When a
registered pension scheme uses its funds to
directly invest in a particular asset, the income and gain from
that investment will get tax relief. But, apart from direct
investment, a scheme can use its funds to pay premiums to an
insurance company. The insurance company then applies those
premiums to acquire assets, the income and growth in value of which
provide the benefits the insurance company has contracted to pay
the scheme. Some types of registered pension scheme simply involve
the acquisition of a insurance contract without there being a
scheme – for instance some types of annuity contract which
may be purchased directly by the contributor.
The assets held by an insurance company to back policies and
contracts with pension schemes are not investments and deposits
held by the scheme. Those assets do not therefore benefit from the
exemptions described in
RPSM04103010 and
RPSM04103020 from income and capital
gains tax. In fact they do not need such exemption, as, being
assets beneficially owned by a company, the income from them is
exempt from income tax and gains on assets exempt from capital
gains tax. But in the absence of any special reliefs, the income
and gains would not be exempt from corporation tax charged on the
insurance company.
This would put a registered pension scheme using insurance
policies at a disadvantage to a scheme directly investing the same
sort of asset. To ensure there is no such disadvantage the
insurance company is entitled to exemption from corporation tax in
respect of income and gains on assets of its long-term insurance
fund which are referable to pension business. This exemption does
not apply to assets held by an insurance company as a member of
a property investment LLP.
Pension business is defined in section 431B ICTA 1988. The
tax affairs of life assurance companies and friendly societies
writing pension business are handled in the Large Business Service
– Financial Office, and further guidance is available in the
Life Assurance Manual.
| Glossary ( RPSM20000000) |
