Lifeco tax - BLAGAB definition

[Benjamin]

Hi!

Reference: CMP Ch6 pp.2-3

Just to clarify what's in/out post 1 January 2013, does "BLAGAB" now only comprise:
- Non-pension, non-immediate-need annuities
- Investment contracts (e.g. endowments)

The wording is odd in that it says "...the contracts described in Chapter 5 as [etc]..." but then doubles back and says not protection from 2013 onward, so seems like it's only those two categories.

If the two bullets above cover it, how are e.g. endowment assurance classified?

 

[Lindsay Smitherman]

As stated in the Core Reading, BLAGAB includes all life assurance contracts except protection business that was sold on or after 1 January 2013. Therefore BLAGAB includes all in-force life assurance protection business that was written before 1 January 2013.

 

[Benjamin]

Hi Lindsay - thanks for the prompt response.

Understood re assurance pre-2013 but my first question is around purely in the post-2013 world, given that protection is now excluded, is what's left just the two above? If not, what other policy types are included?

And then also wondering how contracts that have both protection and investment components - how are they treated?

 

[Lindsay Smitherman]

Hi - I'm still not quite sure whether you are understanding this correctly. In the "post-2013 world" (ie how things are taxed right now) there is still protection business in the BLAGAB fund. It isn't only general (non-pensions) annuities and life assurance savings products that are taxed as BLAGAB - the list should also include all the protection business that was initially sold prior to 2013 (but which is still in-force now).

In terms of contracts that have both protection and savings elements, such as an endowment assurance policy, the test is whether it meets the definition of "protection business" as set out in Chapter 6. As described in the Core Reading, protection business is defined for tax purposes as any contract where the benefits payable cannot exceed premiums paid except on death or sickness. For an endowment assurance, you would expect the maturity benefit to exceed total premiums paid - and hence it is not classified as a protection product.

Hope that helps.

 

[Benjamin]

Hi,

Yes I do understand the concept - protection business from before 2013 is in I'm asking about classification of new business since 2013.

Thanks re the endowment assurance explanantion.

 

[Lindsay Smitherman]

Great - just wanted to be sure that you hadn't forgotten all the in-force stuff as well, which is still lurking around in tax calculations!

 

[Benjamin]

So still on that final point then, could you confirm please that regarding new business post 1 January 2013, the only types of newly issued policies that contribute to BLAGAB are:
- Non-pension, non-immediate-need annuities
- Investment contracts (e.g. endowments)

And if not, what other newly issued policies fall into that category?

 

[Lindsay Smitherman]

Yes but be careful with how you describe such products. I would use the terminology as given in the Core Reading (and, indeed, which makes up the BLAGAB name): general annuities & life assurance non-protection (or life assurance savings) products.

[Bear in mind that products used to save for pensions could reasonably be called "investment contracts", and similarly ISAs and Child Trust Funds, but these are non-BLAGAB.]