708 Acquisition expenses

Summary

This section restricts the relief for expenses of life assurance companies in acquiring new business (for example, brokers’ commissions). The restriction involves the spreading of those expenses over 7 years. One-seventh of the acquisition expenses incurred in a year are allowed in that year and each of the following 6 years.

Details

(1) A life assurance company’s acquisition expenses (including commissions, but excluding a payment of rent that qualifies for double rent allowance under section 324, 333 or 345) for a period are that part of its management expenses which is spent on acquiring basic life assurance business (that is, excluding pension business and general annuity business) as reduced by —

• any part of such management expenses that has been repaid or refunded in the period, and
• basic life assurance business reinsurance commissions.

(2) & (3) Acquisition expenses in respect of policies issued before 1 April, 1992 are excluded from the spreading provisions but not to the extent that they relate to variations in policies or to payments of increased premiums secured after 1 April, 1992.

(4) Management expenses only qualify as acquisition expenses of a period if —

• they have been disbursed in the period (ignoring management expenses brought forward and treated as disbursed in that period), and
• they would otherwise be deductible as management expenses in the period.

(5) – (7) The deduction in respect of acquisition expenses for tax purposes is spread over 7 years. While, in general, one-seventh of the expenses is deductible in each of 7 accounting periods provision is made for reducing the fraction allowed in an accounting period of less than 12 months and for a compensatory adjustment to the final instalment of the relief in respect of the expenses.

Relevant Date: Finance Act 2021