Commentary

D7.5117 Deductions permitted

Corporate tax
Corporate tax | Commentary

D7.5117 Deductions permitted

Corporate tax | Commentary

D7.5117 Deductions permitted

The rules in this division apply for accounting periods beginning before 1 January 2013. For accounting periods beginning on or after 1 January 2013 see Division D7.4.

One of the earliest cases dealing with life insurance taxation Last v London Assurance Corporation1 established the principle that bonuses to policy holders were allocations of profits rather than expenses incurred in earning those profits. The legislation therefore makes it explicit that amounts allocated to policy holders are to be deducted as expenses in computing the life assurance trade profits2. For these purposes an amount is allocated to policy holders only if:

  1.  

    (a)     bonus payments are made to them, the expense being the amount of the payment; or

  2.  

    (b)     reversionary bonuses are declared in their favour or a reduction is made on the premiums payable by them, the expense being the amount of the actuarial liabilities assumed by the company consequent thereon3.

However for amounts allocated to with-profits policy holders after 22 April 2009 relief is denied for sums which are capital in nature and which are not funded by amounts that are part of total income in the regulatory revenue account4. In practice such payments are likely to arise only in limited circumstances, likely examples being a demutualisation (where policy holders receive compensation for giving up their mutual status) or a reattribution of a company's inherited estate. The latter is specifically cited in the legislation as being capital in nature and hence within the ambit of the legislation.

The legislation also

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