GIM9170 - Mutual insurance: transfers of business by a mutual insurer

Transfers of business under Part 7 FSMA 2000 (or under Schedule 2C ICA 1992 before 1 December 2001) by a mutual general insurer to another mutual general insurer will not generally give rise to any special tax difficulties. The transfer will represent a disposal for the purposes of TCGA 1992 (and will generally include a disposal of goodwill) and a related transaction for the purposes of the loan relationships and derivative contracts legislation.

The more likely scenario is a transfer of business by a mutual to a proprietary general insurer. In this case again it is unlikely that any special tax issues arise unless the transferee is in the same group (within the meaning of TCGA92/S170) as the mutual – which may be the case if the transferee is a subsidiary of the mutual. In this case, there is a no gain/no loss disposal for the purposes of TCGA92/S171. The transferee takes the assets at their base cost and history to the transferor. But for Case 1 purposes the assets are treated as having a cost equal to the values shown in the accounts of the transferee, subject to ICTA88/S100.

Loan relationships and derivative contracts also go over at no gain/no loss, unless the transfer takes place in an accounting period of the transferor beginning on or after 1 October 2002 and the assets were accounted for in that period on a market to market basis. See FA96/SCH9/PARA12(1A) and FA02/SCH26/PARA28.

Intra-group transfers of assets by a mutual general insurer

If a mutual general insurer transfers assets within the charge to CT on chargeable gains to a company in its group which does not carry on a trade in which the assets are trading stock within the meaning of TCGA92/S288, the transfer is one to which TCGA92/S161 (2) applies by virtue of TCGA92/S173 (2). The mutual is treated as having appropriated the asset as other than stock. The effect of TCGA92/S161 (2) here is that the asset is treated as having been acquired by the mutual for the amount brought into the accounts of the mutual's trade for tax purposes, which will be nil as no Case 1 computation is made. The acquiring company will then take the assets with a nil base cost.