LAM10100 | Reinsurance: The taxation of reinsurance companies: overview

Where a company reinsures life assurance business the normal rule is that the reinsurer treats it as non-BLAGAB which is charged to tax as trading income under CTA09/S35. Taxing reinsurance as a trade reflects the nature of the business which is confined to reinsuring risks from other insurers where no business is directly written by the reinsurer itself.

However where a reinsurer reinsures BLAGAB treating that reinsured business as non-BLAGAB may result in BLAGAB investment return falling out of the charge to tax on I-E profits. There are specific rules which ensure that the investment return accruing for the benefit of BLAGAB policyholders forms part of the I-E profits of either the cedant or the reinsurer LAM10200.

Reinsurers with no ‘excluded business’

Profits from the reinsurance of BLAGAB are taxed on trading basis, as a financial trader. Dividends received by the reinsurer are taxable FA12/S111.

Reinsurers with ‘excluded business’

Excluded business is BLAGAB in the reinsurer and within the charge to tax on I-E profits FA12/S68 unless the business of the reinsurer is substantially non-BLAGAB FA12/S67. Post 31 May 2018 excluded business defined in SI2018/538 LAM10300 - LAM10320.

ISPVs which are BLAGAB Group reinsurers

Reinsurance business must be ‘excluded business’ FA12/S65(4) which is treated as BLAGAB. Other business must not be substantially all non-BLAGAB LAM10400.