LAM03020 | Calculation of ‘I’ Income and chargeable gains: FA12/S73 Steps 1 and 2: Computing ‘I’- overview and identification of assets: FA12/S74-75

Computing the ‘I’ in steps 1 and 2 in S74 and S75 requires analysis of the company’s assets and the related income and gains to identify:

1. assets in the life company where the return is within scope of the I-E charge i.e. the assets are backing BLAGAB business in whole or in part LAM03040. Where assets are only partly backing BLAGAB business the apportionment and commercial allocation rules in FA12/Chapter 4 will apply LAM05000

2. which of the chargeable gains ‘boxes’ (FA12/S116) apply to the relevant assets- LAM03210

3. the type of assets identified in 1 above (bonds, unit trusts etc.) and assign the appropriate tax treatment to any income and gains arising (subject to any appropriate apportionment) LAM03040 and LAM03200

4. any internal transfers within the company between ‘boxes’ and transfers within the group to, or from, the life company and assign the appropriate tax treatment LAM03210 and LAM03220. Internal transfers between boxes within a life company can trigger a tax charge and therefore the tax treatment of intragroup transfers can differ significantly for life companies from the position for non-life companies

These analyses will enable the amounts in steps 1 and 2 to be computed. Step 3 is then a separate step which brings into the calculation of ‘I’ any deemed receipts not included in steps 1 and 2 plus any minimum profits charge LAM07230. The tax computation in LAM08000 provides an example of how this might work in practice.

Consideration must also be given to general corporation tax provisions that may apply. For example, the CFC legislation LAM12110 may apply to some of the assets of a life company. As life companies may hold substantial interests in offshore investment vehicles (for example where a related group company is the investment manager), an analysis of offshore companies for compliance with the CFC rules is essential. There are rules which specify the circumstances in which a CFC charge will not be applied on assets within the BLAGAB I-E charge to avoid double taxation. (SI2012/3044: The Insurance Companies and CFCs (Avoidance of Double Charge) Regulations 2012 LAM12110). Where a CFC charge does apply, it will not fall within the I-E computation.

Once the portfolio has been analysed, the normal chargeable gains provisions supplemented by the specific I-E rules will apply to the chargeable assets subject to chargeable gains treatment. Any non-BLAGAB, or other assets such as long-term business fixed capital (LAM11010 onwards), and assets not held for the purposes of the long-term business (LAM11070) will not be part of the I-E calculation.

Note that reinsurance of BLAGAB business can require adjustments to be made in the tax computation. See LAM10200.