REV BN 5: Measures Affecting Lloyd’s Underwriters
Who is likely to be affected?1. Individual members of Lloyd’s (“Names”) who convert to underwriting through a corporate member of Lloyd’s. The term “corporate member” means a company or a Scottish Limited Partnership (“SLP”). General description of the measures2. Names who transfer their underwriting to a company in which they are the majority shareholder, or to an SLP in which they are the only underwriting partner, will be able to set off trading losses from underwriting years before the transfer against income derived from the company, or against partnership trading profits, from underwriting years after the transfer. 3. Names may also be able to defer liability to Capital Gains Tax (CGT) where their underwriting activities are taken over by a company and they transfer assets to the company in exchange for an issue of its shares. Operative date4. Transfers of underwriting taking place on or after 6 April 2004. Current law and proposed revisions5. Unlike most sole traders who transfer a business to a company or an SLP, Lloyd’s Names are unable to carry forward income tax losses, or defer capital gains, when they convert to limited liability underwriting. This is because the conditions for the reliefs are not capable of being satisfied: the transfer has to take place over an extended period of time so that the business cannot be transferred as a going concern. 6. The taxation of Lloyd’s Names is governed by sections 171 to 184 Finance Act 1993. New provisions will be inserted into the current rules in Finance Act 1993 to allow income tax losses to be carried forward and CGT liability to be deferred. The legislation will be included in Finance Bill 2004. 7. Subject to certain conditions, where a Name transfers his or her underwriting business to a company, he or she will be able to set income tax losses carried forward from past underwriting against remuneration, dividends or other income derived from the company. Immediately before the transfer of the business, the Name must own over 50% of the company’s ordinary share capital and also control it. Where the underwriting is transferred to an SLP of which he or she is the sole member carrying on underwriting business, income tax losses will be carried forward to set against the member’s share of the partnership profits from the underwriting business. 8. Subject to certain conditions, where a Name transfers his or her underwriting business to a company, he or she will be able to postpone the tax charge on any capital gains (net of losses) arising on disposals of syndicate capacity and assets held as Funds at Lloyd’s to the company in exchange for an issue of shares in the company. Where this relief applies the net amount of the chargeable gains held over will be deducted from the acquisition cost (for CGT purposes) of the shares issued to the Name. The effect of this hold-over is to defer any liability to CGT until the Name makes a disposal of the shares in question. Immediately before the transfer of the business, and each transfer of syndicate capacity or other assets, the Name must own over 50% of the company’s ordinary share capital and also control it. 9. Where a Name transfers his or her underwriting business to an SLP the normal rules for calculating any chargeable gains or allowable losses on the transfer of assets to a partnership will apply in relation to the transfer to the SLP of syndicate capacity and assets held as Funds at Lloyds. Further advice10. If you have any questions about this change, please contact Tony Sadler on 020 7438 7558.
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