LAM07110 - Trade profits: Deductible expenditure FA12/S110 bonuses: capital expenditure: FA12/S112 index-linked gilts

The rules for trading expense deductions generally follow ordinary principles though there are some provisions which are specific to life insurance.

Under FA12/S110 amounts allocated to policyholders, such as bonuses, are deductible unless they are:

• of a capital nature
• allocated to with-profit policyholders
• not funded out of amounts brought into account as receipts in the computation of trade profits

Payments made in connection with the reattribution of inherited estate, where there is an attribution of assets to shareholders, are regarded as amounts of a capital nature.

Some costs incurred in connection with the transfer of an insurance business under Part VII of the Financial Services and Markets Act 2000 may be capital in nature. Further guidance on this point can be found at LAM 13100 and BIM35525.

In general no deduction for tax is permitted from trade profits with the exception of DTR expense relief. Policyholder tax is only deductible, or indeed chargeable, in the BLAGAB trade profit computation under FA12/S106. LAM07210

A deduction for indexation on index-linked gilts under CTA09/S400 to S400C is specifically disallowed in the trading profit computation for long-term business other than index-linked PHI, by FA12/S112.