2. Under the current rules there can be numerous transactions each year which should each strictly count as a capital gains tax disposal (meaning that a computation should be prepared) but many of these will take place within the MAPA and are invisible to both the participant and the MAPA manager. For example, whenever a new participant joins a MAPA the rules of Lloyd’s mean that the syndicate rights held in the MAPA have to be re-balanced between all the participants so that all the existing participants will have disposed of a small fraction of their previous holdings to the new participant.

3. The Clause includes transitional provisions to preserve the history of arrangements entered into before 6 April 1999, and applies both where an individual is himself or herself a participant in a MAPA and where he or she is a partner in a Scottish limited partnership which is a participant.

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Subsection (1) provides that the clause applies to Lloyd’s members who have entered into a MAPA.

Subsection (2) applies sub-sections (3)-(9) for the purpose of determining capital gains tax only. This means that it applies to individuals but not to companies.

Subsection (3) causes syndicate rights held through a MAPA to be treated as a single asset and limits the occasions on which the merged asset is to be treated as disposed of, or partly disposed of, to those occasions specified in subsections (6) or (9). This means that the many small disposals and re-acquisitions of syndicate rights that occur wholly inside the MAPA are disregarded for capital gains tax purposes.

Subsection (4) specifies the acquisition cost of the asset to be whatever the member paid to the members’ agent in order to join the MAPA.

Subsection (5) determines that, when a member who is already in a MAPA pays a further amount under the arrangement, that additional payment is treated as expenditure incurred on the enhancement of the value of the asset.

Subsection (6) describes when a disposal of the asset occurs for capital gains tax purposes. Disposals occur only when an amount is paid to the member.

Subsection (7) deals with the situation where a member transfers into a MAPA syndicate rights that he holds directly. This transfer is treated as a disposal of the syndicate rights at market value: subsections (4) or (5) will ensure that the value of the rights transferred will be treated as expenditure incurred on the acquisition or enhancement of the MAPA asset for the purpose of calculating the chargeable gain on any future disposal.

Subsection (8) deals with the reverse situation, where syndicate rights held through a MAPA are taken out of the MAPA and held directly. Subsection (6) causes this to be treated as a disposal or part disposal of the MAPA asset, and subsection (8) ensures that the market value of the rights transferred will be treated as the acquisition cost in any future disposal of the syndicate rights.

Subsection (9) preserves the application of Section 24(1) of the Taxation of Chargeable Gains Act so that the complete extinction of rights in a MAPA will be treated as a disposal of those rights for no consideration.

Subsection (10) applies the new rules in their entirety to a member’s interest in a MAPA which he joins on or after 6 April 1999. For arrangements already in existence on that date subsection (11) provides some transitional rules.

Subsection (11) ensures continuity with existing arrangements, and in particular:

Subsection (11)(a) determines that the syndicate rights held in a MAPA are treated as first acquired by the member on the first date that he acquired any syndicate right that was contained in the MAPA on 6 April 1999. If he transferred syndicate rights into the MAPA then that could be before he actually joined the MAPA.

Subsection (11)(b) treats the amount paid for the syndicate rights acquired at the time specified in subsection (11)(a) as the acquisition cost for the member’s interest in the MAPA.

Subsection (11)(c) treats all further expenditure before 6 April 1999 on acquisition or enhancement of syndicate rights held in the MAPA on 6 April 1999 as expenditure incurred for the purpose of enhancing the value of the member’s interest in the MAPA.

any incidental costs of rights acquired before 6 April 1999 are treated as incidental costs of the acquisition of the syndicate rights held in the MAPA.

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Individual members of the Lloyd’s insurance market underwrite insurance business as traders on their own account. They do so through syndicates which have a one year life-span, but members who underwrite on a particular syndicate in any year have the right to remain on successor syndicates in following years. Most members participate in several syndicates, and most syndicates have changes in their membership each year.

Since the introduction in 1995 of Lloyd’s auctions of syndicate capacity - the right to underwrite on a particular syndicate - members have been able to raise money from their right to do business at Lloyd’s. Gains from the sale or exchange of an individual’s syndicate rights are liable to capital gains tax (CGT).

Many members participate in syndicates wholly or partly through what are known as MAPAs (Members’ Agent Pooling Arrangements). A MAPA is administered by a Lloyd’s market professional and allows a Name access to a portfolio of syndicates. In strictness sales of syndicate rights by the MAPA, changes in the syndicates in which the MAPA participates and changes in the membership of the MAPA all give rise to disposals, for CGT purposes, for every member of the MAPA.

In practice, therefore, the computations needed to calculate the CGT liability on disposals of syndicate rights can rapidly become very complicated, with hundreds being required for each Name each year. The Inland Revenue negotiated an administrative practice with Lloyd’s in an attempt to ensure a sensible result whilst avoiding most of the complexity. But this practice was challenged by some Names and would have been very difficult to adapt to take account of the new CGT taper relief.

This clause therefore provides a statutory basis on which individual members at Lloyd’s and individuals who are partners in Scottish limited partnerships which are themselves members of Lloyd’s can calculate on a simplified basis their capital gains and losses arising from disposals of syndicate rights held in MAPAs.