Friday, August 12, 2011

Insurance in united Kindom

How high is the demands of Insurance in United Kingdom? Basically, insurance is particularly for long-term insurance, is divided into different categories. The categorization is currently set out in sections 333B, and 431B to 431F of the income and Corporation Taxes Act 1988 (ICTA) with each category of business given a different tax treatment.

Categorization: Life and non-life. The first basic categorization of long-term insurance is between life and non-life business. Life insurance business is insurance that is contingent on human life. Examples would include a policy that pays out £100,000 if the policy holder dies within a specified time; a policy that pays out £100,000 in 10 years time, but will pay out £101,000 if the policy holder dies before the policy matures; a pension in payment, which will end once the pensioner dies.

The main example of non-life long-term insurance business is permanent health insurance, but the category includes pensions management. Capital redemption business, which is business written for a premium in exchange for a payment of an annuity over a period of, say, 99 years, is also long-term non-life business. However, for taxation purposes, only capital redemption business written before 1 January 1938 is treated as non-life assurance business.

Basic life assurance and general annuity business: Basic life assurance and general annuity business is defined as being life assurance business not fitting within any other category of business under section 431F ICTA. It is often abbreviated to BLAGAB. BLAGAB is taxed on the so called "I minus E basis" (i.e. the company is taxed on its investment return minus its expenses of management). The I minus E basis raises the UK Exchequer more revenue than it would get if it were taxed on a trading basis.

Pension business: The concept of pension business, in section 431B ICTA, was introduced in the Finance Act 1956, which was introduced as a tax-advantaged way of saving for retirement. The tax advantage comes through taxing it on a trading profit basis rather than on an I minus E basis. The precise definition of what it constitutes is closely defined by statute so that only schemes approved by the Government qualify for the tax advantages. Pension business includes business relating both to the accrual of pension benefits whilst the policy holder is working and pensions in payment. Pension business includes reinsurance of pension business.

Life reinsurance business: Life reinsurance business is broadly just that: the reinsurance of life assurance business, but there are some exceptions. The concept of life reinsurance business was introduced in 1995 as part of an anti-avoidance measure and is in section 431B ICTA. Companies writing basic life assurance and general annuity business were reinsuring their business with reinsurers, typically in Bermuda, but sometimes to another UK company or to another country that would not be taxed on its investment return. Later on they would receive reinsurance recoveries equal to the premiums the UK company paid plus investment return, minus the expenses and profits of the Bermudian re-insurer. The UK company would therefore have converted taxable investment return into a reinsurance recovery and would not be taxed on the reinsurance recovery.

The 1995 Finance Act changed the law to impose an imputed investment return on the UK company. In order to avoid double taxation, a UK company re-insuring this business needed to not be taxed on the same investment return again: therefore "life reinsurance business" was born. There are exemptions to the rules for UK companies within the same group with 90% common ownership, where the imputed investment return would be negligible or nil, and where the re-insurer is in the European Union and is taxed on a regime that produces a result equivalent to I minus E.

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