Re-insurance in the course of transfer of basic life assurance and general annuity business
Updated 25 January 2024
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This publication is available at https://www.gov.uk/government/publications/re-insurance-in-the-course-of-transfers-of-long-term-business/re-insurance-in-the-course-of-transfer-of-basic-life-assurance-and-general-annuity-business
Who is likely to be affected
The measure will impact insurance companies who write, acquire or re-insure a specific type of long-term business known as basic life annuity and general assurance business (BLAGAB).
General description of the measure
This measure:
- addresses a possible tax mismatch within the BLAGAB re-insurance rules where re-insurance precedes a transfer of BLAGAB. In this situation the clause classifies the re-insured business as BLAGAB in the hands of the re-insurer
- clarifies the application of section 92 of Finance Act 2012. The amendment excludes amounts from the operation of section 92 where sums are paid under a re-insurance contract and substantially all the risks relating to the policies are re-insured
Policy objective
Two issues have recently been identified concerning the life tax rules dealing with re-insurance of a category of long-term insurance business known as BLAGAB.
The measure firstly addresses a possible tax mismatch within the BLAGAB re-insurance rules which can result in Corporation Tax loss where a transfer of BLAGAB is preceded by re-insurance. The impact of any tax mismatch may be accelerated by transition to the new accounting standard for insurance contracts, IFRS 17 on or after 1 January 2023.
The measure secondly addresses industry concern that the current scope of section 92 of Finance Act 2012 may be unnecessarily wide and is blocking commercial transactions.
Background to the measure
The measure was announced on 15 December 2022. A consultation was not conducted due to the forestalling risk.
Detailed proposal
Operative date
The amendments to eliminate the possibility of a mismatch will apply from the 15 December 2022 regardless of when the re-insurance contract was entered into. Additionally it will apply to the whole of any accounting period beginning before 15 December 2022 for which IFRS 17 is adopted, where the decision to adopt IFRS 17 is taken on or after 15 December 2022.
The amendment to reduce the scope of section 92 of Finance Act 2012 will apply to accounting periods ending on or after the 15 December 2022.
Current law
The current law is in Part 2 Finance Act 2012 and SI 2018/538.
Proposed revisions
The legislation will be introduced in Spring Finance Bill 2023.
The first clause of this measure applies to re-insurers of BLAGAB. It addresses the potential for a tax mismatch in the life insurance rules where re-insurance precedes a transfer of BLAGAB. In this situation the clause classifies the re-insured business as BLAGAB in the hands of the re-insurer.
The second clause of this measure amends section 92 of Finance Act 2012 and restricts its scope where substantially all the insurance risks of a book of BLAGAB are assumed by a re-insurer. In such a case, any amounts received under the re-insurance contract can no longer count as deemed receipts within the life tax calculation (known as the I-E basis).
Summary of impacts
Exchequer impact (£ million)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| + 15 | + 50 | + 50 | + 55 | + 55 | + 60 |
These figures are set out in Table 4.1 of Spring Statement 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2023.
Economic impact
The measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The proposed changes are expected to have no direct impact on individuals as they only affect businesses. There could be a negligible increase or decrease in policyholder tax as a result of this measure. There is expected to be no impact on family formation, stability or breakdown.
Customer experience is expected to stay the same as this measure does not alter how individuals interact with HMRC.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on insurers who write or acquire BLAGAB. One-off costs for these businesses will include familiarisation with the new rules. There are not expected to be any continuing costs.
Customer experience is expected to stay the same as this measure does not alter how businesses interact with HMRC.
This measure is not expected to impact civil society organisations.
Operational impact (£million) (HMRC or other)
There are no financial consequences for HMRC as a result of this measure.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through regular communication with industry groups.
Further advice
If you have any questions about this change, please contact the Financial Services Team in HMRC at financialservicesbai@hmrc.gov.uk.
Declaration
Andrew Griffith MP, Economic Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.