LAM06030 - I-E Profit: Calculation of the tax charge: Determining the policyholders’ share of I-E profit: meaning of the adjusted amount: FA12/S104

In FA12/S103 a comparison is made between the I-E profit and the adjusted amount of BLAGAB trade profit for the period in order to calculate the policyholders’ share of the I-E profit (if any).

The adjusted amount of BLAGAB trade profit (FA12/S104) is calculated as:

  • the BLAGAB trade profit (see LAM07200) less;
  • brought forward BLAGAB trade losses, and then if necessary, further reduced by;
  • the shareholders’ share of BLAGAB non-taxable distributions (“BNTD”) as calculated under FA12/S105 (see LAM06040)

The adjusted amount of BLAGAB trade profit cannot be a negative. Therefore if the BLAGAB trade profit is reduced to nil by the brought forward losses, there is no need to make a further adjustment by deducting the BNTD. For periods beginning between 1 April 2017 and 5 July 2018 the set-off of carried forward trade losses is restricted (LAM15210). For periods beginning before 1 April 2017 or beginning on or after 6 July 2018 the set-off of carried BLAGAB trade losses against BLAGAB trade profits is not restricted.

Diagram adjusted profit

The effect of reducing the BLAGAB trade profit by the brought forward BLAGAB trade losses is to reduce the shareholders’ share of the I-E profit in the period.

The reason for reducing the BLAGAB trade profit by the shareholders’ share of BNTD (see LAM06040) is to allow for a proper comparison to be made between the I-E profit and the BLAGAB trade profit. Distributions are brought into the BLAGAB trade profit calculation but not in the I-E calculation so they must be removed from the BLAGAB trade computation for the purposes of the comparison.