LLM4110 - Corporate members: taxation of ancillary trust fund (ATF) income and gains

A corporate member may have other profits arising from its underwriting business in addition to those arising directly from syndicate membership or from premium trust fund assets ( LLM4090).

FA94/S219 (3)(a) and (b) provides that profits which arise to a corporate member from assets forming part of an ancillary trust fund (ATF), or from assets employed by it in, or in connection with, its underwriting business are to be charged to tax under Case I of Schedule D, unless they fall within any other Schedule, or any other case of Schedule D.

The main significance of this provision is that gains on assets used in connection with underwriting, which would fall within the capital gains tax regime for individual members, fall within Case I for corporate members.

Non-syndicate level profits are not subject to the declaration basis. The allocation of non- syndicate level profits to accounting periods therefore follows normal corporation tax rules.

This section deals with income from ATF assets. LLM4120 deals with income and gains on assets employed in or in connection with underwriting.

Profits on ATF assets

Ancillary trust funds are defined in FA94/S230 (1) - see LLM1200. A corporate member is, like an individual member, treated as absolutely entitled as against the trustees to the assets forming part of an ATF belonging to it (FA94/S223). The ATF assets of a corporate member often consist only of the Lloyd’s Deposit. Corporate members do not usually provide additional Funds at Lloyd’s through personal reserves as individual members have traditionally done.

Distributions on ATF and other non-PTF assets

Dividends arising on assets within the PTF will feature in the syndicate accounts and computations - see LLM2130.

From 2 July 1997 distributions from UK resident companies made to a corporate member in respect of assets which form part of an ATF or are employed by the corporate member in, or in connection with, its underwriting business are brought within the Case I charge. As the entitlement to payable tax credit was withdrawn from companies generally in relation to distributions made on or after 2 July 1997, it is simply the distribution which is taken into account under Case I.

Prior to 2 July 1997 UK distributions made to a corporate member in respect of non-PTF assets were outside the charge to Case I and were dealt with in the same way as UK distributions made to other companies.

Forex, derivative contracts, and loan relationships

The normal corporation tax rules on the taxation of foreign exchange, derivative contracts and loan relationships apply to assets held in the ATF, in contrast to the position with PTF assets – see LLM4090.

Forex adjustments to cover the period between declaration of profits and distribution of profits are covered at LLM2100. These adjustments will actually be made in the syndicate tax computations, but an adjustment may also be shown in the computations of members as part of the process of adjusting the profit shown in the accounts to the taxable profit.