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Finance Act 2012

Chapter 3

12.Chapter 3 explains the I – E basis.

13.Section 73 sets out the steps used to calculate the I – E profit (where the result is a positive amount) or the excess BLAGAB expenses (where the result is a negative amount). It points to other sections where specific terms are explained.

14.Section 74 lists items that come within the definition of income in step 1 of section 73.

15.Section 75 explains how to calculate the BLAGAB chargeable gains for the purposes of step 2 of section 73.

16.Section 76 explains how to calculate the BLAGAB management expenses for the purposes of step 5 of section 73.

17.Sections 77 and 78 define some of the terms used in the calculation of BLAGAB management expenses in section 76.

18.Section 79 sets out special rules for acquisition expenses (which are defined in section 80). These are expenses that are payable for the purpose of the acquisition of new business. They are spread over 7 years rather than deducted in full when incurred.

19.Section 81 details some specific amounts that are allowable as BLAGAB management expenses.

20.Section 82 applies certain restrictions, which apply to the management expenses of a company with investment business, to the calculation of BLAGAB management expenses.

21.Sections 83 and 85 bring into the new regime the existing provisions allowing relief, in computing I - E profits, for certain annuity payments.

22.Section 86 modifies, for I – E purposes, the rules in CTA 2009 regarding the taxation of profits from property businesses. It provides that a life insurance company may have more than one property business. There is a separate property business in respect of property held other than for the purposes of the long-term business. Separate businesses are established for property matched to BLAGAB liabilities; for property matched to other long-term liabilities; and for unmatched property held for the purposes of the long term business.

23.Section 87 sets out the treatment, for I – E purposes, of losses from property businesses. To the extent that they are referable to BLAGAB, such losses are to be treated as BLAGAB management expenses.

24.Section 88 ensures that for the purposes of the I – E profit calculation the rules on loan relationships, derivative contracts and intangible fixed assets apply as though the BLAGAB business were not a trade. The relevant rules in CTA 2009 apply accordingly.

25.Section 89 provides for certain BLAGAB miscellaneous income to be treated as I – E receipts in so far as it exceeds miscellaneous losses.

26.Sections 90 and 91 replicate existing provisions which impute investment return for I – E purposes when certain risks under BLAGAB contracts of insurance are reinsured.

27.Section 92 deems certain BLAGAB trading receipts, which would not otherwise fall within the charge to corporation tax, to be I – E receipts.

28.Section 93 requires a comparison between the BLAGAB trade profit and the I - E result and imputes an additional I - E receipt if the former is greater than the latter.

29.Section 94 requires that, in making the comparison in section 93, any exempt dividends referable to BLAGAB are to be included as I - E receipts. This is because all dividends are taken into account when computing the BLAGAB trade profit.

30.Section 95 allows non-BLAGAB allowable losses to be deducted from the shareholders’ share of BLAGAB chargeable gains, but not to the extent that they would create an I - E loss.

31.Section 96 restricts management expenses of an overseas life insurance company carrying on BLAGAB business in the UK where the income of the company allocated to BLAGAB includes FOTRA (free of tax to residents abroad) profits.

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