Revenue Note for Guidance
This section provides that the tax charge, under the I–E tax regime, on a life assurance company in respect of the income and gains of policyholders is at an effective rate equal to the standard rate of income tax. For the taxation of life assurance companies and their policyholders in respect of policies commenced on or after 1 January 2001, refer to Chapters 4 and 5 of this Part.
(1)(a) & (1)(b) “unrelieved profits” are profits on which corporation tax falls finally to be borne. Section 4(4)(c) defines “profits on which corporation tax falls finally to be borne” as profits after all deductions, reliefs, set-off or other reductions of those profits for the purposes of corporation tax, except for the tax adjustment afforded by this section.
(3) A part of the unrelieved profits of the life assurance company (as set out in subsection (6)) is to be charged to tax at the standard rate of income tax, or where relevant at a weighted average of such rates.
(5) Distributions received from companies resident in the State are apportioned between policyholders or annuitants and shareholders of the company by apportioning to policyholders or annuitants such fraction of that income which is the fraction of the company’s profits excluded from a Case I of Schedule D computation under section 710. If the distributions received from companies resident in the State exceed the profits chargeable under Case I of Schedule D, without regard to section 710, then the excess is also attributed to policyholders.
(6) Tax at the standard rate of income tax is charged on the lesser of —
Where the Case I of Schedule D profits are greater than the aggregate of the unrelieved profits and the shareholders’ part of the distributions, the standard rate of income tax is not applied – all profits would therefore be taxed at the corporation tax rate.
(7) Under transitional provisions there was a deemed disposal and reacquisition on 31 December, 1992 of all the non-gilt assets of an assurance company connected with its basic life assurance business. The net gain or loss resulting from this deemed disposal is spread over the period to 31 December, 1992 and the subsequent 6 years – 7 accounting periods in all. The fraction of the net gain or loss carried forward to subsequent accounting periods is excluded from the amount of unrelieved profits for the purposes of computing the relief under this section – see paragraph 24 of Schedule 32.
Relevant Date: Finance Act 2020