Statutory instruments affecting the taxation of general insurers and Lloyd’s members have been published.
General insurers and Lloyd’s members are allowed tax deductions for the specific reserves they hold to meet future claims. For regulatory purposes additional ‘equalisation reserves’ may be held in relation to certain classes of business likely to experience low probability but high cost claims. Such reserves are also specifically tax deductible whether included in financial statements (UK GAAP) or not (IFRS).
Legislation abolishing this relief and unwinding the equalisation reserve that exists by bringing it into tax equally over a period of six years (although companies can irrevocably elect to bring all later amounts into one earlier year) has previously been enacted effective from a date to be specified. That date is now given by The Finance Act 2012, Sections 26 and 30 (Abolition of Relief for Equalisation Reserves) (Specified Day) Order 2015 as being accounting periods beginning on/after 1 January 2016.
The position for Lloyd’s members is complicated by possible changes in participation and the declaration basis of taxation that applies, so separate transitional rules apply to ensure that the unwinding corresponds to that applicable to general insurers. These transitional rules are included in The Lloyd’s Underwriters (Transitional Equalisation Reserves) (Tax) Regulations 2015. The amount to unwind (the ‘transitional equalisation reserve’) comprises all relevant deductions given less all relevant receipts taxed, for all accounting periods ending on/after 31 December 2008 but ending before 1 January 2016.
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