IR39                                          29 November 1994

          LLOYD'S: AMENDMENTS TO FINANCE ACT 1993

The  Chancellor  proposes  in  his  Budget  to  correct a technical
defect  in the provisions in Finance  Act  1993 permitting  members
of  Lloyd's to  set  up  a  new-style special reserve fund.

As  no  arrangements permitting new-style funds  have yet
been  approved by the Inland Revenue the amendment can be
treated as always having had effect.


                          DETAILS

1.    The  legislation permitting the setting up  of  new-
style special reserve funds is at section 175 and Schedule
20 Finance Act 1993.

2.    Paragraph  2(2)  of Schedule 20  requires  that the
arrangements  setting  up the fund must  provide  for the
income  arising from fund assets to be held on  trust for
the member or his personal representatives or assigns.

3.    Recent advice on the meaning of these words is that
the  income  should  be held solely for  the  member, and
accumulation of the income as an accretion to  capital is
not  permitted.   The income could be distributed  to the
member.   This  is  contrary to  the  intention  when the
legislation was enacted.

4.    The amendments will ensure that the income will have
to  be accumulated, pending its payment out for one of the
purposes  specified  in Schedule 20.   This  reflects the
intention when Finance Act 1993 was enacted.


                     NOTES FOR EDITORS

1.    The  provisions  in  Finance Act  1993  will enable
members  of Lloyd's to set aside amounts from the earnings
of  profitable  years  to meet the  losses  of subsequent
years.   The  new-style fund replaces  existing reserving
arrangements.

2.   Transfers into and out of the fund are permitted
only in  specified  circumstances; transfers in are deductible
for  tax  purposes; transfers out are taxable  as trading
receipts.   The value of the fund is capped at  a certain
level.

3.    To  allow  the  value of the fund to  accumulate as
rapidly  as possible in its early years, income and gains
on  trust  assets  are to roll-up tax free  and  be held,
pending payment out for a specified purpose.

4.    The  difficulty  with  the present  wording emerged
during  consideration of the draft trust  deed,  which is
part of the arrangements which the Board of Inland Revenue
must approve under section 175 Finance Act 1993.