Legal & General : Tax supplement 2023

Our approach to sustainability and tax

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A sustainable business

At Legal & General, being a sustainable business defines our role in society and the value we create.

Our purpose is to build a better society while creating value for our shareholders. We're conscious of the impact we have on the environment, the economy and society.

Our business divisions and our strategic growth drivers are aligned to environmental and social themes and we see the sustainability agenda as central to our business. We also see it as a source of commercial potential for the Group. The transition to net zero, the housing crisis and

the need to invest in healthcare and other infrastructure all present opportunities for the long-term investment of capital against our future pension liabilities. Further details can be found in our Annual report and accounts, see: group.legalandgeneral.com/reports.

We run our tax affairs in line with the same principles and aim to have a sustainable, well governed, fair and transparent approach to tax. This supplement provides more details on our approach to tax and sets out our total tax contribution.

About Legal & General

Established in 1836, we are one of the UK's leading financial services groups and benefit from scale in each of our businesses, which work together to deliver on our purpose.

In institutional retirement we take on pension scheme liabilities, 'de-risking' corporate pension schemes in both the UK and the USA.

We aim to be:

We invest across specialist commercial real estate, clean energy, housing and SME finance, generating attractive returnsfromassetswhichbenefitsociety.

We are one of the world's leading asset managers with £1.2 trillion of assets under management.

Social impact report:

Our 2023 Social impact report is available on our Group website. See: group.legalandgeneral.com/reports

Fair

We recognise the impact tax has on wider society and undertake to act responsibly in all tax matters.

Transparent

We seek to explain the taxation of our business to all our stakeholders.

We help millions of people in the UK and the USA create brighter financial futures by supporting their savings, protection, mortgage and retirement needs through our retail and workplace businesses.

Our tax strategy in action

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Sustainable and responsible tax management is part of our approach to how we do business.

We pay the right tax, at the right time and in the right place

Our tax strategy helps us meet our aims and is reviewed and approved annually by our Audit Committee on behalf of the Board. As Chief Tax Officer, I have day-today responsibility for our strategy and how we implement it in line with our values.

Jeff Davies, the Group Chief Financial Officer, is the named executive member of the Board with ultimate responsibility for our tax affairs.

The Group tax team at Legal & General is responsible for the development, management, and delivery of the tax strategy for the Group. This includes responsibility for the Group's tax policy, external engagement, risk management, advice, reporting and compliance, while providing tax insight across all parts of our business, and of course, making sure that we have the right people in the right roles.

in line with our published tax strategy and wider commercial purpose."

Grace Stevens

Chief Tax Officer

Tax commitments

• We recognise that our stakeholders in tax not only include our investors, tax authorities, customers, and employees, but also wider society.
• We aim to provide useful information to our stakeholders to help them understand how we manage our tax affairs and the contribution
  we make to society through the taxes we pay. This includes voluntarily disclosing additional information which we consider useful for our stakeholders to better understand our tax affairs.
• We aim to have an open, cooperative, and collaborative working relationship with HMRC, and other tax authorities where appropriate, across all our taxes.
• We believe that open consultation with Governments results in more informed and sustainable tax legislation.

• We work with Governments both directly and via industry trade bodies to respond to consultations and
  to explain the impact of proposals on our business, customers, and investors.
• We engage with a range of interested parties and non-governmental organisations to discuss concerns about the tax system and responsible and transparent tax practices of large companies.
• We recognise the expectations society, Governments and consumers have of large companies on tax responsibility and transparency.
• As a significant investor, we ensure we speak to the companies we invest in about their tax policy and management as part of our overall engagement with them on governance, and environmental and social impact.

Our year in review

As part of our commitment to tax transparency, this Tax Supplement expands on the information given in our Annual report and accounts. This includes our total tax contribution, consolidated country-by-country data and an explanation of our tax charge.

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Our 2023 tax position

Our total tax contribution of £1,582 million is lower in 2023 than in prior years. This reduction is primarily due to a reduction in UK corporate income tax payable arising in 2023 as a result of both larger adverse investment variances in the year and the release of the tax credit arising on International Financial Reporting Standard (IFRS) 17 transition to be spread over 10 years.

We have a net tax credit for the year of £367m

(2022 net tax expense of £86m (restated)), which includes a material one-off tax credit arising from the introduction of a new Bermuda corporate income tax regime. The net tax credit for the year excluding this one-off credit is £27m. Our net tax credit is discussed further on page 10.

We have included our year-on-year total tax contribution for the past six years in this report to provide easy context for our tax contribution.

Changes to the global tax environment

With the global economic outlook remaining uncertain as people adapt to higher interest rates and inflation, Governments remain focused on both raising revenues and promoting growth across the economy and the tax regime has a role to play here. In the UK, we've seen a number of changes with these aims in mind including the 'super deduction' being replaced with 'full expensing' of qualifying plant and machinery, changes to the R&D regime, changes to the Lifetime Allowance Notification pension rules and reductions in the rate of National Insurance for employees. At the same time, the corporate income

tax rate has been held at 25% and personal income tax thresholds remain frozen. These changes have an impact across our businesses, our investments, our employees and our customers.

New accounting standards, regulations, tax legislation and tax reporting requirements continue to add to the complexities and compliance obligations that businesses face. During 2023, there are two significant changes which impact us: IFRS 17 and Organisation for Economic Co-operation and Development (OECD) global minimum tax rules.

IFRS 17 'for Insurance Contracts' is a new global accounting standard which came into effect on 1 January 2023. IFRS 17 changes the timing of recognition of insurance earnings, and results in more stable and predictable earnings from our insurance products. This change has impacted the tax profile of our annuity and life insurance business, with no changes to the tax profile of our asset management business. The new accounting standard impacts the tax we pay in the UK due to the transition adjustments between IFRS 4 and IFRS 17 to ensure the Group does not pay tax on the same profits twice.

During the year, the UK Government enacted legislation to implement both a global minimum tax regime and a UK domestic minimum tax regime at 15% in line with the Model Rules agreed by the OECD. These rules apply from 1 January 2024 and will apply to all of the Group's businesses globally. In line with accounting standards, no deferred tax has been recognised in respect of these new rules.

In December 2023 the Bermudan Government legislated for a corporate income tax regime which will be effective from 1 January 2025. From 2025, the Group will be liable for Bermudan local corporate income tax, at a rate of 15%, in respect of profits arising in our global reinsurance hub in Bermuda. Accordingly, in 2023 we have recognised a deferred tax asset on temporary differences relating to the new regime valued at 15%.

Both the UK and Bermuda rules are newly enacted and additional guidance on their respective implementation and any interaction is expected and will be kept under review

Our purpose and tax

Our purpose is to build a better society and make

a positive difference to people's lives while delivering value for our shareholders. We believe that paying tax is part of the impact we have on the economy and society and that the tax regime should endeavour to balance the needs of all stakeholders across society, whilst ensuring that policies do not create unintended consequences.

We monitor risks and complexities across all the territories in which we operate, to ensure we pay the right tax, at the right time, in the right place, consistent with our tax strategy.

£1,582m

total tax contribution

Our tax universe

Tax encompasses more than just a charge on a company's profits. We pay and collect taxes

at all parts of our business cycle, from the premiums we invest to the tax we pay on our profits.

The taxes we pay primarily arise where our business assets, capital, people, and customers are located - where we have real economic substance.

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Taxes paid

Corporate income tax

The tax we pay on the profits we earn.

Employer NIC

We pay Employer National Insurance contributions in the UK and similar social security contributions in the overseas jurisdictions in which we operate.

Corporate income tax

Irrecoverable VAT

Employer NIC

Stamp duties

Withholding taxes

Taxes collected

Product-related taxes

The taxes on our products, including income tax collected on our pension business and payments made to annuity holders.

Net VAT collected

We collect VAT and sales tax on the services and products we sell to our customers. The VAT and sales tax collected less the amount of VAT we can recover from transactions with our

Stamp duties

The tax we pay on legal transactions in regard to the properties and shares we buy.

Irrecoverable VAT

We pay VAT when we buy goods and services from our suppliers. Unlike most other businesses, we are unable to recover a proportion of the VAT that we incur and this is a large cost

to our business.

Withholding taxes

We pay withholding taxes on certain types of income we receive, mainly on overseas dividend income. The withholding tax paid can be offset against our corporate income tax. Where this is not possible, the tax paid is a cost to our business.

Other taxes

We pay business rates on the offices and other properties we own and operate out of.

Our customers

For example, income

tax withheld and paid to HMRC on annuity payments.

Product-related

taxes

VAT

suppliers is paid across to the tax authorities.

PAYE/NIC

The taxes we collect from employee wages on behalf of governments, primarily PAYE and National Insurance contributions in the UK and we also collect similar taxes from our overseas employees.

Withholding taxes

The taxes we collect on interest and similar payments made to our customers.

Other taxes

There are a number of other taxes we collect as part our business, for example stamp duty on share dealings by our customers.

Tax paid

These are taxes paid directly to the tax authorities in the countries in which we operate including corporate income tax on profits, employer NICs and withholding taxes on investment income. 2023:

£461m

Total taxes paid

£0m Profit taxes

£178m Withholding taxes suffered in the UK

£69m UK property and other taxes

£70m UK irrecoverable VAT and premium taxes

£100m UK payroll taxes

£37m Other overseas taxes £7m Overseas profit tax

Tax collected

• These are taxes generated in our value chain but not directly suffered by Legal & General. We collect these taxes and pay them on to relevant tax authorities. 2023:

£1,121m

Total taxes collected

£1,121m

£568m UK PAYE deducted from policyholders

£13m UK property and other taxes

£199m UK VAT and premium tax

£274m UK payroll taxes £67m Overseas taxes

=

Total tax contribution

The total value of taxes that Legal & General has responsibility for - it is the sum of all the taxes paid and collected. 2023:

£1,582m

Total tax contribution (£m)

1,800

1,000

1,600 782 811 820 1,121

1,400

1,200 565

We have corporate offices in the UK, USA, Bermuda, Hong Kong, Ireland, Japan, Singapore and China, together with branches in a number of European territories. Our global investing footprint covers most of the world.

Our Group's asset management, insurance and savings activities can be complex and involve significant transactional volumes and values as well as cross-border transactions. Where we suffer and pay tax reflects the reality of the global nature of our business.

The taxes we pay in future years will be impacted by changes to tax and accounting rules, in particular IFRS 17 and the introduction of a global minimum tax regime. These are explained in the following sections.

Reinsurance

Legal & General operates a global reinsurance business in Bermuda which acts as the internal reinsurance hub for the Group and supports the growth of our international pension risk transfer business.

Bermuda is one of the largest reinsurance markets in the world with a highly qualified and experienced local workforce; a robust, Solvency II equivalent, regulatory framework and the Bermuda Monetary Authority (BMA) is a well-established regulator.

Our Bermudan operations are staffed by our dedicated team of insurance and finance professionals. As there were no profit taxes in Bermuda during the year, the taxes we paid in Bermuda in 2023 were on our people and property. The Bermudan Government is introducing a local corporate income tax regime with effect from 1 January 2025, as a result of the new global minimum tax regime. The section on page 9 explains the impact of this on the Group.

Investment funds

We have established collective investment schemes, which are investment funds or entities, in the UK, USA, Jersey, Ireland and Luxembourg. It is common to set up funds in jurisdictions like these that generally do not impose an additional layer of tax on the fund itself, as well as for operational reasons.

Regardless of what territory the fund is established in, investors will pay tax on their returns in line with the tax rules of the jurisdiction they are resident in. In some situations, investors may also pay tax in the jurisdiction in which the fund is located; for example, overseas investors may pay UK tax on rental income from UK properties.

Where our Group companies invest in these funds, they pay corporate income tax in their country of residence (usually the UK) on any investment return.

Although the funds do not typically pay additional tax in the territory in which they are resident, funds may receive some investment return, such as dividends, net of withholding taxes which are imposed by other territories.

It is sometimes possible to reclaim these taxes depending on the tax agreements in place between the relevant jurisdictions. We routinely undertake tax reclaims on behalf of our funds where this is in line with local law and industry practice. This reclaim process is typically undertaken by our custodians with oversight from Group Tax.

Where we feel that the application of withholding tax is contrary to the law, we file claims with the respective tax authorities, for example where withholding taxes are suffered on certain investments in EU territories. These claims may result in litigation against the respective tax authority. Where claims are made on behalf of the funds, the net proceeds of successful claims are paid to the relevant funds.

Global minimum tax regime

During the year, the UK Government enacted legislation to apply a global minimum tax rate of 15% to multinational businesses headquartered in the UK, under the Model Rules agreed by the OECD. These rules apply from 1 January 2024 to all of our businesses globally.

The Group is expected to be liable to UK top-up tax in 2024 in respect of profits arising in our global reinsurance hub in Bermuda.

During 2023, the Bermudan Government consulted on introducing a local corporate income tax regime with effect from 1 January 2025, which would apply to our Bermudan reinsurance businesses. This has been substantively enacted as at 31 December 2023 and deferred tax on temporary differences has been recognised at 15%.

This has resulted in a deferred tax asset of £340m as at 31 December 2023. The deferred tax asset relates to tax reliefs permitted under the Bermuda corporate income tax regime which give rise to deductible temporary differences associated with the valuation of insurance contracts. The Group expects to have sufficient future taxable profits against which the reversal of these deductibe temporary differences can be offset.

The deferred tax asset of £340m is included within the deferred tax disclosure in note 28 within the line item 'difference between tax and accounting value of insurance contracts.'

We do not anticipate any other significant liabilities under the global minimum tax rules based on the Group's current profile. This will be kept under review as the Group's activities continue to evolve.