(a) an amount equal to the difference is an I - E receipt of the company for
the accounting period (see section 73), and

(b) the same amount is carried forward to the company’s next accounting
period as an expense (see section 76).

94 5Adjustment of I - E profit or excess BLAGAB expenses

(1) This section applies if the BLAGAB trade profit for the accounting period
includes non-taxable distributions receivable by the company in that period
that are referable, in accordance with Chapter

7

10, to the company’s basic life
assurance and general annuity business.

(2) For the purposes of section 93(5) (the comparison of the BLAGAB trade profit
with the I - E profit or excess BLAGAB expenses), the calculation required by
section 73 is performed again but adding to the amount of “I” found by step 4
15the total amount of the non-taxable distributions receivable by the company in
the accounting period that are so referable.

(3) Accordingly, once an adjustment is made in accordance with subsection (2), an
amount of excess BLAGAB expenses for the accounting period might become
an adjusted I - E profit for that period.

(4) 20For the purposes of this Part “non-taxable distributions” means distributions
that are exempt for the purposes of Part 9A of CTA 2009 (company
distributions).

(5) For the purposes of this Part the amount of a non-taxable distribution does not
include any amount withheld from it on account of tax payable under the laws
25of a territory outside the United Kingdom.

Non-BLAGAB allowable losses

95 Use of non-BLAGAB allowable losses to reduce I - E profit

(1) This section applies if—

(a) an insurance company has an I - E profit for an accounting period, and

(b) 30non-BLAGAB allowable losses have accrued to the company that are
available for deduction in accordance with section 210A(2) of TCGA
1992 from the shareholders’ share of BLAGAB chargeable gains that
have accrued to the company.

(2) Those losses may be deducted from those gains in accordance with that
35provision so as to reduce the amount of the I - E profit for the accounting period
to nil but no further.

(3) For the purposes of subsection (1)(a), assume that non-BLAGAB allowable
losses cannot be deducted from any BLAGAB chargeable gains (and,
accordingly, ignore the effect of this section).

40Overseas life insurance companies

96 Expenses referable to exempt FOTRA profits

(1) This section applies if the profits for an accounting period of the basic life
assurance and general annuity business carried on by an overseas life

insurance company in the United Kingdom consist of or include exempt
FOTRA profits.

(2) In making the calculation required by step 1 of section 76 for the accounting
period, ignore so much of the ordinary BLAGAB management expenses of the
company as are referable to exempt FOTRA profits.

(3) 5The relevant proportion of those expenses is to be regarded for the purposes of
this section as referable to exempt FOTRA profits.

(4) The relevant proportion is—

where—

• 10FOTRA is the amount of the exempt FOTRA profits arising in the
  accounting period, and

• I is the amount of I found by the calculations required by step 4 in section
  73 in relation to the company’s basic life assurance and general annuity
  business for the accounting period.

(5) 15In this section “exempt FOTRA profits” means profits in respect of which no
liability to corporation tax arises as a result of section 1279 of CTA 2009.

CHAPTER 4 Apportionment rules for I - E charge

Introduction

97 Application of Chapter

(1) 20This Chapter applies in the case of an insurance company that carries on—

(a) basic life assurance and general annuity business, and

(b) other business.

(2) This Chapter contains rules for determining for the purposes of Chapter

3

25—

(a) the credits or other income, the debits or other losses and the expenses
that are referable to the company’s basic life assurance and general
annuity business, and

(b) the chargeable gains and allowable losses accruing on the disposal of
30assets (or parts of assets) that are referable to the company’s basic life
assurance and general annuity business.

Allocation of income, losses and expenses

98 Commercial allocation

(1) This section makes provision for determining—

(a) 35the credits or other income and the debits or other losses arising from
the company’s long-term business, and

(b) the expenses incurred in the course of the company’s long-term
business,

that, for the purposes of Chapter

3

5, are to be regarded as referable to its basic
life assurance and general annuity business.

(2) Those items are to be determined in accordance with an acceptable commercial
method adopted by the company for the period of account in which the income
or losses arise or the expenses are incurred.

(3) 10A method is an “acceptable commercial method” if, in all the circumstances, it
can reasonably be regarded as providing a fair method for the purposes of
Chapter

3

for determining for a period of account what is referable to the
15company’s basic life assurance and general annuity business.

(4) The Treasury may make regulations for the purposes of this section—

(a) prescribing cases in which a method is, or is not, to be regarded as an
acceptable commercial method, and

(b) prescribing cases in which the only acceptable commercial method is to
20be a method prescribed, or of a description prescribed, in the
regulations.

(5) Subject to any provision made by regulations under subsection (4), the method
adopted for the purposes of this section for a period of account—

(a) must be consistent with the method adopted for the purposes of section
25115 for that period, and

(b) in the case of an overseas life insurance company, must also be
consistent with the method for that period for attributing assets in
accordance with the provision made by or under Chapter 4 of Part 2 of
CTA 2009 to its permanent establishment in the United Kingdom.

(6) 30In this section “debits or other losses” means—

(a) losses in any separate UK property business carried on by the company
which is within section 86(4),

(b) losses in any separate overseas business carried on by the company
which is within section 86(4),

(c) 35debits in respect of any loan relationships of the company,

(d) debits in respect of any derivative contracts of the company,

(e) debits brought into account by the company under Part 8 of CTA 2009
(intangible fixed assets), and

(f) losses of the company which arise from miscellaneous transactions (as
40defined by section 89(4)).

Allocation of chargeable gains and allowable losses on disposals of assets

99 Application of sections 100 and 101

(1) Sections 100 and 101 apply for determining the chargeable gains or allowable
losses that, for the purposes of Chapter

453

, are to be regarded as referable to a
company’s basic life assurance and general annuity business whenever it
disposes of assets held for the purposes of its long-term business (including
cases where, as a result of Chapter

508

or any other provision of the Corporation
Tax Acts, it is deemed to make a disposal).

(2) Expressions that are used in sections 100 and 101 and in TCGA 1992 have the
same meaning in those sections as they have for the purposes of that Act.

100 Assets wholly or partly matched to BLAGAB liabilities

(1) If, immediately before the disposal, the whole of the asset was matched to a
BLAGAB liability, the whole of the gain or loss is referable to the company’s
basic life assurance and general annuity business.

(2) 5If, immediately before the disposal, a part of the asset was matched to a
BLAGAB liability, the appropriate portion of the gain or loss is referable to the
company’s basic life assurance and general annuity business.

(3) “The appropriate proportion” means the proportion equal to the proportion of
the asset matched to the BLAGAB liability.

(4) 10If, as a result of Chapter

8

, there is a disposal of a part of an asset where the part
concerned is matched to a BLAGAB liability, the whole of the gain or loss is
referable to the company’s basic life assurance and general annuity business.

(5) 15The concept of the whole or a part of an asset being matched to a BLAGAB
liability is explained by section 138.

101 Commercial allocation for disposals not wholly dealt with by section 100

(1) This section applies if, in the case of the disposal—

(a) no part of the gain or loss is dealt with by section 100, or

(b) 20section 100 deals with only a proportion of the gain or loss.

(2) The gain or loss, or (as the case may be) the remaining proportion of the gain
or loss, which is referable to the company’s basic life assurance and general
annuity business is determined in accordance with an acceptable commercial
method adopted by the company for the period of account in which the
25disposal is made.

(3) A method is an “acceptable commercial method” if it secures that gains or
losses are referable to the company’s basic life assurance and general annuity
business in a way that fairly represents the contribution that the assets in
question have made to that business during the period in which they have been
30held for the purposes of the company’s long-term business.

(4) The Treasury may make regulations for the purposes of this section—

(a) prescribing cases in which a method is, or is not, to be regarded as an
acceptable commercial method, and

(b) prescribing cases in which the only acceptable commercial method is to
35be a method prescribed, or of a description prescribed, in the
regulations.

(5) Subject to any provision made by regulations under subsection (4), the method
adopted for the purposes of this section for a period of account—

(a) must be consistent with the method adopted for the purposes of section
4098 for that period and the method adopted for the purposes of section
115 for that period, and

(b) in the case of an overseas life insurance company, must also be
consistent with the method for that period for attributing assets in
accordance with the provision made by or under Chapter 4 of Part 2 of
45CTA 2009 to its permanent establishment in the United Kingdom.

CHAPTER 5 I - E profit: policyholders’ rate of tax

Tax rate on policyholders’ share of I - E profit

102 Policyholders’ rate of tax on policyholders’ share of I - E profit

(1) This section applies if an insurance company has an I - E profit for an
5accounting period.

(2) The rate of corporation tax chargeable for a financial year on the policyholders’
share (if any) of the I - E profit is the policyholders’ rate of tax.

(3) The policyholders’ rate of tax is the rate at which income tax at the basic rate is
charged for the tax year that begins on 6 April in the financial year.

(4) 10The policyholders’ share of the I - E profit is determined in accordance with
section 103.

(5) The policyholders’ share of the I - E profit for an insurance company’s
accounting period is to be left out of account in determining for the purposes
of Part 3 of CTA 2010 (companies with small profits)—

(a) 15the augmented profits of the company for the accounting period, and

(b) the taxable total profits of the company for the accounting period.

103 Rules for determining policyholders’ share of I - E profit

(1) This section determines for the purposes of section 102 the policyholders’ share
of the I - E profit of an insurance company for an accounting period.

(2) 20If the basic life assurance and general annuity business of the company carried
on by the company in the accounting period is mutual business, the
policyholders’ share of the I - E profit is the whole of that profit.

(3) In any other case, the policyholders’ share of the I - E profit is determined as
follows.

(4) 25The first step is to calculate whether the company has a BLAGAB trade profit
for the accounting period, and, if so, its amount.

(5) If the company does not have a BLAGAB trade profit for that period, the
policyholders’ share of the I - E profit is the whole of that profit.

(6) If—

(a) 30the company has a BLAGAB trade profit for that period, and

(b) the adjusted amount of the BLAGAB trade profit is less than the
amount of the I - E profit for that period,

the difference between those amounts represents the policyholders’ share of
the I - E profit.

(7) 35If—

(a) the company has a BLAGAB trade profit for that period, and

(b) the adjusted amount of the BLAGAB trade profit is equal to or more
than the amount of the I - E profit,

there is no policyholders’ share of the I - E profit.

(8) References to the adjusted amount of the BLAGAB trade profit are to be read
in accordance with section 104.

104 Meaning of “the adjusted amount”

(1) This section explains for the purposes of section 103 what is meant by the
5adjusted amount of the BLAGAB trade profit.

(2) The following adjustments are to be made to the amount of the BLAGAB trade
profit.

(3) If relief is available under section 124 (carry forward of BLAGAB trade losses
against subsequent profits), the BLAGAB trade profit is to be reduced as
10mentioned in that section.

(4) If, as a result of relief given under that section, the BLAGAB trade profit is
reduced to nil, then the adjusted amount of the BLAGAB trade profit for the
purposes of section 103 is nil.

(5) If—

(a) 15the BLAGAB trade profit is not reduced to nil as a result of relief given
under section 124 or no relief is available under that section, and

(b) in the accounting period BLAGAB non-taxable distributions are
receivable by the company,

the BLAGAB trade profit is reduced or further reduced (but not below nil) by
20subtracting from it an amount equal to the shareholders’ share of those
distributions.

(6) The BLAGAB trade profit as so reduced or further reduced is the adjusted
BLAGAB trade profit for the purposes of section 103.

105 Meaning of “BLAGAB non-taxable distributions” and “shareholders’ share”

(1) 25This section explains for the purposes of section 104 what is meant by—

• “BLAGAB non-taxable distributions”, and

• “the shareholders’ share” of BLAGAB non-taxable distributions.

(2) Non-taxable distributions are “BLAGAB” non-taxable distributions if they are
referable, in accordance with Chapter

307

, to the company’s basic life assurance
and general annuity business.

(3) The “shareholders’ share” of the BLAGAB non-taxable distributions receivable
by the company in the accounting period is the relevant proportion of those
35distributions.

(4) The relevant proportion is—

where—

• BTP is the amount of the BLAGAB trade profit of the company for the
  40accounting period,

• BNTD is the amount of the BLAGAB non-taxable distributions receivable
  by the company in the accounting period, and

Finance BillPage 66

• I is the total of the amounts given by the calculations required by steps 1
  to 3 in section 73 (I - E basis: income referable to BLAGAB) in relation
  to the company’s basic life assurance and general annuity business for
  the accounting period.

(5) 5If BTP exceeds BNTD + I, the shareholders’ share of the BLAGAB non-taxable
distributions receivable by the company in the accounting period is the whole
of those distributions.

Policyholder tax and calculation of BLAGAB trade profit or loss

106 Deduction for current policyholder tax

(1) 10This section applies for the purpose of calculating the BLAGAB trade profit or
loss for an accounting period of any basic life assurance and general annuity
business carried on by an insurance company in a case where the company has
an I - E profit for that period.

(2) In calculating the profit or loss for the accounting period, a deduction is
15allowed for an amount equal to the amount of corporation tax charged at the
policyholders’ rate of tax on the policyholders’ share of the company’s I - E
profit for that period.

107 Expenses or receipts for deferred policyholder tax

(1) This section applies for the purpose of calculating the BLAGAB trade profit or
20loss for a period of account of any basic life assurance and general annuity
business carried on by an insurance company.

(2) In calculating the profit or loss, an amount is brought into account that is equal
to—

(a) the closing deferred policyholder tax balance for the period of account,
25less

(b) the closing deferred policyholder tax balance for the previous period of
account.

(3) The amount—

(a) is brought into account as an expense, if it is a negative figure, and

(b) 30is brought into account as a receipt, if it is a positive figure.

(4) The amount is brought into account under this section only if, in accordance
with generally accepted accounting practice, it is debited or credited in
accounts drawn up by the company for the period of account.

(5) If the closing deferred policyholder tax balance for a period of account is a
35liability, the amount of the balance is taken to be a negative figure for the
purposes of this section.

(6) If the closing deferred policyholder tax balance for a period of account is an
asset, the amount of the balance is taken to be a positive figure for the purposes
of this section.

(7) 40Section 108 applies for determining the closing deferred policyholder tax
balance for a period of account.

108 Meaning of “the closing deferred policyholder tax balance” etc

(1) For the purposes of section 107 “the closing deferred policyholder tax balance
for a period of account” means so much of the closing amount shown, in
accordance with generally accepted accounting practice, in the accounts of the
5company for that period in respect of deferred tax as is wholly attributable to
policyholder tax.

(2) Provision forming part of the closing amount is “wholly attributable to
policyholder tax” if—

(a) the provision is made in respect of a BLAGAB matter (see subsection
10(3)), and

(b) anything included in the closing amount in respect of that matter is
calculated wholly by reference to the policyholders’ rate of tax
chargeable on the policyholders’ share of the company’s I - E profit for
any accounting period.

(3) 15A “BLAGAB matter” means—

(a) an amount of excess BLAGAB expenses,

(b) an amount of acquisition expenses falling to be relieved in the future in
accordance with section 79,

(c) an amount of expenses otherwise falling to be taken into account in the
20future under the I - E rules,

(d) an amount of BLAGAB allowable loss (within the meaning of section
210A of TCGA 1992) carried forward for future use,

(e) an amount to which section 213 of TCGA 1992 applies (spreading of
gains and losses under section 212), or

(f) 25an amount in respect of the future disposal (or part disposal) of an asset
which would fall to be taken into account in accordance with section 75.

(4) If—

(a) for a period of account of the company the provision made in respect of
a BLAGAB matter is taken into account for the purposes of section 107,
30and

(b) for a subsequent period of account of the company the provision made
in respect of that matter is no longer wholly attributable to policyholder
tax because the condition in subsection (2)(b) ceases to be met,

there is to be a reversal in the subsequent period of account in respect of the
35provision (so far as section 107 does not otherwise apply in relation to the case).

(5) The reversal in the subsequent period of account is to be made as follows—

(a) if the provision was an amount which for accounting purposes was
regarded as an asset, a negative amount equal to that amount is to be
taken into account in calculating the closing deferred policyholder tax
40balance for that period for the purposes of section 107, and

(b) if the provision was an amount which for accounting purposes was
regarded as a liability, a positive amount equal to that amount is to be
taken into account in calculating the closing deferred policyholder tax
balance for that period for the purposes of section 107.

(6) 45The Treasury may by order amend the definition of a “BLAGAB matter”.

(7) An order under subsection (6) may contain incidental, supplementary,
consequential, transitional, transitory or saving provision.

CHAPTER 6 Trade calculation rules applying to long-term business

109 Application of Chapter

(1) The rules contained in this Chapter have effect for the purpose of—

(a) calculating the BLAGAB trade profit or loss of any basic life assurance
5and general annuity business carried on by an insurance company, and

(b) calculating for corporation tax purposes the profits of any non-
BLAGAB long-term business carried on by an insurance company,

but, in the case of section 112, see also subsection (6) of that section.

(2) In this Chapter references to the calculation of the profits are, in the case of the
10calculation of the BLAGAB trade profit or loss, to be read as references to the
calculation of that profit or loss.

(3) See also section 47 of CTA 2009 (losses calculated on same basis as profits).

(4) In the case of the calculation of the BLAGAB trade profit or loss, see also
sections 106 to 108.

110 15Allocations to policyholders

(1) In calculating the profits for an accounting period, a deduction is allowed for
any amount which is allocated to policyholders or annuitants in respect of the
accounting period.

(2) But there is no deduction for an amount of a capital nature that—

(a) 20is allocated to holders of with-profits policies, and

(b) has not been funded from an amount credited in accounts of the
business drawn up in accordance with generally accepted accounting
practice (whether drawn up by the company or another company).

(3) For this purpose a payment made in connection with the reattribution of
25inherited estate is to be regarded as an amount of a capital nature.

(4) “With-profits policies” means policies under which the holders are eligible to
participate in surplus.

111 Dividends and other distributions

(1) Dividends or other distributions—

(a) 30which are receivable by the company, and

(b) which are referable, in accordance with Chapter

7

, to the business
concerned,

35are to be brought into account as receipts in calculating the profits.

(2) This rule—

(a) applies whether or not the distributions are exempt for the purposes of
Part 9A of CTA 2009 or would otherwise be dealt with under that Part,
but

(b) 40does not apply in the case of distributions that are of a capital nature.

112 Index-linked gilt-edged securities

(1) If, for an accounting period, a company has a loan relationship which is
represented by an index-linked gilt-edged security, sections 400 to 400C of
CTA 2009 (adjustments for changes in index) are not to apply in calculating the
5profits for the accounting period.

(2) But subsection (1) does not apply to loan relationships of the company that are
qualifying PHI loan relationships.

(3) A loan relationship is a “qualifying PHI loan relationship” if

(a) the loan relationship is identified in the records of the company as an
10asset held for the purposes of index-linked PHI business carried on by
the company, and

(b) none of the credits or debits in respect of the loan relationship are
referable to BLAGAB,

but see subsection (5) for a case in which a loan relationship meeting the
15conditions in paragraphs (a) and (b) is not a qualifying PHI loan relationship.

(4) Credits or debits are referable to BLAGAB if—

(a) they are referable, in accordance with Chapter

4

, to any basic life
20assurance and general annuity business of the company, or

(b) they are taken into account in calculating the profit or loss that is, in
accordance with Chapter

7

, allocated to any basic life assurance and
25general annuity business of the company.

(5) A loan relationship which, but for this subsection, would be a qualifying PHI
loan relationship of the company is not a qualifying PHI loan relationship if the
value of the loan relationship when added to the value of qualifying PHI loan
relationships of the company exceeds the value of the liabilities incurred by the
30company for the purposes of its index-linked PHI business.

(6) A loan relationship of the company which at any time is a qualifying PHI loan
relationship is to be regarded for the purposes of this Part as an asset which is
held at that time for the purposes of the company’s long-term business but
which is not matched to its long-term business liabilities or held by it for the
35purposes of any with-profits funds.

(7) In this section—

• “index-linked gilt-edged security” has the same meaning as it has in
  sections 400 to 400C of CTA 2009 (see section 399(4) of that Act), and

• “index-linked PHI business” means PHI business so far as consisting of
  40the effecting or carrying out of contracts of long-term insurance under
  which the benefits payable are linked to an index of prices published by
  the Statistics Board.

113 Receipts or expenses relating to long-term business fixed capital

Receipts or expenses which arise from an asset forming part of the long-term
45business fixed capital of the company are to be left out of account in calculating
the profits.