Commentary

D7.5118 FSA reserve releases

Corporate tax
Corporate tax | Commentary

D7.5118 FSA reserve releases

Corporate tax | Commentary

D7.5118 FSA reserve releases

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.

In December 2006 the FSA published Policy Statement PS 06/14 Prudential Changes for Insurers, which permitted insurers to relax their reserving requirements in respect of certain types of business. The effect of this was a large release of mathematical reserves across the industry (sums of several billions of pounds) and an increase in surplus and hence taxable profit of a like amount in those insurers who were able to benefit from the relaxation. Following industry representations asking for the tax effect of this release to be mitigated, the government was persuaded to allow the resulting taxable profit to be deferred from the year in which it emerged and to be brought back into the charge to tax over the next three years.

The legislation1 applies to a non-profit company (a company none, or none but an insignificant proportion, of whose long-term liabilities are with-profits liabilities2) or a non-profit fund (a fund that is not a with-profits fund within the meaning of the Prudential Sourcebook (Insurers3)). The legislation does not apply to a with-profits fund because companies with such a fund were able to manage the emergence of the additional surplus through the book value election permitted by IPRU(INS) Rule 9.10(c).

In order to qualify for relief the company must show an amount in paragraph 4(12) of the Appendix 9.4 valuation report

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