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The tax rules act to separate a company's long-term business into categories which are treated as though they were separate businesses, with separate identification of income and capital gains, ring-fencing of expenses and taxation treatment generally. Companies legitimately transfer assets between these categories on a regular basis as part of their investment strategies and without further rules it might be possible to ensure that an asset pregnant with gain was transferred to a fund (for example one wholly matched to non-BLAGAB liabilities) in which the gain when realised would be exempt from tax. Conversely an asset standing at a loss might be transferred to a fund with latent gains where its disposal would give rise to an allowable loss to frank those gains.

The legislation deals with these situations by treating certain internal transfers as deemed disposals for capital gains tax purposes¹. As a result the following consequences apply on the transfer of assets from one category to another.

Whenever an asset (or part of an asset) of a life insurance company ceases to