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HMRC internal manual

Lloyd's Manual

Capital gains: Names: syndicate capacity: disposals: reversion to managing agent

In certain circumstances syndicate capacity will revert to the managing agent

  • a Name may choose not to change allocated capacity in line with an expansion of the syndicate stamp, or for some other reason does not or cannot sell his capacity in the year’s auctions
  • the syndicate capacity may be ‘limited tenancy’.

Limited tenancy capacity was introduced in 2003 following one of the recommendations of the Chairman’s Strategy Group. It is capacity of finite security of tenure, which at the end of its term reverts for no consideration to the managing agent.

If the whole of the capacity in one particular syndicate reverts to the managing agent, there has been a disposal of a chargeable asset, with nil proceeds. If the Name paid for the capacity in the first place, then there will be a loss on disposal equal to the original purchase price plus allowable costs, subject to the wasting asset rules in the case of limited tenancy capacity. If only part of the capacity in a particular syndicate reverts, there has been a part disposal of an asset for nil proceeds and there will be a loss on disposal of that part.

For instance, in August 2005, a Name buys £50,000 capacity in syndicate X (2006) for £2,500. For the 2007 account, £20,000 of that capacity reverts to the managing agent. The capital gains computation will be:

  £   £
Disposal proceeds Nil    
Original purchase price      
£50,000 of 2006 capacity 2,500    
Cost of part disposed of: 1,000   (1,000)
Allowable cost of remaining part 1,500    
Incidental costs of disposal     Nil
Loss     (1000)

If acquired at auction, limited tenancy capacity will be a wasting asset within CG76740 and relief for acquisition costs will be dealt with under the wasting asset rules - CG76770+. If limited tenancy capacity is derived from existing capacity under a buyout arrangement the wasting asset rules will not apply. Acquisition costs will need to be apportioned between any cash or shares received under the arrangement and the retained capacity on part disposal principles.