The U.K. budget announcement, made on March 22, brought good news for some insurers. Lloyd’s firms and U.K. general insurers, for example, will be relieved that Her Majesty’s Revenue & Customs, the U.K. tax authority, did not abolish the so-called insurance disclaimers provision. The authority had threatened to do this earlier in the year.
Insurance companies use the disclaimers provision to manage their tax losses. It allows them to transfer old tax losses into recent years, and also allows them to move tax losses between group subsidiaries and even between unrelated companies in mergers and acquisitions.
There was also relief for life insurers. On Sept. 29, HMRC implemented a measure that included increases and decreases in the value of non-profit life insurers’ assets when computing their taxable profits.
This measure caused uproar among U.K. life insurers when it was first implemented. Legal & General, for example, estimated the new tax would result in an extra charge of £200 million ($349 million) on an embedded-value accounting basis. Fellow U.K. life group Aviva estimated the tax would cost it an extra £70 million on an embedded-value basis. “The proposal came as a surprise. There was no consultation,” says Andrew Green, a partner at accounting and advisory firm Mazars.
As a result of the response, HMRC consulted with insurers, and as a result it has now agreed to amend the draft tax law. Green says the decision to change the measure is good because it shows HMRC is now more willing to consult with the life insurance industry. “This is a very positive development,” says Green. “A number of changes were implemented without consultation and have been a surprise.”
Despite the good news in the budget announcement, Green says it could have been better. He says that the benefits will not be widespread. “The news is not negative but it is not hugely positive for the insurance industry,” he says. “The life changes affect a limited number of companies. The disclaimers tended to benefit Lloyd’s groups and some general insurers.”
The budget announcement, for example, made no attempt to reduce the 30% corporate tax rate for U.K. firms. This is particularly topical for the U.K. insurance industry because many are concerned that a lot of insurance money that once went to London is now going to places such as Bermuda.
“It is better news than we were expecting, but there has been a lot of talk about Bermuda’s threat to London,” he says, adding that there were some suggestions and hopes that the budget might try to address this with tax cuts.
