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IFRS 17: Tax transitional rules for long term insurance businesses

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Published: 14 Nov 2022 Update History

Regulations laid before the House of Commons on 10 November 2022 mitigate the tax consequences of adopting IFRS 17 by spreading certain amounts that would otherwise be subject to corporation tax immediately on adoption over 10 years.

IFRS 17 is an international accounting standard (IAS) that changes the way insurance contracts are accounted for. It will become mandatory for UK companies reporting under IAS for accounting periods beginning on or after 1 January 2023.

The tax regulations apply to insurance companies that carry on long-term business and report under IAS. Without these regulations, the tax consequences of adopting IFRS 17 could have significant cashflow and regulatory implications for some insurers.

The regulations mitigate the tax effect of IFRS 17 adoption by treating a transitional amount as a receipt or expense of the long-term business, spread evenly over the transitional period. The transitional period is the 10 years beginning with the first day of the first accounting period in which accounts are prepared based on IFRS 17.

The regulations set out various steps to calculate the transitional amount that applies to the long-term business of the company. The transitional amount should be allocated between different long-term insurance businesses of a company, in accordance with an acceptable commercial method –ie, between its basic life assurance and general annuity business (BLAGAB business) and non-BLAGAB long-term business.

There are special provisions to deal with situations that may occur during the transitional period such as:

  • transfers of business;
  • cessation of long-term business;
  • making a branch exemption election under s18A, Corporation Tax Act 2009.

Draft regulations were published for consultation from 26 September 2022 to 7 October 2022. Revisions have been made to the draft regulations following the feedback received, in order to deliver the intended effect.

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