SolvedLAM01140 | Introduction and long-term insurance business overview: key concepts: tax definitions of business categories: FA12/S56-63
From HM Revenue & Customs · Life Assurance Manual
The key definitions required to split long-term business between BLAGAB and non-BLAGAB and other categories for tax purposes are derived from both regulation and tax legislation.
Long-term insurance business is a regulatory term defined in the FSMA 2000 (Regulated Activities) Order SI 2001/544 (PDF 182KB)
The table below lists the regulatory categories in Part II RAO and links these to tax definitions:
| Part II RAO | Category for tax |
|---|---|
| I Life and annuity | Life assurance S56(2)(a) |
| II Marriage and birth | Life assurance S56(2)(a) |
| III Linked long-term | Life assurance S56(2)(a) |
| IV Permanent health | Long-term business S63(1)(b) – not LAB S56 |
| V Tontines | It is unlawful to write this business in the UK. It is not LTIB and would be taxed as PHI S63(1)(b) |
| VI Capital redemption contracts | Life assurance but only as specifically defined in S56(3) |
| VII (a) Pension fund management contracts | Not LTIB taxed as PHI S63(1)(b) |
| VII (b) pension fund management contracts combined with other features | Life assurance S56(2)(a) |
| VIII & IX Contracts referred to in articles 1(2)(e) and 1(3) of first life directive | Not LTIB taxed as PHI S63(1)(b) |
Tax definitions
FA12/S56 defines life assurance business for the purposes of Part 2 of FA12. It includes certain categories within the regulatory definition such as life, annuity and pension contracts linked to human life. It includes capital redemption business according to a specific tax definition S56(3). It does not include PHI as defined for regulatory purposes. PHI, which is often referred to as income protection, is included in the tax definition of long-term business in FA12/S63 (and within the definition of non-BLAGAB in S66) along with life assurance business.
BLAGAB or basic life and general annuity business is defined in FA12/S57 as all life assurance other than certain categories of business which are treated as non-BLAGAB. The table below lists the categories of long-term business which are taxed together as non-BLAGAB. The descriptions are for general guidance only – see legislation for more details.
| Link to legislation FA12 unless stated | Non-BLAGAB Simplified Description |
|---|---|
| S58 pension business | Contracts for the purposes of registered pension schemes and reinsurance of such business including pension annuity business. |
| S59 child trust fund business | A policy that is an investment under the Child Trust Funds Act 2004. |
| S60 ISA business individual investment savings account business | A policy that is an investment under the ITTOIA05/S695(1). |
| S61 OLAB overseas life assurance business, SI1995/3237 | Contracts with policyholders not resident in the UK subject to specific conditions and exclusions. |
| S62 protection business | Policies (post 2012) where benefits cannot exceed premiums payable except on death or incapacity, for example, term assurance. |
| ITTOIA05/S725 immediate needs annuity | Policies to pay annuity where policyholder has incapacity at the time the contract is taken out. |
| S63 PHI permanent health insurance | Policies exceeding a 5 year period where benefits provide against the risk of incapacity or illness. |
| Reinsurance and excluded business S57(2), SI2018/528 | Reinsurance of life assurance business other than excluded business. LAM10000. |
These categories of business are all taxed as a single non-BLAGAB trade (FA12/S66(5) on a trading basis. Further details are included in LAM07000