Commentary

D7.5120 Restriction of losses following additions to the long-term insurance fund—periods before 30 June 2008

Corporate tax
Corporate tax | Commentary

D7.5120 Restriction of losses following additions to the long-term insurance fund—periods before 30 June 2008

Corporate tax | Commentary

D7.5120 Restriction of losses following additions to the long-term insurance fund—periods before 30 June 2008

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.

These rules have limited application after 1 January 2007 and cease to apply entirely after 30 June 2008. Care is therefore needed in checking their application to transfers of business between those dates.

As part of the general measures affecting the calculation of Case I profits and losses, amounts transferred into the long-term insurance fund, for example from shareholders' funds or from other funds, are taken into account as a receipt when calculating a loss1. This prevents relief being given in respect of a loss which might otherwise arise from the deduction of an increase in liabilities to policy holders which is financed by the introduction of additional assets into the fund. This rule applies only to the computation of losses (as opposed to profits) for Case I purposes as well as the computation of a Case I loss of a pure reinsurer.

The legislation as originally enacted in FA 1995 was felt to be too far-ranging and was amended in FA 1996 to ensure that it applied only in certain precisely defined circumstances. In particular, it was disapplied to instances of new business strain, that is losses incurred in the first years of operation or writing a particular type of business, since such losses are often funded by injections

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