LAM03400 - Calculation of ‘I’ Income and chargeable gains: FA12/S73 Step 2: Allowable losses that are not BLAGAB allowable losses: FA12/S95: TCGA92/210A

General

BLAGAB chargeable gains, including spread deemed disposal gains (net of any deemed disposal losses) must be reduced by any BLAGAB allowable losses and, may be reduced to a limited extent, by the shareholders’ share of non-BLAGAB allowable losses.

FA12/S95 enables allowable losses which are not BLAGAB allowable losses, to be set against BLAGAB chargeable gains up to the shareholders’ share (if any) of BLAGAB chargeable gains as determined under TCGA92/S210A. This in turn will reduce the I-E profit for the period but it cannot be reduced below zero.

Before deducting any non-BLAGAB losses the company must firstly deduct:

  • any BLAGAB allowable losses that accrue to the company in the accounting period from disposal of assets held for the purposes of the long-term business
  • any BLAGAB allowable losses carried forward unused from a previous accounting period.

The order of set off is dictated by the legislation:

  • steps 1 and 2 of FA12/S75 provide for the calculation of BLAGAB chargeable gains of the company for the accounting period as adjusted for BLAGAB allowable losses. For the purposes of the S75 calculation the allowable losses are current year and brought forward BLAGAB allowable losses
  • the result of Steps 1 and 2 of FA12/S75 is then taken to Step 2 of the I-E calculation (FA12/S73)
  • the I-E result at Step 6 of FA12/S73 is then subject to FA12/S95 (non-BLAGAB allowable losses)

Non-BLAGAB losses are brought into the computation at the final Step (6) of the I-E calculation, after utilising any current year and brought forward BLAGAB losses at Step 2.

The order of set off is also clear from the wording of FA12/S95 (non-BLAGAB allowable losses): S95(1): ‘This section applies if an insurance company has an I-E profit for an accounting period’. In calculating whether or not the company has an I-E profit, Step 2 of FA12/S73 takes into account only current year and carried forward BLAGAB allowable losses. FA12/S95(3) makes it clear that non-BLAGAB allowable losses are to be ignored in the S73 Step 2 profit calculation.

If a non-BLAGAB allowable loss is only partly utilised against the shareholders’ share of BLAGAB chargeable gains, the remaining loss is carried forward as a non-BLAGAB allowable loss.

The method used to calculate the allowable set off is determined by TCGA92/S210A(10A)-(10C). Note that the calculation of the I-E profit, for the purposes of establishing the shareholders’ share under S210A(10A)(a) and (b), excludes the impact of the non-BLAGAB loss (i.e. allowable losses that are not BLAGAB). In effect, this is a shadow calculation of the I-E profit, purely for the purposes of quantifying the S210A claim.