Write-downs for annuities products and insurers liabilities
Published 15 March 2023
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This publication is available at https://www.gov.uk/government/publications/corporation-tax-and-pensions-tax-write-downs-for-annuities-products-and-insurers-liabilities/write-downs-for-annuities-products-and-insurers-liabilities
Who is likely to be affected
This measure affects insurers who are in financial distress and have had their liabilities written down by a court under the proposed new section 377A of the Financial Services and Markets Act 2000. This measure also applies to individuals who hold annuities provided by insurers who are in financial distress.
General description of the measure
This measure addresses the pensions tax and Corporation Tax consequences of court directed write-downs under proposed new section 377A of the Financial Services and Markets Act 2000 and any subsequent court-ordered variation or termination of write-down orders.
Policy objective
This measure will help to deliver the policy intent of the amendments made through the 2022 Financial Services and Markets (FSM) Bill to support insurers in financial distress by averting the tax implications for both insurers and policyholders.
The measure firstly addresses the Corporation Tax consequences which would otherwise arise when an insurer’s liabilities are written down under the proposed new section 377A of the Financial Services and Markets Act 2000 and any subsequent write up.
This measure secondly extends the circumstances in which a pre-6 April 2015 lifetime annuity or dependents annuity under a registered pension scheme can be reduced without incurring unauthorised payments charges. This will ensure those who receive Financial Services Compensation Scheme (FSCS) top up payments as a result of the write down under proposed new section 217ZA of the Financial Services and Markets Act 2000 will not face a tax disadvantage.
Background to the measure
Section 377A of the Financial Services and Markets Act 2000 (being introduced by the Financial Services and Markets Bill 2022) retains, extends and clarifies the write-down of insurer liabilities, defines the court’s powers and puts a comprehensive framework in place for the management of write-downs. It includes new provisions to improve current insurer insolvency arrangements, manage financial distress in a more orderly manner and ensure continuity of cover for policyholders. This measure addresses the Corporation Tax and pensions tax issues that would otherwise arise from the enhanced write-down provisions.
Detailed proposal
Operative date
The primary legislation for both the pensions tax and Corporation Tax issues will apply from the date of Royal Assent of Spring Finance Bill 2023.
Additional consequential pensions tax changes concerning unauthorised payments will be made via Statutory Instrument.
Current law
Companies carrying on general insurance business are taxed according to the normal Corporation Tax rules. Trading profits are calculated under Part 3 of Corporation Tax Act 2009 and charged under section 35 Corporation Tax Act 2009. Loan relationship credits or debits are recognised under the rules in Part 5 of Corporation Tax Act 2009. There are special taxation rules for life insurers who carry on long-term business in Part 2 of Finance Act 2012.
Paragraph 3(1) Schedule 28 to Finance Act 2004 details the circumstances in which a lifetime annuity is an annuity payable to a member. It specifies that the amount of the annuity either cannot decrease or falls to be determined in any manner prescribed by regulations.
Proposed revisions
Legislation to be introduced in Spring Finance Bill 2023 to insert new 130A into Part 3 of Corporation Tax Act 2009 and new 323B into Part 5 of Corporation Tax Act 2009. The effect of both new sections is that write-down of an insurer’s liabilities under section 377A of the Financial Services and Markets Act 2000 will not be taxable and in the event of any subsequent write-up (or court-ordered variation of a write-down order under proposed new section 377I Financial Services and Markets Act 2000), the amount that was not brought into tax as a result of the write-down is not given as a deduction.
The second clause of the primary legislation amends paragraphs 3 & 17 of Schedule 28, Finance Act 2004. The effect of these amendments is to allow for the reduction of pre-2015 lifetime annuities and dependant annuities following a court mandated write down under new section 377A of the Financial Services and Markets Act 2000.
A Statutory Instrument will ensure the proposed write-downs, in respect of various annuities under a registered pension scheme, are not considered a surrender of benefits and any subsequent FSCS top ups are added to the list of authorised payments to prevent unauthorised payments charges being incurred.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will apply to individuals who hold annuities provided by insurers who are in financial distress. The changes in this measure will allow eligible individuals to benefit from the FSCS top up payments without incurring an unauthorised payments charge, ensuring they are not disadvantaged.
Customer experience is expected to remain broadly the same, as this measure does not significantly alter how individuals interact with HMRC.
This measure is not expected to have an impact on family formation, stability or breakdown.
Equalities impacts
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on insurance companies and businesses administering registered pension schemes.
One-off costs for insurers and the wider industry (such as insolvency practitioners) include familiarisation with the new rules. There are not expected to be any continuing costs.
Customer experience is expected to stay broadly the same as this measure does not significantly alter how pension schemes and insurers interact with HMRC.
This measure is not expected to impact civil society organisations.
Operational impact (£m) (HMRC or other)
There are no operational impacts for HMRC as a result of this measure.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with industry representative groups.
Further advice
If you have any questions about pension schemes, please contact the Pensions Policy team in HMRC at [email protected]
If you have any questions about the Corporation Tax implications for insurers, please contact the Financial Services Team in HMRC at [email protected]