Scottish Widows plc v HMRC

Business tax: Life insurance

In Scottish Widows plc v HMRC (CS – 28 May) a large life insurance company claimed that it had made Case I losses of more than £1 000 000 000 following its demutualisation. HMRC began an enquiry into the company's returns and ascertained that amounts which the company had described as 'transfers from capital reserve' had not been taken into account in the computation.

The case was referred to the Special Commissioners under FA 1998 Sch 18 para 31A. The Commissioners upheld HMRC's contention that the effect of FA 1989 s 83(3) was that the 'transfers from capital reserve' had to be taken into account as receipts in computing the loss. The CS upheld this decision (by a 2-1 majority Lord Emslie dissenting). Lord Hamilton observed that prior to the enactment of FA 1989 'unrealised increases in value of assets held in...