Finance Bill Tracking Service 2010 | Budget 2010


Who is likely to be affected?

1. Companies carrying out life insurance business who defer recognition of profits from business arising in a non-profit fund and companies who acquire non-profit business by way of a transfer of business.

General description of the measure

2. As announced in the 2009 Pre-Budget Report (PBR), Finance Bill 2010 will modify the apportionment rules to ensure that, when recognised, deferred profits are taxed on an appropriate basis. It has now become clear that the application of the modified rules could be avoided by the transfer of non-profit business from one non-profit fund to another.

3. The Government intends to legislate for an anti-avoidance rule in a Finance Bill to be introduced as soon as possible in the next Parliament.

Operative date

4. The measure will have effect for transfers of business which take place on or after 24 March 2010.

Current law and proposed revisions

5. Where a life insurance company writes more than one type of insurance business, apportionment rules are used in determining the profits from each type of business. For non-profit funds this apportionment is on the basis of the liabilities to policyholders for each type of business in the fund.

6. The regulatory return, which is used as the starting point for determining life insurance business profits, allows companies to defer recognition of profits in a non-profit fund and this deferral is effective for tax purposes. The deferral has an exchequer cost, but this is largely a matter of timing, in that tax should be paid when the deferred amounts are brought into account.

7. Evidence that the ability to defer profits could lead to tax being avoided altogether led to the announcement at the 2009 PBR that legislation would be introduced to modify the apportionment rules. To ensure that these new rules cannot be circumvented by a transfer of business an anti-avoidance rule will be introduced.

Further advice

8. A Technical Note containing details of the anti- avoidance rule has been published today on the HM Revenue & Customs website.

9. If you have any questions about this change, please contact Carol Johnson on 020 7147 0517 (email: Information about Budget measures is available on the HM Revenue & Customs website at