CORPORATION TAX Citation, commencement and effect 1 1 These Regulations may be cited as the Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 2007 and shall come into force on 14th August 2007. 2 Subject to paragraph (3), these Regulations have effect for accounting periods beginning on or after 1st January 2007. 3 Regulation 4 has effect in relation to transactions entered into on or after 6th June 2006. Amendments to the Friendly Societies (Modification of the Corporation Tax Acts) Regulations 2005 2 The Friendly Societies (Modification of the Corporation Tax Acts) Regulations 2005 are amended as follows. Amendment of regulation 2 3 In regulation 2 (interpretation), omit— a the definition of “child trust fund business”, and b the definition of “individual savings account business”. Omission of regulation 4 4 Omit regulation 4 (modification of section 43F of the Taxes Act). Amendment of regulation 5 5 In regulation 5 (modifications of section 76 of the Taxes Act), omit paragraph (6). Amendment of regulation 6 6 In regulation 6(2) (modifications of section 431 of the Taxes Act)— a in the inserted definition of “tax exempt class IV business”, for “class IV” substitute “PHI”, and b in the inserted definition of “taxable class IV business”, for “class IV” (in both places) substitute “PHI”. Insertion of regulation 7A 7 After regulation 7 (meaning of “long-term insurance fund” for a society which does not maintain separate assets) insert— Modifications of section 431H of the Taxes Act 7A 1 Paragraphs (2) to (4) prescribe modifications of section 431H of the Taxes Act so far as it applies to the life or endowment business carried on by friendly societies. 2 For subsection (1) substitute— 1 This section applies in relation to a friendly society which carries on two or more of the following— a life assurance business, b taxable PHI business, c tax exempt PHI business, and d insurance business of any other kind. 3 In subsection (2)— a omit the word “and” immediately following paragraph (a), b after paragraph (a) insert— aa taxable PHI business, ab tax exempt PHI business, and , and c in paragraph (b) for “the” substitute “any”. 4 Omit subsections (3) and (4). Omission of regulation 8 8 Omit regulation 8 (modification of section 432 of the Taxes Act). Amendment of regulation 9 9 1 Regulation 9 (modifications of section 432A of the Taxes Act) is amended as follows. 2 In paragraph (1), for “and (4)” substitute “, (4) to (8)”. 3 In paragraph (2), in the inserted subsection (1E)— a for paragraphs (a) to (c) substitute— a gross roll-up business, , and b in paragraph (e), for “Class IV” substitute “PHI”. 4 For paragraphs (4) to (8) substitute— 4 In subsection (2) for paragraphs (a) to (c) substitute— a taxable basic life assurance and general annuity business, b tax exempt basic life assurance and general annuity business, c gross roll-up business, d taxable PHI business, and e tax exempt PHI business; . 5 For subsections (6) to (6C) substitute— 6 For the purposes of subsection (5) above, “the relevant fraction”, in relation to taxable basic life assurance and general annuity business, is— A A + B + C + D + E where— A is the aggregate of— a the mean of the opening and closing liabilities of the taxable basic life assurance business (but taking that mean to be nil if it would otherwise be below nil) reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category, and b the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts; B is the aggregate of— a the mean of the opening and closing liabilities of the tax exempt basic life assurance business (but taking that mean to be nil if it would otherwise be below nil) reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category, and b the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts; C is the aggregate of— a the mean of the opening and closing liabilities of the gross roll-up business (but taking that mean to be nil if it would otherwise be below nil) reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category, and b the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts; D is the aggregate of— a the mean of the opening and closing liabilities of the taxable PHI business (but taking that mean to be nil if it would otherwise be below nil) reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category, and b the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts; and E is the aggregate of— a the mean of the opening and closing liabilities of the tax exempt PHI business (but taking that mean to be nil if it would otherwise be below nil) reduced (but not below nil) by the mean of the opening and closing net values of any assets directly referable to that category, and b the mean of the appropriate parts (that is, the parts relating to that category) of the opening and closing amounts of the free assets amounts. 6A For the purposes of subsection (5) above, “the relevant fraction”, in relation to tax exempt basic life assurance and general annuity business, is— B A + B + C + D + E where A , B , C , D and E have the same meaning as in subsection (6) above. 6B For the purposes of subsection (5) above, “the relevant fraction”, in relation to gross roll-up business, is— C A + B + C + D + E where A , B , C , D and E have the same meaning as in subsection (6) above. 6C For the purposes of subsection (5) above, “the relevant fraction”, in relation to taxable PHI business, is— D A + B + C + D + E where A , B , C , D and E have the same meaning as in subsection (6) above. 6D For the purposes of subsection (5) above, “the relevant fraction”, in relation to tax exempt PHI business, is— E A + B + C + D + E where A , B , C , D and E have the same meaning as in subsection (6) above. 6E But if the denominator found in accordance with subsection (6), (6A), (6B), (6C) or (6D) above is nil, the relevant fraction for the purposes of subsection (5) above in relation to the category of business in question is such fraction as is just and reasonable. 7 In subsection (7) for “and (6B)” substitute “, (6B), (6C) and (6D)”. 8 Omit— a paragraph (b) of subsection (8) and the word “and” which precedes it; b subsections (8ZA) , (8A) and (8B). Insertion of regulation 9A 10 After regulation 9 insert— Modification of section 432B of the Taxes Act 9A 1 Paragraph (2) prescribes a modification of section 432B of the Taxes Act so far as it applies to life or endowment business carried on by friendly societies. 2 Omit subsections (5) to (12). Amendment of regulation 10 11 In regulation 10(4) (modifications of section 432AA of the Taxes Act), in the substituted paragraphs (d) and (e), for “class IV” substitute “PHI”. Amendment of regulation 12 12 In regulation 12(2) (modifications of section 432E of the Taxes Act), for “(1)” substitute “(1)(a)”. Omission of regulation 13 13 Omit regulation 13 (modifications of section 436 of the Taxes Act). Insertion of regulation 13A 14 Before regulation 14 (modifications of section 437 of the Taxes Act) insert— Modifications of section 436A of the Taxes Act 13A 1 Paragraph (2) prescribes a modification of section 436A of the Taxes Act so far as it applies to the life or endowment business carried on by non annual return societies other than partnership pension societies. 2 At the end of subsection (2) add— , and c the opening liabilities and the closing liabilities of the society shall be ascertained in accordance with paragraph (b) of the definition of “liabilities” in subsection (2) of section 431 , and the definition of “closing liabilities” in that subsection shall not apply. 3 Paragraph (4) prescribes a modification of section 436A of the Taxes Act so far as it applies to the life or endowment business carried on by partnership pension societies. 4 At the end add the following subsections— 8 Subject to subsection (11) below, subsection (9) below applies where the amount shown in respect of Item 3 of Part I of Schedule 7 to the Friendly Societies (Accounts and Related Provisions) Regulations 1994 (“the Item 3 amount”) is a positive amount; and subsection (10) below applies where the Item 3 amount is a negative amount. 9 The amount of the increase in liabilities to policy holders (that is to say, the excess of the society’s closing liabilities to policy holders over its opening liabilities to policy holders) that is taken into account for the purpose of computing the profits arising to the society from pension business shall be the Item 3 amount. 10 The amount of the decrease in liabilities to policy holders (that is to say, the excess of the society’s opening liabilities to policy holders over its closing liabilities to policy holders) that is taken into account for the purpose of computing the profits arising to the society from pension business shall be the Item 3 amount. 11 Subject to subsection (13) below, in a case where, for any period of account, income or gains arising to a society— a derive directly or indirectly from a transaction or transactions with a member or members of the society, and b exceed the amount of the income or gains which would have arisen to the society if any transaction mentioned in paragraph (a) above had been a transaction at arm’s length, the closing liabilities of the society shall be reduced by the amount of the excess; but the opening liabilities for the next following period of account shall not be increased by the like amount. 12 For the purposes of subsection (11) above a person associated with a member shall be treated as a member; and “associated” shall be construed in accordance with section 783(10) . 13 In any case where— a there has been a transaction consisting of the disposal of an asset to a friendly society (“the earlier disposal”), b section 17(1)(a) of the 1992 Act has applied on the earlier disposal, c the friendly society subsequently makes a disposal of the asset (“the later disposal”), and d subsection (11) above applies (or would, apart from this subsection, apply) to the later disposal, any gains accruing to the society on the later disposal shall, for the purposes of subsection (11) above, be reduced by the excess (if any) of the amount treated, by virtue of the application of section 17(1)(a) of the 1992 Act, as the consideration for the earlier disposal over the actual amount of the consideration for the earlier disposal. Omission of regulation 15 15 Omit regulation 15 (modification of section 438B of the Taxes Act). Amendment of regulation 16 16 In regulation 16 (modifications of section 440 of the Taxes Act), after paragraph (2) insert— 2A In subsection (3) after “(d)” insert “, (da)”. Amendment of regulation 17 17 For regulation 17 (modification of section 440A(2) of the Taxes Act) substitute— Modifications of section 440A of the Taxes Act 17 1 Paragraphs (2) and (3) prescribe modifications of section 440A of the Taxes Act so far as it applies to the life or endowment business carried on by friendly societies. 2 In subsection (2)(a)— a in sub-paragraph (i) before “basic life assurance” insert “taxable”; b after sub-paragraph (i) insert— ia tax exempt basic life assurance and general annuity business, or 3 Omit subsection (3). Omission of regulations 18 and 20 18 Omit— a regulation 18 (modifications of section 441 of the Taxes Act), and b regulation 20 (modification of section 460(2) of the Taxes Act). Insertion of regulation 20A 19 Before regulation 21 (modification of section 587B of the Taxes Act), insert— Modifications of section 502H of the Taxes Act 20A 1 Paragraphs (2) and (3) prescribe modifications of section 502H of the Taxes Act so far as it applies to the life or endowment business carried on by friendly societies. 2 In subsection (2)(a)— a in sub-paragraph (i) before “basic life assurance” insert “taxable”; b in sub-paragraph (ii) before “PHI” insert “taxable”. 3 In subsection (4)— a in paragraph (a) before “basic life assurance” insert “taxable”; b in paragraph (b) before “PHI” insert “taxable”. Omission of regulation 21 20 Omit regulation 21. Amendment of regulation 22 21 1 Regulation 22 (modifications of section 755A of the Taxes Act) is amended as follows. 2 For paragraphs (3) to (7) substitute— 3 In subsection (4) after “gross roll-up business” insert “, or tax exempt basic life assurance and general annuity business,”. 4 In subsection (4A) before “basic life assurance” insert “taxable”. 5 In subsection (6)(c) after “gross roll-up business” insert “or tax exempt basic life assurance and general annuity business”. 6 In subsection (11) before “BLAGAB” insert “taxable”. 3 For paragraph (9) substitute— 9 In subsection (13)(a) before “basic life assurance” insert “taxable”. Amendment of regulation 23 22 1 Regulation 23 (modifications of section 804B of the Taxes Act) is amended as follows. 2 In paragraph (3)(b), in substituted paragraph (b), for “class IV” substitute “PHI”. 3 Omit paragraphs (4) and (5) Omission of regulation 25 23 Omit regulation 25 (modification of paragraph 5 of Schedule 19AA to the Taxes Act). Amendment of regulation 30 24 In regulation 30(3) (modifications of section 83A of the Finance Act 1989 – non-annual return societies), for “(3) and (4)” substitute “(3) to (4) ”. Amendment of regulation 32 25 For regulation 32 (modification of section 88(3A) of the Finance Act 1989) substitute— Modifications of section 88 of the Finance Act 1989 32 1 Paragraph (2) prescribes a modification of section 88(3A)(a) and (3B) of the Finance Act 1989 so far as they apply to the life or endowment business carried on by friendly societies. 2 Before “basic life assurance”, wherever those words occur, insert “taxable”. Omission of regulation 34 26 Omit regulation 34 (modification of paragraph 17 of Schedule 7 to the Finance Act 1991 ). Insertion of regulation 34A 27 Before regulation 35 (modifications of section 210B of the 1992 Act) insert— Modification of section 210A of the 1992 Act 34A 1 In the case of a friendly society, section 210A of the Taxation of Chargeable Gains Act 1992 shall be modified as follows. 2 In subsection (13), in the definitions of “BLAGAB allowable losses” and “BLAGAB chargeable gains”, before “basic life assurance” insert “taxable”. Amendment of regulation 37 28 In regulation 37 (modification of section 212 of the 1992 Act), for paragraph (2) substitute— 2 In subsection (2) after “gross roll-up business” insert “or tax exempt basic life assurance and general annuity business”. Amendment of regulation 39 29 Omit regulation 39 (modification of section 214(1) of the 1992 Act). Insertion of regulation 39A 30 Before regulation 40 (modifications of Schedule 11 to the Finance Act 1996) insert— Modification of paragraph 12 of Schedule 9 to the Finance Act 1996 39A 1 Paragraph (2) prescribes a modification of paragraph 12 of Schedule 9 to the Finance Act 1996 so far as it applies to the life or endowment business carried on by friendly societies. 2 In sub-paragraph (3) after “(d)” insert “, (da)”. Amendment of regulation 40 31 1 Regulation 40 is amended as follows. 2 In paragraph (2), for “before “basic life assurance”” substitute “, (2)(a), (7) and (10) before “basic life assurance”, wherever those words occur,”. 3 After paragraph (2) insert— 2A In paragraph 3A(5) before “PHI” insert “taxable” after “(6B)” insert “, (6C), (6D)”. 4 Omit paragraph (3). Omission of regulations 41, 42 and 43 32 Omit— a regulation 41 (modifications of Schedule 11 to the Finance Act 1996 as modified in relation to capital redemption business), b regulation 42 (modifications of paragraph 18 of Schedule 12 to the Finance Act 1997 ), and c regulation 43 (modifications of paragraph 4 of Schedule 6 to the Finance Act 1999 ). Insertion of regulation 43A 33 Before regulation 44 (modifications of section 256 of the Capital Allowances Act 2001) insert— Modification of section 255 of the Capital Allowances Act 2001 43A 1 Paragraph (2) prescribes a modification of section 255 of the Capital Allowances Act 2001 so far as it applies to the life or endowment business carried on by friendly societies. 2 In subsection (1) for “basic life assurance and general annuity business” substitute “taxable basic life assurance and general annuity business, tax exempt basic life assurance and general annuity business”. Insertion of regulation 44A 34 After regulation 44 insert— Modification of paragraph 29 of Schedule 26 to the Finance Act 2002 44A 1 Paragraph (2) prescribes a modification of paragraph 29 of Schedule 26 to the Finance Act 2002 so far as it applies to the life or endowment business carried on by friendly societies. 2 In sub-paragraph (1) after “(d)” insert “, (da)”. Frank Roy Alan Campbell Two of the Lords Commissioners of Her Majesty’s Treasury 23rd July 2007