LLM4251 - Corporate members: restriction of group relief: example

A Lloyd’s corporate member, CM, writes insurance business of £500m in 2005, £600m in 2006 and £5m in 2007.

The ‘last active underwriting year’ for the purposes of ICTA88/S227A is 2006, as the business written in 2007 is ‘insignificant in comparison with that written in the previous year’.

CM incurs a trading loss of £100m on the business written in 2006. This loss is first declared in 2009 (even if it continues to be declared for successive years, because the business goes into run-off), and is treated as tax effective for 2009, under the declaration basis ( LLM4060).

If CM joins a group or consortium in February 2007 (before commencement of FA94/S227A), and the necessary relationship is in place with a claimant company and continues up to and throughout 2009, group relief (group or consortium claim) will be available, provided all the other necessary conditions for that relief are fulfilled.

If, however, CM joins a group or consortium in April 2007, the ‘group relief continuity condition’ applies. This means that, in addition to the normal group relief rules, CM, as the surrendering company, and the potential claimant company with which it is in group or consortium relationship during the period of claim, must fulfil the ‘group relief continuity condition’; that is be in the required relationship from 31 December 2006 (the last day of the last active underwriting year of the corporate member) until 1 January 2009 (the first day of the first underwriting year in which losses of the last active underwriting year are declared). It follows that in this case no group or consortium claim for 2009 can be admitted.