Premiums on stop loss policies (see
LLM5180) are not allowable as a trading
expense if they are paid by an individual partner on a policy that
protects the partner against personal (their own share of)
partnership loss. This is a personal rather than trade expense,
protecting the individual from the possible consequences of
membership of the partnership. FA93/S178 (1)(a) does not apply
because the individual is not a member of Lloyd’s, but a
member of a partnership which is the member of Lloyd’s. It
follows that recoveries paid on such policies are not chargeable.
On the other hand, a premium on a stop loss policy taken out
by the partnership, as Lloyd’s member, that reinsures
partnership losses and makes payments to the partnership is an
allowable expense, and similarly any recoveries are taxable. But a
premium that insured only one member of the partnership and paid
out to the individual partner would not be allowable, whether the
premium was paid by the partnership or by the individual
member.
