LAM17010 - Introduction: FA12/S150 

This chapter covers the rules that apply from 1 January 2013 to friendly societies authorised to write long-term insurance business in so far as these differ from those applicable to insurance companies writing long-term business. The position for periods commencing prior to 1 January 2013 is set out in the archived manual.

The activities of friendly societies include long-term insurance business, other long-term business, benevolent activities and sports and social activities, while incorporated friendly societies may also hold subsidiaries. This is a key difference from insurance companies where activities are limited by regulation to “insurance business and activities directly arising from that business”. References to other relevant taxation provisions are in LAM17030.

All friendly societies writing insurance business that is not wholly tax exempt should be dealt with by HMRC’s Large Business, Insurance Sector or referred to the Business, Assets and International – Financial Services Team.

Background

Since 1 January 2013, the friendly society long-term business tax provisions have been aligned with the framework in Finance Act 2012 that applies to life assurance companies, subject to some specific provisions summarised in LAM17030. The principal difference is the specific exemptions from corporation tax for certain categories of business, which since 1995 are limited to business with annual premium limits not exceeding £270, or if paid monthly, £300. Further exemptions are detailed in FA12/S164-165.

The background to this position is that until 1966 all registered friendly societies were wholly exempt from tax. In 1966 the exemption applicable to long-term business was limited to regular premium business on conventional lines for a sum assured of no more than £500 with any other business being taxed in the same way as mutual life insurance company – i.e. on the I minus E basis. There have been changes to the tax exempt limit since then. From 1995 all exempt business has had a £270 annual premium limit and there have been no further increases.

These rules provide for the continuation of the exemption for certain business written by friendly societies. In summary, this means that friendly societies with taxable business will be taxable on the same basis as mutual life companies, with the exempt element of the friendly society business carved out and not subject to tax.