LAM17270 | Modifications to share pooling and box transfer rules: FA12/S116

Nothing in FA12/PART3 modifies the rules on share pooling and box transfers (FA12/S116). These rules are detailed in LAM03210.

The rules for determining the extent to which a chargeable gain or allowable loss is referable to BLAGAB are detailed in LAM05100.

FA12/S116 deems a disposal and immediate re-acquisition at fair value when assets are moved from one category (or box) to another. Details of how these rules operate, including rules for specific circumstances, and the other long-term business categories outlined in FA12/S116(2) are set out in LAM03210.

In the case of friendly societies, SI2012/3008/REG8 amended FA12/S66(1) to provide for three separate business categories: BLAGAB, other long-term business and tax exempt business. The six categories of tax exempt business are listed in FA12/S57A. The effect of regulation 8 is that the insurance company will carry on three categories of business instead of two, but it does not mean that tax exempt business cannot be long-term business. It follows that the box transfer rules in FA12/S116 will continue to apply in a modified way.

FA12/S116 refers to matched assets which are defined in FA12/S138. Section 138 has not been modified by SI2012/3008/REG8 and only recognises BLAGAB and other long-term business matched assets. This means that assets in the tax exempt business category cannot be matched assets for the purpose of FA12/S116 and cannot fall within FA12/S116(2)(a) or (b).

Assets relating to the first two exempt categories of business in FA12/S57A(a) and (b) (BLAGAB and eligible PHI) as well as PHI business that is not comprised in BLAGAB or eligible PHI will be within either FA12/S116(2)(c) or (d) dependant on the facts. They will also be regarded as assets held for the purposes of the company’s long-term business within FA12/S116(6)(a).

In the case of the remaining four classes of tax exempt business in FA12/S57A(c) to (f) (with the exception of PHI business that is not comprised in BLAGAB or eligible PHI business) the exemption applies to profits arising outside of the long-term business so the related assets will fall within FA12/S116(6)(b).