA 1993 in respect of their participation in the Nameco.
Income from ancillary trust funds (ATFs)
Where individual members make their FAL interavailable to the Nameco, the income on the ATF remains the Lloyd’s trading income of the individual until the period of interavailability has finished. It should appear on the Lloyd’s Pages of the individual’s own Tax Returns.
Shares in Namecos
Subject to the facts of each case, and subject to the conditions of each section being satisfied, claims may be made or notices given under one or more of TCGA92/S16 (2A), TCGA92/S24 (2) and ICTA88/S574 or ITA07/S131. For the latter (income tax share loss relief claims), no relief is available for shares issued after 5 April 1998 in a company carrying on an insurance business.
A claim under TCGA92/S24 (2) requires the shares to have become of negligible value. Shares that were already of negligible value at the time of acquisition (for example, where the Nameco was loss making) will not normally qualify. The validity of such claims will depend on the facts of each case.
Loans to Namecos
Under the normal “interavailability” arrangements, where the Nameco suffers underwriting losses, amounts may be drawn down from the Name’s Funds at Lloyd’s to meet those losses.
The facts and circumstances of each case may differ, but in general, entering into a deed of interavailability, under which the Name’s trustees can apply part of the Name’s fund to meet the Nameco’s liabilities, does not of itself constitute making a loan or advancing money to the Nameco.
In any case where an investor does actually make a loan to a Nameco, TCGA92/S253 requires the money loaned to have been used by the borrower wholly for the purposes of the borrower’s trade, and to have become irrecoverable. A loan which was already irrecoverable when made cannot subsequently become irrecoverable and will not satisfy the requirements of TCGA92/S253.
Whether or not at any point in time a loan is irrecoverable depends on the facts of each case and does not rest simply on the ability of the borrower to effect immediate repayment. Money loaned only as a last resort to enable the Nameco to settle its liabilities is likely to have been irrecoverable at the date it was made.
Transfer of trade to a Nameco: conversion reliefs
No relief is available under TCGA92/S162 in respect of assets transferred to a Nameco before 6 April 2004. See LLM6160 on the tax reliefs introduced by FA 2004 in respect of conversions to Namecos.