GIM6240 - Technical provisions: periods of account beginning on or after 1 January 2000: General Insurance Reserves (Tax) Regulations: connected companies, reinsurance and novation

Regulation 3: Rule 4 : connected companies: reinsurance and novation

Rule 4 of Regulation 3 amends Rule 3 where business is reinsured with, or transferred by way of novation, to an offshore connected company (within the normal meaning in ICTA88/S839).

In its original form Rule 4 applied to a “qualifying contract” or a series of such contracts, meaning a reinsurance contract or a chain of reinsurance transactions, between the general insurer and a connected company which is neither within the charge to CT, nor a CFC.

The 2003 amendments to the regulations added “relevant transactions” (that is, fundamentally, contracts of novation) to the type of transaction caught by this Rule.

The Rule applies only to liabilities for which the insurer has previously had a tax deduction.

Where the Rule applies, the qualifying contract or relevant transaction is ignored for the purposes of Rule 3, and the calculations proceed as if the reinsurance or novation had not taken place. The amended Rule 4 applies after 1 January 2004.

Rule 4 may be disapplied where there is a genuine transfer of business between UK companies, see GIM6340.