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Deloitte
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Commenting on the insurance tax simplification measures announced by the Chancellor today, Peter Wright, Insurance Tax Partner at Deloitte, said:

“The proposals and draft legislation announced today are largely as expected and reflect the strong industry/HMRC consultation that has taken place over the past six months. The changes are part of a wider review initiative that is ongoing following the publication of a technical consultation earlier this year.

Key measures for the life insurance industry:

• Simplification of rules applicable to transfers of business.
• The different categories of life insurance business for tax purposes will be significantly streamlined from 2007, seeing five different sets of rules merge into one.

Key measures for general insurance:

• The government has repealed the complex rules governing the tax deductibility of provisions for insurance liabilities (the general insurance discounting regime).

“This is very much to be welcomed although it is important that the constructive dialogue to date continues, to ensure there are fair and workable transitional provisions.”

At this stage there is a lot of draft legislation and detail to review including one or two targeted avoidance proposals contained in the Pre-Budget Report:

• Measures to restrict tax relief on contributions to pension arrangements where there is little or no connection with retirement savings.
• The asset valuation rule required for regulatory purposes that determine the tax position for life insurers

“We welcome the recognition by HMRC to consult on such targeted avoidance measures, however, care is needed to ensure they do not inadvertently affect genuine commercial positions or have a retroactive effect.”

“The government has announced proposed changes to the UK controlled foreign companies’ regime following the recent ECJ Cadbury Schweppes decision. The proposals are intended to limit the benefit of the Cadbury Schweppes ruling by defining genuine economic substance in a very limited manner. These proposals will need to be considered very carefully by the insurance industry working with offshore captive insurance vehicles. It is highly questionable whether these measures fairly reflect the European court decision and we expect the measure to be challenged.”

For further comment from Peter Wright please call our Pre-Budget Report press hotline: 020 7007 3333.

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