Capital Gains Tax Matching

I find the the application of the detailed CGT matching rules for life insurance companies a very complicated area.  Having, hopefully, got it straight in my head I'm setting out the position for future reference.

In calculating capital gains tax for the purposes of corporation tax for equities it is necessary to apply pooling as per TCGA 1992 section 104 but with special rules for same day transactions (TCGA s 105) and for instances where there is a disposal and there has been an acquisition in the previous nine days (TCGA s 107).  The important point to note about 107 is that it doesn't catch bed and breakfasting transactions, that is 107 (3) applies where "a number of securities are acquired and subsequently a number of securities disposed of" (My emphasis)

These rules apply to all securities, so include assets subject to deemed disposal.  (Although presumably they don't apply to the deemed disposal itself; although quite why this is the case not so clear.) 

However, there are anti - bed breakfasting rules that only apply to life companies (TCGA 210 B): There used to be anti bed and breakfasting rules applying to all companies in section 106 but these have been repealed.

TCGA s 210 B uses the same 10 / 9 day period as section 107 but also applies where the disposal precedes the acquisition.  The rules only apply where the disposal and acquisition are in respect of the same FA 2012 s 119 holding (i.e the same 440 box in old money).

The rules only apply where the transaction gives rise to a capital loss.

Section 212 assets are not included in the 210B matching rules, as they are  subject to a deemed disposal.

There is a exception for transactions designed to re - balance linked funds but the wording of this section, 210 B (7), isn't, in my opinion, very clear. 

This creates a rather messy two stage process when a company disposes of an equity that is pooled per TCGA 104.

Step 1 Do the calculation using the standard matching rules in section 105 and 107.

Step 2 If step 1 was a loss and the asset and transaction are within section 210B then re do the calculation this time using the matching rules in 210B.

This requires matching as follows:

Same day matching

Matching with acquisitions in the previous 9 days, which is pretty much section 107 matching, but, for reasons that are unclear, with a subtle difference in the order of matching where there is more than 1 such acquisition:  (107 is FIFO i.e. match earlier acquisitions before later ones, 210B is LIFO)

Matching with acquisitions in the 9 days after the sale (i.e. the bed and breakfasting rules).  Where there is more than one sale acquisitions are matched with earlier disposals before later disposals.

Other than as a crude revenue raiser its hard to see any justification for TCGA 210B: CGT loss relief is archaic in the degree of restriction of relief and its only reasonable that life insurance companies use bed and breakfasting to manage the incidence of tax on gains and losses.  In general this will be for the befit of policyholders. 

There is some guidance on the matching rules in LAM 4.A 296.

LAM