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TAXATION (PRUDENTIAL LIFE PRODUCTS)
Prudential's funds are taxed in accordance with the legislation relating to life assurance companies. The legislation is complex but broadly the effect for non-pensions business is as follows:
Income
a) UK and overseas dividend income is not subject to UK tax although overseas dividends will often suffer an overseas withholding tax.
b) Interest income is taxed at the basic rate (20% in 2009/2010).
c) Rental income is also taxed at the basic rate (20% in 2009/2010).
Capital Gains
Realised capital gains (after allowing for indexation) are taxed at the basic rate (20% in 2009/2010).
Investment funds which are "bond funds" are subject to tax on the basis of their mark-to-market fluctuations each year, as if they were bonds themselves, at 20%.
Investment funds which are chargeable assets are subject to capital gains tax on their realised gains each year. They are also subject to the "deemed disposals rules" which deems the life company to sell its entire holding each year and reacquire it the following year. Those deemed gains are not taxed entirely in the year, unlike actual realised gains. One seventh is taxed in the year and one seventh for each of the following six years. The rate of tax is 20% for both realised gains and deemed gains.
Expenses
Allowable expenses can be taken into account in calculating the company's tax liability although expenses relating to the acquisition of new business are spread evenly over seven years.
