LAM07310 - Trade profits: Trading losses: BLAGAB: FA12/S123-127
This manual has yet to be updated for the interest restriction and changes to relief for carried forward losses introduced by Finance (No.2) Act 2017.
Relief for BLAGAB trade losses is given by FA12/S123 to FA12/S125. Although BLAGAB profits are not themselves charged to tax, BLAGAB trade losses enjoy similar relief to other trade losses. The loss relief rules mirror closely the loss relief rules for companies generally, allowing relief either:
- sideways against total profits of the period
- carry back against total profits of the previous period
- by way of group relief
- by carry forward to later accounting periods against future BLAGAB profits
BLAGAB trade losses that are relieved by set off against total profits or that are surrendered by way of group relief are subject to some specific qualifications.
Set off of BLAGAB trade losses against total profits
FA12/S123 broadly permits BLAGAB trade losses to be set against total profits for the accounting period in which they arose. Any excess can be carried back to any accounting periods that end in the preceding 12 months under CTA10/S37. In summary, BLAGAB losses can be set against the sum of non-BLAGAB trade profits, the trade profits of any General Insurance business and any taxable income and gains arising from long-term business fixed capital assets or non-insurance business assets. However, by virtue of FA12/S127, those losses cannot be set against the policyholder share of I-E profits despite the fact that they are included in total company profits (LAM15000).
Surrender of BLAGAB trade losses as group relief
Similarly, FA12/S125 allows BLAGAB trade losses to be surrendered to other group companies under the group relief provisions in CTA10/S99 onwards.
The BLAGAB trade loss available to a life company to set off or surrender is subject to the restriction in FA12/S126, which excludes from the loss the amount of the non-trading loan relationship deficits on debtor relationships. The deficit reflects debits and credits arising from debtor loan relationships and derivative contracts only. In other words, debits and credits on creditor loan relationships are ignored for this purpose.
Specific qualifications where BLAGAB trade loss is set off against total profits or surrendered as group relief
Where BLAGAB losses are set against total income or surrendered by way of group relief the amount relieved is deducted from BLAGAB management expenses at step 4 of FA12/S76. This broadly ensures that a double deduction for the shareholder deficit which is implicit within the I-E charge is avoided.
Carry forward of BLAGAB trade losses FA12/S124
To the extent that BLAGAB losses are not used in the current year they may be carried forward and used against future BLAGAB trade profits under FA12/S124. This means that they will be taken into account when applying the minimum profits test (FA12/S93) and arriving at the policyholders’ rate of tax in future years (FA12/S103).