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Basic life assurance and general annuity business (BLAGAB) is defined by exclusion at FA12/S57 as life insurance business other than the categories of business listed in that section. This definition is modified for friendly societies by SI2012/3008/REG5 to exclude “tax exempt business� from BLAGAB.

Permanent Health insurance (PHI) is defined in FA12/S63 as long-term business other than life assurance business. This definition is modified for friendly societies by SI2012/3008/REG7 to exclude “tax exempt business�.

Tax exempt business (to be excluded from BLAGAB and PHI) is then defined in FA12/S57A (inserted by SI2012/3008/REG6) as business exempt from corporation tax by FA12/S153, S158, S164, S165, S166 and S167.

Eligible PHI is defined as any PHI business so far as consisting of the effecting or carrying out of qualifying contracts. In relation to PHI, a contract is “qualifying� if (subject to the further qualifications in the rest of this section):

• it was made before 1 September 1996 FA12/S154(2)(a) OR
• if made after that date and falls within paragraph I, II or III of Part 2 of Schedule 1 to the FISMA (Regulated Activities) Order 2001.

Those paragraphs of the FISMA cover the following insurance classes: life and annuity, marriage and birth and linked long-term business.

If in doubt contact HMRC’s insurance policy lead in the Business, Assets, and International � Financial Services Team.

Hybrid policies

As per FA12/S154(3), if the contract is made before 1 September 1996 and provides for injury, sickness or other infirmity as well as life cover (i.e. it is a hybrid policy) it will only fall within “BLAGAB or eligible PHI business� if:

• the policy also provides a gross sum assured independent of injury, sickness or other infirmity, AND
• at least 60% of the total premiums are attributable to the provision afforded during injury, sickness or other infirmity, AND
• there is no bonus or other additional sum payable or potentially payable in addition to the gross sum.

Consideration from another policy

As a further restriction, any annuity contract of a friendly society funded by payments made on the maturity or surrender of an “exempt BLAGAB or eligible PHI business� policy of the same friendly society will not itself be an “exempt BLAGAB or eligible PHI business� (FA12/S154(4)).