The income tax expense is apportioned between the elements attributable to policyholders’ returns and equity holders’ profits. The net equity holders’ profit from UK long term business has borne tax at the effective equity holders’ tax rate. For participating business and certain non profit business this is sufficiently close to the standard rate of UK corporation tax for that tax rate to be used in the financial statements. For the remaining non profit business, the effective equity holders’ tax rate is used. For equity holders’ funds within Society’s LTF, the equity holders’ income tax is the income tax attributed to the return on those funds. The balance of income tax associated with UK long term business profits is then classified as income tax attributable to policyholders’ returns.

The equity holders’ effective rate of tax for the year of 24.9% (2009: 21.4%) is lower than the standard corporation tax rate applicable to companies operating in the UK of 28% (2009: 28%). The differences are explained below:

The income tax expense calculated at 28% (2009: 28%) on profit before income tax is £366m (2009: £347m). The difference between this number and the total income tax expense of £487m (2009: £395m) of £121m (2009: £48m) is made up of two parts: (i) the equity holders’ income tax reconciling items above totalling £(34)m (2009: £(71)m) and (ii) the effect on income tax applicable to policyholder returns of £155m (2009: £119m) which arises from the apportionment methodology set out above.