GIM5010 - Taxation of the investment return: general overview

The assets of a general insurer, like those of most other traders, will consist both of fixed assets and circulating, or current, assets.

The profits or losses on fixed assets will be within the charge to corporation tax on chargeable gains only, and on current assets the profits or losses will come into a computation of trade profits.

An insurer’s fixed assets will be like those of most other traders: premises, plant and machinery, shares in subsidiaries and the like.

Its current assets, by contrast, will consist of items which, outside the financial sector, would commonly be regarded as investments and therefore fixed assets. These are the funds which an insurer needs to maintain and invest to enable it to meet claims as they arise, as well as to satisfy regulators and potential customers as to its solvency and financial strength.

Investment income and gains taxed as trading income

GIM5020 to GIM5080 explain the basis on which investment income and gains are, in general, included as part of the trading profit of a general insurer.

Debt and financial instruments

GIM5090 to GIM5140 deal the taxation of investment income and gains from debt and other financial instruments held by general insurers, which, for accounting periods ending after 31 March 1996, will fall within the statutory rules on government and corporate debt, loan relationships, financial instruments and derivatives.

Other assets – mainly shares

GIM5150 onwards deal with the taxation of investment gains arising on assets other than debt.

Outside the area of loan relationships, current assets held by an insurer as part of its trade will mostly consist of shares, but may also include land, interests in unit trusts etc., and derivatives not falling within the financial instruments rules. For periods of account beginning before 1 January 2002, such assets were taxed on the ‘realisations basis’.