Corporation Tax Act 2009 section 568

Restriction on credits on old contracts: fair value accounting cases

Section 568 restricts the taxable credits a company can recognise on an old investment life insurance contract where the company uses fair value accounting and the contract's cost exceeds its fair value at the transition date.

• Applies where the company has always beneficially owned the old contract, uses fair value accounting for it, and the contract's original cost exceeds its fair value immediately before the first accounting period beginning on or after 1 April 2008
• The "old contract cost" is defined as the original cost of the policy or annuity contract (as calculated under the former ICTA rules for life policies or life annuity contracts), reduced by any relevant capital payments already received
• No taxable credit may be brought into account under the loan relationship rules until the cumulative credits arising on the contract exceed the amount by which the original cost exceeded the fair value at the transition date
• This prevents a company from recognising a taxable gain that merely reflects the recovery of an unrealised loss that existed at the point of transition to the new regime