SolvedLAM05080 | Apportionment rules: Example of a commercial allocation for a with-profits fund
From HM Revenue & Customs · Life Assurance Manual
This example is a simplified view of a commercial allocation. It is for illustrative purposes only and should not be regarded as specifying any particular method. In a with-profits fund an asset share or direct allocation method would be preferred methods for allocating income and gains. However, each life company’s commercial allocation method will be different and will depend on a number of factors, including the internal accounting records maintained, materiality and the underlying legal and regulatory position.
| Description of business | Allocation method | BLAGAB FA12/S98 | Trade profits FA12/S114 |
|---|---|---|---|
| Mix of separate asset pots drawn from single pool. Overall bonuses for each policyholder determined by asset share. | Asset share | 28% | By reference to bonus allocation |
| Non-profit business in with-profits fund | Mean of all NP liabilities in fund | 55% | By reference to bonus allocation |
| Other non-profits business within with-profits fund: all non-BLAGAB | Direct allocation | 0% | By reference to bonus allocation |
| German branch with-profits business all non-BLAGAB | Direct allocation | 0% | By reference to bonus allocation |
| Non-profit policies | |||
| Linked assets | Direct allocation from accounting records | 4% | Direct allocation from accounting records |
| Non-linked assets | Mean liabilities | 7% | Bonus allocation when direct allocation not possible |
| German branch NP business – All non-BLAGAB | Direct allocation | 0% | Direct allocation from accounting records |
| Unit-linked BLAGAB | Direct allocation – all BLAGAB | 100% | Direct allocation from accounting records |
NB. Trade profits: See LAM05110
Not all companies have with-profits funds and some companies will have multiple with-profits funds. Assessing whether a commercial allocation method is appropriate requires a basic understanding of the fund structure as well as the allocation systems and records in the company.
As mentioned in LAM05070 a with-profits fund may have an accumulated estate. An allocation method will also have to be agreed for estate assets.