Finance Bill 2002
Amendments 128 and 151-153
Amendment 128 Page: 289 Line: 14
Amendment 151 Page: 309 Line: 12
Amendment 152 Page: 309 Line: 14
Amendment 153 Page: 313 Line: 46
Mr Andrew Smith (Labour, Oxford East)
128
Schedule 25, page 289, line 14, at end insert 'and the shares are not, within the meaning of Chapter 1 of Part 12 of the Taxes Act 1988, assets of an insurance company's long-term insurance fund (see section 431(2) of that Act)'.
151
Schedule 25, page 309, line 12, after 'if' insert '(a)'.
152
Schedule 25, page 309, line 14, at end insert '; and
(b) the shares are not, within the meaning of Chapter 1 of Part 12 of the Taxes Act 1988, assets of an insurance company's long-term insurance fund (see section 431(2) of that Act)".'.
153
Schedule 25, page 313, line 46, at end insert-
'Life assurance business
39A (1) In Schedule 11 (loan relationships: special provisions for insurers) Part 1 (insurance companies) is amended as follows.
(2) In paragraph 1 (I minus E basis) after sub-paragraph (1) (which provides that nothing in the Chapter prevents profits and gains from loan relationships of insurance companies referable to life assurance business from being included in profits and gains chargeable in accordance with the I minus E basis) insert-"(1A) Where-
(a) the I minus E basis is applied for any accounting period in respect of any life assurance business carried on by an insurance company, and
(b) in that accounting period the insurance company is a party to a loan relationship which is to any extent referable to that business,
then, in applying the I minus E basis to that business, sections 92(1)(f), 93(1)(a) and (b) and 96(1)(b) of this Act shall be disregarded in relation to that loan relationship to that extent.".'.
EXPLANATORY NOTE
SUMMARY
1. The purpose of the amendments is to ensure that life assurance companies
· are not treated like providers of finance for the purposes of the connected persons rules, but
· are able to take advantage of the special loan relationships rules for certain types of security.
DETAILS OF THE AMENDMENTS
2 The first amendment here modifies section 87A(2) FA 1996 inserted into that Act by paragraph 8 Schedule 25 to the Bill. That subsection excludes shares held by financial traders from being taken into account when deciding if a person is connected with another person. The connection rules determine whether e.g. relief for bad debts may be given. Life assurance companies, although financial traders, are not generally providers of finance by way of lending, so it is not appropriate for their holdings in other companies to be excluded.
3. The second and third amendments make equivalent modification to paragraph 20 Schedule 9 FA 1996 inserted by paragraph 36 Schedule 25 to the Bill. This deals with the question whether one company has a major interest in another.
4. The fourth amendment inserts a new paragraph 39A into Schedule 25 to the Bill. That new paragraph in turn inserts a new paragraph 1(1A) into Schedule 11 FA 1996 which makes special provision for insurance companies and loan relationships.
5. The new sub-paragraph makes it clear that where a life assurance company is taxed on the I minus E basis (the basis that ensures that income and gains accruing for policyholders are brought into account for tax as they arise), then the benefit of the special treatment of convertible securities, asset linked securities and two particular gilt-edged securities which is denied to those companies which are financial traders is preserved for life companies, even though they would be regarded as being financial traders.
6. The provisions affected by this are sections 92, 93 and 96 FA 1996.
BACKGROUND
7. The measures included in the Finance Bill as Schedule 25 represent the outcome of a major consultative process between the Government and representatives of, and advisers to, business. Two Consultative documents and a Technical Note have been produced, and two rounds of draft clauses have been published, most recently on 19 December 2001.
8. One amendment takes account of representations made in response to that note but which were inadvertently left out of the Bill as published.