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7. Life policyholder / Life company taxation

For the first time in a few years no changes have been made to the taxation treatment of life assurance policies.

Draft legislation was produced at the time of the 2004 Pre-Budget Report aimed at closing a number of loopholes being exploited by life assurance companies. Following consultation some amendments have been made to this draft legislation which will be included in this year’s Finance Bill.

These new measures will

· from 2 December 2004, ensure that the rules on certain transfers of business from one life assurance company to another cannot be used to reduce taxable trading profits artificially;

· for accounting periods ending on or after 2 December 2004, clarify the circumstances in which companies can treat amounts as “notional” and therefore exclude them from their computations of taxable trading profits;

· for periods of account beginning on or after 1 January 2005, clarify the circumstances in which companies can use additional revenue accounts to obtain a more favourable tax apportionment of their investment return; and

· update the tax treatment of income and gains attributable to assets not needed to pay policyholder benefits and ensure that, for periods of account beginning on or after 1 January 2005, such income and gains will be taxed at normal corporation rates.

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