GIM5170 - The investment return: investment gains: periods of account beginning before 1 January 2002: portfolio assets and trading stock: periods ending before 1 April 1996

The rules in GIM5160 also apply where an investment treated as “trading stock” is appropriated by the insurer to be held otherwise than as “trading stock”, or vice versa.

ICTA88/S126A may also apply in these circumstances for accounting periods ending before 1 April 1996.

A portfolio asset that a composite insurance company disposes of may at an earlier period have formed part of the company’s long term business fund. If it was transferred out of the long-term business fund after 31 December 1989, ICTA88/S440 (as inserted by FA1990/SCH6) will have required a deemed disposal for all CT purposes at market value. This means that the general side of the business will have acquired the asset for trade purposes at its market value at the date of transfer, and any gain on realisation will be based on that value.

If, however, the transfer from the long-term business fund took place before 1 January 1990, but after the last day in the company’s DTI return period that included 7 December 1973, then by virtue of ICTA88/S440 (6) (the original version) or F2A75/S42 (7), the transfer will be treated as not having taken place.

The company must instead use the original cost as the basis for any computation of trade profit. The effect of ICTA88/S440 (6) (original version) was preserved for disposals after 31 December 1989 by FA90/SCH6/PARA12 (8).

Where a composite transfers a portfolio asset from its general side to the long term business fund after 31 December 1989, there is a deemed disposal at market value for the purposes of computing the trade profit, restoring the rule in Sharkey v Wernher (36TC275) that was removed by F2A75/S42.