36 Tax

The tax shown in the consolidated income statement comprises current and deferred tax.

Current tax

Current tax comprises tax payable on current year profits, adjusted for non-tax deductible or non-taxable items, and any adjustments to tax payable in respect of previous years. Current tax is recognised in the income statement unless it relates to items which are recognised in other comprehensive income.

Deferred tax

Deferred tax is calculated on differences between the accounting value of assets and liabilities and their respective tax values. Deferred tax is also recognised in respect of unused tax losses to the extent it is probable that future taxable profits will arise against which the losses can be utilised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity.

The tax shown in the income statement has been apportioned between that attributable to policyholders and that attributable to equity holders.

The judgements made in arriving at tax balances in the financial statements are discussed in the notes below.

Tax rates

The table below provides a summary of the current tax and deferred tax rates for the year.

 

2014

2013

 

Current tax

Deferred tax

Current tax

Deferred tax

UK

21.5%

20.0%

23.3%

20.0%

USA

35.0%

35.0%

35.0%

35.0%

France

38.0%

34.4%

38.0%

34.4%

Netherlands

25.0%

25.0%

25.0%

25.0%

Ireland

12.5%

12.5%

12.5%

12.5%

(i) Tax charge in the Consolidated Income Statement

 

2014
£m

2013
£m

Current tax

160

104

 

 

 

Deferred tax

 

 

– Movement in temporary differences

253

308

– Reduction in UK corporate tax rate to 20% (2013: 20%)

3

Total deferred tax

253

311

 

 

 

Adjustment to equity holders’ tax in respect of prior years

8

4

Total tax

421

419

Less tax attributable to policyholder returns

(175)

(181)

Tax attributable to equity holders

246

238

The total movement in deferred tax of £253m (2013: £311m) disclosed above differs from the amount of £246m (2013: £302m) disclosed in the note below by £7m (2013: £9m) being the deferred tax prior year adjustment included within the ‘Adjustment to equity holders’ tax in respect of the prior years’ line.

The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:

 

2014
£m

20131
£m

1.

The profit before tax attributable to equity holders has been restated to reflect the adoption by the group of IRFS 10, ‘Consolidated Financial Statements’. Further details are contained in Note 1. The impact is to increase profit for the year by £10m for 2013.

Profit before tax attributable to equity holders

1,238

1,144

Tax calculated at 21.5% (2013: 23.25%)

266

266

Effects of:

 

 

Adjustments in respect of prior years

8

4

Income not subject to tax, such as dividends

(9)

(6)

Change in valuation of tax losses

(6)

(19)

Higher rate of tax on profits taxed overseas

8

23

Additional allowances/non-deductible expenses for tax purposes

(7)

(11)

Impact of reduction in UK corporate tax rate to 20% (2013: 20%) on deferred tax balances

3

Differences between taxable and accounting investment gains, e.g. RPI relief

(15)

(19)

Other

1

(3)

Tax attributable to equity holders

246

238

 

 

 

Equity holders’ effective tax rate

19.9%

20.8%

Equity holders’ effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders.

Tax calculated on profit before tax at 21.5% (2013: 23.25%) would amount to £304m (2013: £306m). The difference between this number and the total tax of £421m (2013: £419m) is made up of the reconciling items above, which total £(20)m (2013: £(26)m), and the effect of the apportionment methodology on tax applicable to policyholder returns of £135m (2013: £139m).

(ii) Tax charge to equity

Deferred tax recognised directly in equity

2014
£m

2013
£m

Relating to net gains or losses recognised directly in equity

6

(74)

Exchange gains

17

(4)

Deferred tax recognised directly in equity

23

(78)

(iii) Disclosure of tax effects relating to each component of other comprehensive income

 

Before tax
2014
£m

Tax credited/(charged)
2014
£m

After tax
2014
£m

Before tax
2013
£m

Tax credited/(charged)
2013
£m

After tax
2013
£m

Actuarial (losses)/gains on defined benefit pension schemes

(117)

23

(94)

(168)

23

(145)

Actuarial (losses)/gains on defined benefit pension schemes transferred to unallocated divisible surplus

47

(9)

38

56

(7)

49

Exchange differences on translation of overseas operations

12

12

(16)

(16)

Net change in financial investments designated as available-for-sale

40

(14)

26

(135)

47

(88)

Other comprehensive income

(18)

(18)

(263)

63

(200)

(iv) Deferred tax – Balance Sheet

Deferred tax assets and liabilities have been recognised/(provided) for the temporary differences and unused tax losses. The recognition of a deferred tax asset in respect of tax losses is supported by management’s best estimate of future taxable profits to absorb the losses in future years. These taxable profit projections are based on assumptions consistent with those used for EEV reporting purposes. Deferred tax assets and liabilities have been offset to the extent it is permissible under the accounting standard. The net movement in deferred tax assets and liabilities during the year is as follows:

(a) UK deferred tax asset/(liability)

 

Net tax asset as at 1 January 2014
£m

Tax (charged)/credited to the income statement
£m

Tax (charged)/credited to equity
£m

Transfers in on acquisitions
£m

Net tax asset as at 31 December 2014
£m

1.

The reduction in the deferred tax asset on excess expenses reflects the full utilisation of excess management expenses together with the unwind of the spread acquisition expenses relating to changes in the I-E legislation.

2.

The reduction in the deferred tax asset primarily reflects utilisation of brought forward trading losses against LGAS and LGR taxable profits (£71m) partly offset by additional tax losses.

3.

The move to a net deferred tax liability provision in the UK reflects the continued utilisation of tax losses and corresponding reduction in deferred tax asset while the deferred tax liability on actuarial reserves has increased. On the Consolidated Balance Sheet the net UK deferred tax liability has been split between an asset of £54m and a liability of £180m where the relevant items cannot be offset.

Realised and unrealised gains on investments

(160)

(8)

(168)

Excess of depreciation over capital allowances

24

(5)

19

Excess expenses1

192

(87)

105

Deferred acquisition expenses

(72)

19

(8)

(61)

Difference between the tax and accounting value of insurance contracts

(70)

(73)

(143)

Accounting provisions

8

(4)

(1)

3

Trading losses2

93

(48)

45

Pension fund deficit

93

(13)

18

98

Purchased interest in long term business

(26)

2

(24)

UK deferred tax asset/(liability)3

82

(217)

10

(1)

(126)

 

 

 

 

 

 

Presented in the Consolidated Balance Sheet as:

 

 

 

 

 

– UK deferred tax asset

82

(28)

54

– UK deferred tax liabilities

(189)

10

(1)

(180)

 

Net tax asset as at 1 January 2013
£m

Tax (charged)/credited to the income statement
£m

Tax (charged)/credited to equity
£m

Transfers in on acquisitions
£m

Net tax asset as at 31 December 2013
£m

Realised and unrealised losses/(gains) on investments

14

(174)

(160)

Excess of depreciation over capital allowances

43

(19)

24

Excess expenses

234

(42)

192

Deferred acquisition expenses

(77)

5

(72)

Difference between the tax and accounting value of insurance contracts

(99)

29

(70)

Accounting provisions

9

(18)

4

13

8

Trading losses

128

(48)

13

93

Pension fund deficit

76

(2)

19

93

Purchased interest in long term business

(12)

2

(16)

(26)

UK deferred tax asset

316

(272)

28

10

82

(b) Overseas deferred tax liabilities

 

Net tax liability as at 1 January 2014
£m

Tax (charged)/credited to the income statement
£m

Tax (charged)/credited to equity
£m

Transfers in on acquisitions
£m

Net tax liability as at 31 December 2014
£m

Realised and unrealised gains on investments

(33)

(3)

(17)

(53)

Deferred acquisition expenses

(241)

(41)

(13)

(295)

Difference between the tax and accounting value of insurance contracts

(229)

1

(14)

(242)

General provisions

(20)

(3)

(23)

Trading losses

158

17

11

186

Pension fund deficit

3

3

Purchased interest in long term business

(10)

(10)

Overseas deferred tax liabilities

(362)

(29)

(33)

(10)

(434)

 

Net tax liability as at 1 January 2013
£m

Tax (charged)/credited to the income statement
£m

Tax (charged)/credited to equity
£m

Transfers in on acquisitions
£m

Net tax liability as at 31 December 2013
£m

Realised and unrealised gains on investments

(84)

4

47

(33)

Deferred acquisition expenses

(222)

(22)

3

(241)

Difference between the tax and accounting value of insurance contracts

(264)

32

3

(229)

General provisions

(20)

(20)

Trading losses

185

(24)

(3)

158

Pension fund deficit

3

3

Overseas deferred tax liabilities

(382)

(30)

50

(362)

Unrecognised deferred tax assets

The group has the following unrelieved tax losses carried forward as at 31 December 2014. No deferred tax asset has been recognised in respect of these tax losses as at 31 December 2014 (or 31 December 2013), as it is not probable that there will be suitable taxable profits emerging in future periods against which to relieve them. Relief for these tax losses will only be recognised if it becomes probable that suitable taxable profits will arise in future periods. The potential deferred tax asset unrecognised as at 31 December 2014 is £23m (2013: £29m).

 

Gross
2014
£m

Tax
2014
£m

Gross
2013
£m

Tax
2013
£m

Trading losses

45

7

43

7

Realised and unrealised losses on investments

58

12

169

18

Post cessation losses

5

1

5

1

Unrelieved interest payments on debt instruments

14

3

14

3

Unrecognised deferred tax asset

122

23

231

29

(v) Current tax – Balance sheet

 

2014
£m

2013
£m

Tax due within 12 months

23

98

Tax due after 12 months

194

212

Current tax assets

217

310

 

2014
£m

2013
£m

Tax due within 12 months

8

14

Tax due after 12 months

1

Current tax liabilities

9

14