LAM05060 - Apportionment rules: Allocation of BLAGAB income and gains: indirect allocation methods

Where a company’s assets are not matched or internally ring-fenced, an indirect method of allocation of income and gains must be used. Life insurance companies will often hold assets to back a broad range of business categories, for example to meet capital requirements, with income not directly allocated by the company’s internal accounting systems. Where this is the case an indirect method of establishing the BLAGAB-element of the income must be adopted. It should be consistent with the method adopted for allocating trade profit between BLAGAB and other long-term business under S115.

Note that:

• for all chargeable gains, S101(3) requires that the method must fairly represent the contribution of the assets to the company’s BLAGAB during the period that they have been held for the company’s long-term business. This is explained further in LAM05100. Otherwise the requirements for income and gains are aligned
• when allocating a single category of income, loss or expense between BLAGAB and non-BLAGAB under S98, then the allocation of a specific item should not be capable of resulting in one positive and one negative figure. Possible approaches to developing such indirect allocation methods will vary according to the specific circumstances of each company. In particular, there may be different approaches required depending on whether assets are within a with-profits fund or not

LAM05070 sets out considerations for unmatched (non-linked) assets in a with-profits fund with an example in LAM05080. LAM05090 sets out considerations where assets are held outside a with-profits fund.