SolvedLAM05010 | Apportionment rules: Introduction
From HM Revenue & Customs · Life Assurance Manual
This chapter explains the rules for apportioning I-E income, gains, losses and expenses and apportioning trade profits, for proprietary insurers, where companies carry on both BLAGAB and non-BLAGAB business.
An insurance company is taxed on its long-term business on a different basis depending on whether the business is BLAGAB or ‘other long-term business’ - referred to as ‘non-BLAGAB’:
BLAGAB is taxed on the I-E profit chargeable under FA12/S68 (LAM03000)
Accordingly, it is important to understand the categories of long-term business as defined in FA12/S56-63. The categories are listed below and the definitions are explained in more detail in LAM01140.
Long term business consists of life assurance business and permanent health insurance. For tax purposes life assurance business is split between BLAGAB and non-BLAGAB.
The following categories of business are non-BLAGAB
pension
protection business written after 1 January 2013
child trust fund business (CFTB)
individual saving account business (ISAB)
overseas life assurance business (OLAB)
life reinsurance business (LRB), apart from some reinsurance of BLAGAB LAM10300
immediate needs annuity business
Any other category of life assurance business is BLAGAB. This includes protection written pre-1 January 2013 and certain reinsurance of BLAGAB business.
A detailed explanation of the tax basis for all categories of business is in LAM03000 (BLAGAB I-E) and LAM07000 (Trade Profits).
FA12/S66(1) requires BLAGAB and non-BLAGAB long-term business to be treated as separate businesses. However, life insurance companies will often hold assets backing both BLAGAB and non-BLAGAB policies in a common pool and will normally incur expenses, such as overheads, that relate to all their categories of business. FA12/S97-101 sets out the rules for splitting total income, gains, losses and expenses between BLAGAB and non-BLAGAB (LAM05020).
The profit or loss of the long-term business and any tax adjustments required will also need to be allocated between the two businesses. FA12/S114 sets out how this should be done (LAM05110).
Assets forming part of the company’s long-term business fixed capital (LTBFC) (FA12/S137) are not treated as held for the purposes of the company’s long-term business for tax purposes. Any income (FA12/S74(6)) or gains (FA12/S75(3)) from such assets do not need to be allocated between BLAGAB and other long-term business. LAM11000
Assets, income and expenses backing any general insurance business will be separately identified and accounted for and therefore no apportionment is necessary.