Lloyd's insurers are set for a boost as the UK Treasury announced measures which will bring their tax treatment more into line with that of general insurance companies.
Relief for claims equalisation
The UK Treasury confirmed an earlier commitment (previously set out in the 2008 Pre-Budget Report) that corporate members in the Lloyd's insurance market will be able to benefit from tax relief for claims equalisation "in a broadly similar way to general insurance companies". The changes will be retrospectively applied to results treated as arising in the year ended 31 December 2008 - in other words those originating from the 2005 year of account under Lloyd's three-year accounting.
Corporation tax on dividends exemption for Lloyd's corporate members
Currently, Lloyd’s corporate members are subject to provisions in the Finance Act 1994 which require corporation tax to be payable on both UK and foreign dividends that they receive as part of their insurance trading profits. The Finance Bill 2009 will introduce provisions that repeal this part of the special Lloyd’s tax code so that both UK and foreign dividends received by Lloyd's corporate members will be exempt from UK corporation tax. The measure will have effect from 1 July 2009 and will bring the tax treatment of dividends received by Lloyd's corporate members into line with those of general insurance companies.
The favourable tax treatment will create a more even playing field between the Lloyd's market and London market insurers as the Lloyd's market becomes more attractive to overseas insurers and Lloyd's members are better placed to compete globally.
Unsurprisingly the changes have been well received by the Lloyd's insurance market. Luke Savage, finance director at Lloyd's, said:
"We welcome news that the Government will introduce tax relief for claims equalisation reserves for Lloyd's corporate members ...Also welcome was the announcement of a tax exemption for UK dividends received by Lloyd's corporate members. Both these bring Lloyd's members in line with other general insurers and go some way to ensuring that Lloyd's corporate members can continue to compete globally. There is more which could be done but we are encouraged by Government's response so far."