Revenue Note for Guidance

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Revenue Note for Guidance

PART 26

Life Assurance Companies

CHAPTER 1

General provisions

Overview

This Chapter sets out rules for the taxation of life assurance companies. While life assurance companies are liable to corporation tax, special rules apply to the computation of their assessable profits. Whereas this Chapter contains the legislation relating to these special rules, certain matters are to an extent governed by longstanding practice and together these constitute the taxation of life assurance companies under the I – E basis – that is Income less Expenses. In respect of life assurance business contracted for, on or after 1 January 2001, this tax regime of life assurance companies and their policyholders has been replaced by a new regime – see Chapters 4 and 5 of this Part.

706 Interpretation and general (Part 26)

Summary

This section is an interpretation section for Part 26 (Chapters 1 to 6) in that it sets out definitions of terms used throughout the Part. It also provides for the manner of apportioning or allocating premiums, investment income, expenses and liabilities between the 3 classes of life assurance business (that is, general annuity business, pension business and other life assurance business) and the manner of apportioning deductions (for example, group relief) which are deductible from the overall profits of a life assurance company. (For accounting periods ending in 2002 and prior years, special investment business was treated as a business separate from other life assurance business.)

Details

The main definitions are as follows—

“assurance company” means—

  1. an assurance company within the meaning of section 3 of the Insurance Act, 1936, or
  2. a person that holds an authorisation within the meaning of the European Communities (Life Assurance) Framework Regulations 1994 (S.I. No. 360 of 1994).

(1) “excluded annuity business” is defined as annuity business (other than the types of annuity referred to in paragraph (a) of the definition) which arises from new contracts (for the granting of an annuity on human life) made or changed on or after 6 May, 1986 which fail to satisfy any one or more of the criteria set out in paragraph (b) of the definition.

(1)(a) The two types of annuity business which are not to be regarded as excluded annuity business are —

  • pension business: in effect, business arising from the provision of retirement annuities for Irish resident individuals or exempt approved pension schemes and superannuation funds set up for the benefit of such individuals; and
  • foreign annuity business of an Irish life assurance company.

(1)(b) The criteria which the annuity business entered into on or after 6 May, 1986, must fail to comply with in order to be “excluded annuity business” are —

  • the annuity must be a genuine life annuity payable until the end of a human life or for a period ascertainable only by reference to the end of a human life. An annuity would normally end on the death of the annuitant or after a prescribed time following that death;
  • the annuity secured must not be capable of being reduced except on the death of the annuitant (for example, it would be permissible for a smaller annuity to be paid to a survivor of two joint annuitants) or by reference to a bona fide index (where, for example, the amount of the annuity is index-linked and there is a decrease in the index for a particular period). This means that contracts which provide for periodic returns of capital in the form of a large “annuity” for one or more years followed by a smaller annuity for the rest of the annuitant’s life is treated as excluded annuity business; and
  • there must be a provision in the policy document preventing the company from agreeing to commute the annuity in whole or part.

“general annuity business” means any annuity business other than excluded annuity business and pension business.

“life business” includes “life assurance business” (ordinary branch) and “industrial assurance business” (industrial branch) which have the meanings assigned to them in section 1 of the Insurance Act, 1936. Life assurance business is defined in that section of that Act as the business of effecting contracts of assurance on human life, but excludes industrial assurance. Industrial assurance means the business of effecting assurances on human life where the premiums are payable at intervals of less than two months and are collected by means of collectors.

Where it is necessary to consider each of the constituent parts of the business of a life assurance company (viz. its general annuity business, its pension business and its other life business) the division is to be effected by attributing to pension business the premiums, other receipts, expenses and liabilities in respect of pension contracts (as set out in subsection (3)) and by attributing to general annuity business all other annuity business except excluded annuity business. The balance of the company’s life business is attributed to such business other than its general annuity and pension business.

The premiums which are to be attributed to pension business are all premiums (which includes any consideration for an annuity) payable under contracts approved under sections 784 and 785 to provide for retirement annuities or related benefits, payable under contracts relating to exempt approved pensions schemes within Chapter 1 of Part 30 or payable under a PRSA contract or a contract with a PRSA provider – see Chapter 2 of Part 30.

(4) Deductions (for example, group relief) that are deductible from the overall profits of a life assurance company are to be treated as deductible from the profits of each class of business in proportion to the relative contribution of that class of business to the overall profits of the company. (The various classes of business for this purpose are pension business, general annuity business, and other life assurance business).

Relevant Date: Finance Act 2021