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HMRC internal manual

Life Assurance Manual

Calculating ‘E’ adjusted BLAGAB management expenses: Step 2: Example - spreading of acquisition expenses: FA12/S79

A life insurance company began trading on 1 July 2013 and has an accounting date of 31 December. 

It incurred acquisition expenses of £28,000 in 2013, £42,000 in 2014, and £63,000 in 2015. 

Step 3 Deemed BLAGAB management expenses and total acquisition expenses deducted for the accounting period will be as follows:

Acc’ing Period Adjusted acquisition costs £ 2013 2014 2015 2016 2017 2018 2019 2020
2013 28,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000  
2014 42,000   6,000 6,000 6,000 6,000 6,000 6,000 6,000
2015 63,000     9,000 9,000 9,000 9,000 9,000 9,000
Deemed M.E     4,000 10,000 19,000 19,000 19,000 19,000 15,000
M.E   4,000 6,000 9,000 - - - -  
Total Acqu Exp   4,000 10,000 19,000 19,000 19,000 19,000 19,000 15,000

In 2013 the company includes acquisition expenses of £28,000 in its ordinary BLAGAB management expenses at Step 1. At Step 2 it deducts 6/7 ths of £28,000 = £24,000 (even though the AP is only 6 months long, relief is not restricted on a pro rata basis, because this is the first AP, that is the AP in which the expenses were incurred. Acquisition expenses of £4,000 are relieved.

The balance of the acquisition expenses are relieved as deemed BLAGAB management expenses in future APs.

In 2014 the company includes the acquisition expenses of £42,000 for that AP in its ordinary BLAGAB management expenses at Step 1. At Step 2 it deducts 6/7 ths of £42,000 = £36,000. Net relief is therefore £6,000. 

The balance of the acquisition expenses is relieved as deemed BLAGAB management expenses in future APs.

In 2015 the company includes acquisition expenses of £63,000 for the AP in its ordinary BLAGAB management expenses at Step 1.  At Step 2 it deducts 6/7ths of £63,000 = £54,000. The company receives net relief of £9,000 for the acquisition expenses of the AP.  

Deemed BLAGAB management expenses represent the acquisition expenses of earlier APs relieved in the AP. For 2015 these are £4,000 (2013) + £6,000 (2014) = £10,000. The deemed BLAGAB management expenses brought in at Step 3 are thus £10,000.