LAM09030 - Double Tax Relief: Interaction of DTR and amounts set against total profits - management expenses and interest TIOPA10/S52(2); CTA09/S457 and S459

Life insurance companies may have four computations where DTR may be relevant:

  • the BLAGAB I-E calculation
  • the BLAGAB trade profit calculation
  • the non-BLAGAB trade profit calculation
  • the long-term fixed capital (LAM11000) and other income calculations

When allocation of income is necessary, it is carried out on a commercial allocation basis. In calculating DTR as expense or credit relief in the BLAGAB I-E, the normal rules apply for offset of expenses / management expenses and for interest. These are briefly summarised below to highlight aspects that may be of particular relevance to life insurance companies. More detail is included in the International Manual.

Set off of expenses, including management expenses

The amount of foreign tax credited against corporation tax (CT) on any income must not exceed the CT attributable to that income LAM09100. Where there are amounts deductible against profits of more than one description, TIOPA10/S52(2) allows the company to decide how expenses are set off for the purposes of determining the CT charged on any particular item of income or gain. These rules take precedence over any other provisions, such as those in FA12/S127.

This general rule applies to management expenses in the I-E computation as well as trade profit computations.

Interest

The UK charge to tax on interest is by reference to the amount accruing, whereas foreign tax is deducted from the amount as it is paid. INTM167120 to INTM167320 set out the basis for determining how interest which has suffered foreign tax is identified for the purpose of determining credit relief in respect of that foreign interest.

Where securities are bought or sold between interest dates, TIOPA10/S107 and S108 apply to all aspects of a life company’s computations (INTM167210) to restrict tax credit relief to the tax referable to the company’s period of ownership. Life insurance companies may engage in stock lending or repo transactions. TIOPA10/S109 and S110 allows assets used in these transactions to continue to be treated as owned.

Where a life insurance company receives an amount of interest from which foreign tax has been deducted, the guidance in the International Manual applies. The guidance refers to carry back and carry forward of deficits within section CTA09/S457 or S459. These provisions should be read as referring to section CTA09/S388, S389 and S391 where the interest arises on BLAGAB assets – TIOPA10/S54(7), S55(4) and (5).