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|
|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.