Government to consult on with-profits tax - UK Life Insurance News

23/12/2004 - The financial services industry has won a short-term reprieve against the implementation of a tax on with-profits assets

A statement which has just been issued by the Association of British Insurers says the government is now going to allow more time for consultation on plans to tax with-profits policyholders.

Instead of pushing new regulations - requiring surplus assets of with-profits funds be taxed by 30% instead of the previous average of 10% - before Parliament the issues will be debated with the industry and brought back to the table later in 2005 as part of next year's Finance Bill.

This change to the tax treatment of with-profits funds emerged as a little-known detail of the pre-Budget report, delivered by chancellor Gordon Brown last week, but was first highlighted earlier this week by Norwich Union.

Under the new tax status, with-profits funds would have been requied to pay 30% on any surplus assets, compared with current more complex tax rules which deliver an average tax rate of 10%.

Since then, however, the industry has been lobbying government officials to discuss the matter, as with-profits policyholders have, in some cases, already lost a significant portion of their savings, pensions and endowment mortgage assets through the bear market.

Following his comments earlier this week which labelled the government's actions as "wrong in principle, wrong in practice", Peter Vipond, the ABI's director of financial regulation and taxation, now says: "Following strong representations from the ABI and members of the life insurance industry, the Government now recognises our concerns and has agreed to consult with the industry before issuing new legislation changing the method of taxing surplus assets of life funds.

"We are satisfied the Government appreciates the seriousness of the industry's concerns and welcome the opportunity for proper consultation in order to achieve better legislation."