LAM10200 | Reinsurance: Imputation of investment return in the cedant FA12/S90

FA12/S90(1) and (2) provide that, where an insurance company reinsures any BLAGAB (including any risk which is part of a BLAGAB policy), the cedant is charged under FA12/S68 on an imputed investment return. The charge will not apply if:

• the reinsured business falls within the definition of excluded business in Regulations 5 and 6 of The Insurance Companies (Taxation of Re-insurance Business) Regulations SI2018/538 , and therefore the business is taxed as BLAGAB in the reinsurer LAM10210 - LAM10220; and/or

• the reinsurance arrangements fall within the definition of prescribed arrangements in Regulations 7-11 LAM10210

For reinsurance arrangements entered into before 1 June 2018 exclusions from the operation of S90 are in Regulations 1 to 8 of SI1995/1730 LAM10220

Where the reinsurance arrangements only include negligible amounts of BLAGAB there is no requirement to determine an amount of investment return to be imputed to the cedant - SI2018/538/Regulation 12(2). Similarly there is no requirement to impute investment return if FA12/S67 applies to the cedant’s long-term business, i.e. it is substantially non-BLAGAB - SI2108/538/Regulation 12(3).

The method of calculation of the imputed amount is set out in the schedule to SI2018/538 (see LAM10230).

In practice, BLAGAB reinsurance arrangements are often excluded from the operation of FA12/S90 by these provisions.

The disapplication of FA12/S90 is subject to an anti-avoidance provision in Regulation 13 where one of the main purposes of the reinsurance is to reduce the I-E charge. The provision does not have affect where the reinsurance is between two UK connected companies and within Regulation 5 - Regulation 13(3).

Additionally, there are provisions to ensure the transferee stands in the shoes of the transferor in a transfer of business which includes BLAGAB reinsurance and the transferor was subject to the imputed charge in FA12/S90. (Regulation 14).

Historically the risk of cedants falling within the scope of S90 when business was reinsured limited the reinsurance of BLAGAB.