LAM17020 | Main provisions for friendly societies: FA12/S151

The main provision is in FA12/S151(1) and distinguishes between life assurance business and other long-term business.

The key points are:

• Life assurance business of a friendly society is taxed in the same way as mutual life assurance business. In effect, if the life assurance business is not tax exempt business, then basic life assurance and general annuity business (BLAGAB) will be taxed on I minus E profit. However, as it is treated as mutual business, there is no BLAGAB trade profit or loss and all business is taxed at the policyholder rate (i.e. the basic rate of income tax). Non-BLAGAB, insofar as it is life assurance business, will be mutual business and profits will not be taxed (FA12/S71(3)). The definition of “life assurance business” and its categorisation as BLAGAB and non-BLAGAB is explained at LAM01140.

• Other long-term business which is not BLAGAB is categorised as non-BLAGAB in the same way as for life insurance companies. This “other” long-term business which is not BLAGAB may include permanent health insurance (PHI) business (sometimes referred to as “income protection” business). If this “other” long-term business is written on a mutual basis, then its profits will not be taxable. If the “other” long-term business is not mutual business, then the profits will be taxable under the Corporation Tax Acts.

• Other than long-term business – income and gains relating to subsidiaries (i.e. shareholdings and loans to) held as part of other than long-term business are specifically excluded from the FA12/S165 exemption by FA12/S165(7). These will be subject to normal corporation tax rules (CTM40335).

Not all long-term business written by a friendly society and categorised as BLAGAB or non-BLAGAB will be taxable. There are specific friendly society exemptions for “exempt BLAGAB or eligible PHI business” (FA12/S151(2)) and exempt “relevant other business” (FA12/S164-165) (LAM17140-50).

The exemption from corporation tax for exempt BLAGAB and eligible PHI business has varied over time based on annual limits for premium (currently £270, or £300 if premiums payable monthly) sums assured and annuity payments. The limits are set out in LAM17060.

The exemption from corporation tax on “relevant other business” provides for continuation of the exemptions on certain transfers of exempt BLAGAB and eligible PHI subject to conditions which are set out in detail in LAM17160.

Exemptions available to friendly societies can be claimed by submitting a tax return or notifying an officer of HMRC (LAM17040).