UK: The Budget 2012 - Insurance Tax Budget Briefing

Last Updated: 22 March 2012
Article by Deloitte Tax Group

Most Read Contributor in UK, August 2017

For detailed coverage and comment on the Budget visit Deloitte's dedicated website at

The insurance-specific measures announced today were, in the main, wholly expected.

The cut in mainstream Corporation Tax to 24% from 1 April 2012 (reducing to 23% from 1 April 2013 and 22% from 1 April 2014) together with the Chancellor's reference to putting the UK "within sight of a 20% rate of business tax" will be welcome to the insurance industry and will increase the UK's international competitiveness. More generally, insurers will also be waiting for the publication of the Finance Bill on 29 March to see the detail of the proposed Controlled Foreign Companies regime, and whether their concerns as expressed in consultation have been addressed.

For life insurers, the main interest will be when the Finance Bill is published, and the amendments to the post-2012 life tax regime legislation, as published in draft in December, can be assessed. As discussed further below, the amended wording of the transitional TAAR, as published today, is a significant improvement on the version in that draft legislation and reflects industry comments.

Life companies will have been relieved that no changes were announced to pensions tax relief, although they will want to assess the impact of the restrictions (from 2013) to premiums into qualifying life policies.

For general insurers and Lloyd's members, the announcements on claims equalisation reserves and member-level reinsurance policies confirm those already made in December 2011, with some minor modifications.

Life Insurance

Targeted Anti-Avoidance Rule (TAAR) in respect of the transitional rules to the new life tax regime

Today HMRC published a revised targeted anti-avoidance rule (TAAR) in respect of the provisions that cover the transition to the new life tax regime. There are a number of improvements on the 6 December draft. The TAAR is still potentially very broad in scope, but it is now more specifically targeted at actions which intentionally exploit the transitional regime (and only those done on or after 21 March 2012). The mechanism for obtaining clearance from HMRC is now intended to offer more latitude for HMRC to treat some actions, in particular non-aggressive tax planning, as non-abusive.

Qualifying policies

From 6 April 2013, an individual will be limited to paying premiums of £3,600 in each 12 month period into new (post 20 March 2012) qualifying policies. Where policies are written between 21 March 2012 and 5 April 2013, income tax relief will only be available on chargeable events in respect of premiums paid before 6 April 2013, and on premiums after 6 April 2013 up to the limit of £3,600 in each 12 month period. Although recent new business volumes of qualifying policies have tended to be modest, companies will still wish to assess the impact of this measure, and may want to take advantage of the formal consultation to make representations.

Chargeable events – anti-avoidance

There are two anti-avoidance measures announced today targeted at holders of life policies. One counters arrangements in cluster policies, where tax is avoided by value shifting between policies in the cluster before surrendering parts of the cluster. The other measure ensures that when calculating a chargeable event, deductions are available for previous gains only if those gains have been subject to UK tax. This measure directly counters the successful tax avoidance seen in Mayes v HMRC.


The annual limit and lifetime allowance themselves are unchanged. However, there are small technical changes to ensure the rules work as intended.

Finance Bill 2013 will contain a measure ensuring that neither the employer nor employee can obtain tax or national insurance advantages where an employer pays pension contributions for an employee's spouse or family member as part of a flexible remuneration package.

General Insurance

Claims Equalisation Reserves

It has been reconfirmed that the Claims Equalisation Reserves (CER) rules for general insurers and Lloyd's members will be repealed as from the effective date of Solvency II (which is currently expected to be 1 January 2014). Built up reserves will be taxed over six years beginning from the commencement date, although insurers may elect to tax the whole remaining balance in any period. This ability to elect is being introduced in response to comments made by Deloitte and others during the consultation period following publication of the draft legislation in December 2011.

Lloyd's member-level reinsurance policies

It has also been reconfirmed that premiums on Lloyd's corporate member member-level reinsurance policies (so-called "stop loss reinsurance") will be deductible only when the syndicate profits to which they relate are taxed. This change was announced on 6 December 2011 with immediate effect. For contracts entered into prior to 6 December 2011, corporate members may deduct such premiums in the year in which the expense is incurred. The new rules will postpone the deduction for policies entered into on or after 6 December 2011 to the year in which the syndicate profits from the reinsured business are declared. Special rules will apply to multi-year contracts and to renewals of contracts entered into before 6 December 2011 to ensure that premiums payable on such policies will also be dealt with on the declaration basis with effect from 1 January 2013.

Kind Regards,

Anne Hamilton

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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