LAM15010 | Excess expenses, losses and deficits: introduction

From HM Revenue & Customs · Life Assurance Manual

Overview of chapter

This chapter covers

the basic rules for the relief of excess expenses, losses and deficits as they apply to companies carrying out life assurance business LAM15020 – LAM15150;
the loss restriction rules as they apply to companies carrying out life insurance business; LAM15200 – LAM15210.
the application of the loss restriction rules where, exceptionally, losses are ‘shock losses’ LAM15300 – LAM15360.
The rules that applied for the use of carried forward losses by life companies accounting periods covering the period between 1 April 2017 and 5 July 2018 LAM15400 – LAM15410

Policyholders’ share of I-E

It is not possible to reduce the policyholders’ share of I-E profits by setting off BLAGAB trading losses or losses and reliefs which do not arise from BLAGAB (FA12/S127). The set-off of such items will be restricted to the shareholders’ share of total profits which consists of:

the shareholders’ share of the I-E profit (but where there is a BLAGAB trade loss there will be no shareholders’ share of the I-E profit);
any non-BLAGAB trade profit;
any profits arising from Long-Term Business Fixed Capital (LTBFC);
any trade profits from any short-term business

Summary of loss relief offsets

The table below lists the types of losses and reliefs that need to be considered when computing the charge to tax on the profits of a life insurance company. The references indicate the relevance to each element of the computation. Where there is no reference there is no relevance. The rules are summarised at the relevant LAM reference for each category.

	BLAGAB I-E profit	BLAGAB trade profit	Non-BLAGAB long term business trade profit	LTBFC / other non-trading profits	Short-term\nbusiness trade profit
Loss/Relief type
Management expenses	LAM15020		LAM15030
Trade losses	LAM15040	LAM15050	LAM15050	LAM15060
Capital allowable losses	LAM15070		LAM15080
Allowable losses on deemed disposals TCGA92/S212	LAM15070
Non-trading loan relationship / derivative deficits	LAM15090		LAM15100
Non –trading deficits –intangible assets	LAM15110		LAM15120
UK property business loss	LAM15130		LAM15140
Capital allowances – investment assets	LAM15150
Capital allowances – management assets	LAM04200	LAM07150	LAM07150	LAM11060	GIM4090 CTM02350
Group relief claims	S/H share\n LAM15160		LAM15160	LAM15160	LAM15160

From 1 April 2017 offset of certain reliefs was subject to the loss reform rules introduced by F(No.2)A17. LAM15200 summarises the impact on life insurance companies of the loss reforms of F(No.2)A17. The reforms also allow for the surrender of certain carried forward losses as group relief LAM15160.

There are commencement rules for accounting periods which straddle 1 April 2017 (F(No2)A17/SCH4/PART12) and 5 July 2018 (FA19/SCH10/PARA32(2)). See CTM04880 for more detail on commencement and apportionment.

In exceptional circumstances, there may be ‘shock losses’. These are subject to special rules (see LAM15310).