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Life insurance companies transfers of business

The following measures were announced with reference to transfers of business by life insurance companies:

Transfers of UK life insurance business to non-EEA companies

The tax rules designed to ensure tax-neutrality on the transfer of business between life insurance companies (“insurance business transfer schemes”) have a charging mechanism so that surplus assets transferred directly to the shareholder’s fund of the transferee will not escape tax.

The charge arises as follows:-

  1. If the transferee is an insurance company or Insurance Special Purpose Vehicle (“ISPV”), and the assets do not form part of the long term insurance fund immediately after the transfer.
  2. If the transferee is not an insurance company, ISPV or Friendly Society, and the assets do effectively, form part of a “with-profits” fund of the company.

As the definition of an insurance company in the legislation covers only EEA companies, a bona fide commercial transfer of non-profit business to a regular non-EEA life insurance company can fall into a gap. This is because UK law deems it to be made to an entity that is not an insurance company, and it cannot meet the alternative requirement because the business transferred is non-profit. This can trigger a rogue tax charge even though the assets are transferred to match liabilities.

The Government will consult informally with the industry to remove this problem while maintaining neutrality, with a view to introducing the modification into the Finance Bill as soon as possible after the summer recess.

Transfers of UK life insurance business to EEA companies

Integration of UK life insurance business into a non-UK EEA company, whether as a third party sale or on conversion of a subsidiary into a branch results in the business no longer being the subject of filed FSA returns.

For tax purposes, the result is a switch from using the FSA return, as the starting point to calculate the trading measure of the profits of that business, to using the Financial Statements. This triggers step changes as a result of the difference between the measure used in the FSA returns and the IFRS or local GAAP basis of the financial statements.

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