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Up to this year, members' Lloyd's subscriptions have been subject to a composite VAT rate that has varied from year to year. A 'notional' VAT rate has initially been applied to the members' subscriptions when they are charged by Lloyd's, and this has been adjusted to a definitive rate for each year once that has been agreed with Customs and Excise.

In June 2002 Customs issued a ruling that the VAT liability of members' subscriptions to Lloyd's should bear VAT at the standard rate of 17.5 per cent from 2003 onwards. Lloyd's requested a formal reconsideration of this ruling and submitted further information, and as a result Customs have decided that these charges will be exempt from VAT. The revised ruling applies to all members' Lloyd's subscriptions for the year 2003 onwards.

Members' subscriptions in respect of 2000, 2001 and 2002 were initially subject to notional VAT rates. These years are still subject to VAT at composite rates, and the definitive rates for these years have now been agreed with Customs as 5.91 per cent, 7.42 per cent and 5.63 per cent respectively. This will result in refunds for 2000 and 2002 but further VAT payable for 2001.

(Source: Lloyd's Market Bulletin dated 13 September 2002.)

Amlin syndicate capacity

A recent Lloyd's market bulletin sets out the tax treatment of Amlin 2003 limited tenancy capacity in the hands of individual and corporate members. This capacity may be acquired through Amlin's offer to members in syndicate 2001 and traded at this year's capacity auctions.

For corporate members of Lloyd's, syndicate capacity comes within the new intangible property corporation tax régime under Schedule 29 of the Finance Act 2002. This means that gains or losses on disposal, and any amortisation during a period of ownership, are taken into account as trading receipts or deductions broadly following the accounting treatment. Transitional rules apply to any capacity that was held before 1 January 2002 to ensure that the overall relief given or amount taxed corresponds to the gain or loss during the period of ownership.

In the hands of individual members of Lloyd's, syndicate capacity is a chargeable asset within the capital gains tax rules. However, in some circumstances the capital gains tax 'wasting asset' rules will apply to deny individual members relief for their acquisition costs. These rules apply to any asset that does not have an expected life of 50 years or more at the time of its acquisition.

Where an individual member acquires Amlin 2003 capacity as part of the Amlin offer, the 2003 capacity is derived from the capacity that he or she held before and is not affected by the wasting asset rules. Accordingly, the individual member's acceptance of shares or cash plus Amlin 2003 capacity under the offer is treated as a part disposal of the original capacity that he or she held, at the time the offer becomes unconditional. The original expenditure on acquiring the capacity is to be apportioned between the disposal for cash or shares on the one hand and the Amlin 2003 capacity that is retained on the other. The expenditure attributed to the Amlin 2003 capacity will then be available either to set against the proceeds of any sale of the 2003 capacity or to crystallise as a capital loss upon the extinction of the capacity.

By contrast, an individual member who acquired Amlin 2003 capacity at auction (or in any way other than through the original offer) will not be acquiring an asset with an expected life of fifty years or more.

If, therefore, the member keeps the 2003 capacity until it is extinguished, he or she will not be able to get any tax relief for that acquisition expenditure.

(Source: Lloyd's Market Bulletin dated 5 September 2002.)

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