GIM10250 - Non-resident insurers: other taxation issues: FOTRA securities and War Loan

A non-resident general insurer is subject to certain special rules also applying to other non- resident financial concerns, including overseas life insurance companies and banks.

FOTRA securities

As a general rule where a non-resident company holds FOTRA (Free Of Tax to Residents Abroad) securities, the interest and any profits or loss on sale or redemption are exempt from tax. This rule is limited however where the interest is part of the UK trading or business receipts of the company. The exemption does not apply to such interest, as set out in the prospectuses issued for the securities, which include these provisions by virtue of the Treasury powers in F2A31/S22, modified by FA40/S60. FA96/S154 made explicit for tax purposes the effect of the prospectuses. The profits or losses remain exempt however, except in relation to issues of FOTRA securities after July 1996, for which the prospectus has been recast to permit taxation of any profit (and relief for any loss) on the sale of such securities. The interest and profits/losses will be included in the credits and debits given by Chapter 2 Part 4 FA 1996 for accounting periods ending after 31 March 1996 (see GIM5090).

War Loan

There remains one security, 3½% War Loan 1952 Or After, which was issued before the modifications permitted by FA 1940, and where the interest as well as the profits/loss on sale etc. remain exempt. Where a non-resident general insurer holds such stock, FA96/S154 (6) provides that no expenses incurred in connection with the holding of the security, or any transaction relating to it such as a sale or purchase, shall be brought into account for corporation tax purposes. Nor shall any debit be brought into account for the purposes of Chapter 2 Part 4 FA 1996 in respect of it. This rule replaced, for accounting periods ending after 31 March 1996, ICTA88/S474 (2) which disallowed expenses incurred in connection with the holding of the security, or any transaction relating to it.

Another adjustment may also be made under ICTA88/S475 where War Loan is held. Relief as a debit under Ch 2 Part 4 FA 1996 for interest on borrowed money, may be restricted in accordance with a formula set out in ICTA88/S475 (3) to ICTA88/S475 (5).