Proposed Cap on Loss Relief - Write to Your MP

12 March, 2013

Just in case any of you have not yet written to your MP about the proposed £50k cap, as urged in the latest ALM News, we thought you might be interested in our Chief Executive’s letter to his MP (below), which might give you some ideas.

It does take a slightly different line from that suggested by Sir Adam Ridley in ALM News, as our Chief Executive was on holiday when ALM News was finalised and thought it might be simpler at this very late stage,before the budget on 20th March, for HM Treasury to insert just a single sentence to provide an exemption for Lloyd’s, as it did in previous Finance Acts, rather than to consider further at the last moment over what period it might carry back losses against previous profits of the same trade. In any event, there is no harm done if HM Treasury is provided with two different options to consider.

If you have not yet written to your MP, then we ask you to join our campaign and to do so this week.

From: Anthony Young
Sent: 08 March 2013 13:46
Subject: Relief for Losses from Lloyd's Underwriting
Importance: High

Dear Mr Hammond,

Relief for Losses from Lloyd's Underwriting

For your convenience, I am providing this letter both by e-mail (as I hope that the matters referred to herein will attract your urgent attention before the budget) and in the post today by hardcopy.

I am the CEO of the Association of Lloyd’s Members (ALM), the trade body for individuals who provide capital to support underwriting at the Lloyd’s insurance market. The ALM has made representations to HM Treasury on the above topic but I am now writing to you, as my MP, in my personal capacity as a member of Lloyd’s, to ask you to try to persuade the Chancellor to continue to provide the exemptions from loss relief caps which have applied to Lloyd’s members to date, for the very good reasons set out in the final paragraph of this letter. I am copying this letter to my Chairman and Deputy Chairman for their information.

It is currently proposed that the exemptions for Lloyd’s will not be continued in relation to the new general proposal that all reliefs (except for charitable giving) will in future be limited to the greater of £50,000 or 25% of income. (NB. The specific exemptions for Lloyd’s underwriters which have applied in the past can, for example, be found in FA 2007 Schedule 4 and FA 2008 Schedule 21.)

The reason why these exemptions have existed to date is that they assist Lloyd’s underwriters to perform the very valuable function of protecting other entities and individuals from risk. By taking over such risks, insurers naturally suffer from volatile results, none more so than Lloyd’s, which operates at the more extreme volatile end of the insurance spectrum by specialising in such areas as catastrophe reinsurance.

If a similar exemption is not inserted into this year’s Finance Bill the likely impact, apart from it being unfair to our members and damaging to Lloyd’s (see the final three paragraphs of Lloyd’s letter to HM Treasury attached), is that HM Treasury will in future receive less tax, for the reasons set out later in this letter.

Following Lloyd’s ‘Vision 2025’, which was launched by David Cameron in the Lloyd’s building last year, Lloyd’s has been involved in developing ideas to assist in the recruitment of new private capital. The diversity of its capital base is seen by such as the rating agencies as one of Lloyd’s great strengths. Currently, only about 11% of its capacity is provided by individual members, most of whom are likely to pay tax at the top 50% higher rate (NB. In contrast, the corporate members of Lloyd’s only pay the much lower corporation tax rate). Lloyd’s would like to increase the amount of capital provided by individuals, as set out in its latest ‘Three-Year Plan’.

But it may prove to be a severe disincentive to such an increase if genuine losses, such as those suffered at Lloyd’s during the periods 1988 to 1992 and 1998 to 2001, will not in future continue to give rise to full and immediate tax relief against individuals’ other sources of income. Worse still, many individuals were only able to continue to underwrite at Lloyd’s, into the very profitable periods which followed each of the above loss making periods, because of such full and immediate loss relief. Had the current proposals already been in place at those times, without the requested Lloyd’s exemption, many more individuals would have had to resign from Lloyd’s, and HM Treasury would not then have received the substantial amounts of tax which it has received from such people ever since.

In summary, therefore, I ask you to request the Chancellor to insert again an exemption for Lloyd’s underwriters, similar to those contained within FA 2007 Schedule 4 and FA 2008 Schedule 21, because:-

  • HM Treasury will otherwise forego tax receipts in the future both from those who voluntarily decide not to underwrite at Lloyd’s in the future as a result of the new proposals and from those who are forced to resign following the next very major catastrophe through being left with insufficient assets in the absence of the mitigating loss relief which has applied to date;
  • Lloyd’s will otherwise be damaged (see the final three paragraphs of Lloyd’s letter to HM Treasury attached); and
  • It is grossly unfair that otherwise an individual who suffers huge losses following a very major catastrophe, perhaps far greater than his other income, so that his overall position for the year is a huge loss, should nonetheless have to pay tax on his other income with only £50,000 of relief for his losses.

(NB. The Chancellor has suggested that it is sufficient for members of Lloyd’s to be able to carry forward their losses against future profits of the same trade, but such relief is woefully inadequate to deal with (i) to (iii) above, as the relief is then at best deferred until profitability is regained, perhaps several years later, and at worst is lost altogether as individuals are left with insufficient assets to continue underwriting at all. I hope that, on reflection, the Chancellor will understand this.)

Yours sincerely,

Anthony Young

Chief Executive, Association of Lloyd's Members, 100 Fenchurch Street, London EC3M 5LG

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