Finance Bill 2002
Amendment 163 Page 273 Line 41
Amendment 164 Page 273 Line 43
Amendment 165 Page 274 Line 1
Mr Andrew Smith (Labour, Oxford East)
163
Schedule 23, page 273, line 41, at end insert-
?Life assurance business
13A (1) Paragraph 1 of Schedule 11 is amended as follows.
(2) Before sub-paragraph (2) (effect on debits and credits of applying I minus E basis to profits and gains from loan relationships of insurance companies referable to life assurance business) insert-
?(1B) In applying the I minus E basis for any accounting period in respect of any life assurance business carried on by an insurance company, no exchange gains or losses shall be taken to arise for the purposes of section 100 of this Act except to the extent that the money debt for the purposes of that section-
(a) arises as a result of an amount of income or expenses which falls to be taken into account in applying the I minus E basis not being paid when it is due and payable; or
(b) is one that is treated as a money debt for the purposes of that section by virtue of subsection (11)(a) of that section in accordance with subsection (12) of that section by reference to a Schedule A business or an overseas property business.This sub-paragraph has effect notwithstanding sub-paragraph (1) above.?.?.
164
Schedule 23, page 273, line 43 leave out sub-paragraph (1).
165
Schedule 23, page 274, line 1, after ?3A? insert ?of Schedule 11?.
EXPLANATORY NOTE
SUMMARY
1. The purpose of these amendments is to ensure that exchange gains and losses arising on certain money debts and liabilities are disregarded when the profits of a company's life assurance business is taxed under the I minus E basis.
DETAILS OF THE AMENDMENTS
2. The first amendment adds a new paragraph 13A to the Bill which will amend paragraph 1 of Schedule 11 to the Finance Act 1996.
3. That Schedule sets out special rules for the loan relationships of life assurance companies, recognising the special way in which the profits of life assurance business are usually taxed - this is the so-called I minus E basis (in which the income and gains accruing for the policyholders are brought into account on the company by charging it to tax as if it were an investment company and not a trading company).
4. The new version of section 100 FA 1996 brings a number of money debts and accounts balances which are akin to money debts into the scope of the loan relationships rules, so far as exchange gains and losses on them are concerned. Most of these amounts arise only where a company carries on a trade, including an insurance trade. But they are not recognised when the I minus E basis is applied, so it would be incorrect to include exchange gains and losses on them in an I minus E basis computation. Without amending provisions this would happen, so a new paragraph 1(1B) (inserted into Schedule 11 FA 1996 by the paragraph 13A Schedule 23 inserted by this amendment) excludes them.
5. The second amendment omits paragraph 14(1) of Schedule 23 to the Finance Bill which introduces amendments to Schedule 11 to the Finance Act 1996. The third amendment then makes clear which provision is being amended by paragraph 14(2). This is necessary because of the change made by the second amendment.
BACKGROUND
6. UK life assurance business is taxed under the so-called I minus E basis in which the profits attributable to shareholders and the profits attributable to policyholders are taxed together rather than separately. Special rules are therefore required in several parts of tax law to ensure that the general principles of tax law are correctly applied when calculating the tax due on the profits of a life assurance business. The forex legislation has to contain such rules.
7. These amendments provide rules to ensure that exchange gains and losses on certain money debts and other accounts entries made by an insurance companies - deferred acquisition costs, unearned premium reserves, unexpired risks reserves and provisions for future liabilities - are taxed in the correct way when they form part of the profits of a life assurance business.