Commentary

D7.456 Ring-fencing of losses

Corporate tax
Corporate tax | Commentary

D7.456 Ring-fencing of losses

Corporate tax | Commentary

D7.456 Ring-fencing of losses

There has always been a clear ring-fence around the BLAGAB income and expenses of a life insurance company's long-term insurance business such that the policyholders' share of the profits could not benefit from general corporate tax reliefs such as group relief and any excess management expenses were unavailable for surrender as group relief.

However historically there had been no such overt ring-fence applicable to capital gains and losses with the result that such gains and losses could be offset against gains and losses arising on assets of the company held otherwise than for the purposes of its long-term business. HMRC always held the view that there was an implicit ring-fence but legislation was introduced to make the situation explicit1.

The ring-fence works by making the general rule for the offset of allowable losses in TCGA 1992, s 2A(1) (formerly s 8(1)) subject to the operation of TCGA 1992, s 210A2. In general terms, non-BLAGAB allowable losses may be set only against the shareholders' share of any BLAGAB chargeable gains, and BLAGAB allowable losses are restricted in the extent to which they may be relieved against non-BLAGAB chargeable gains. It is this latter restriction that is the source of much of the complexity in the legislation.

For these purposes3:

  1.  

    (a)     BLAGAB allowable losses are those losses referable to BLAGAB by virtue of the company's commercial allocation methodology for

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