Bonds fail to get back in balance
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Insurance bonds are unlikely to see the significant resurgence that had been predicted as the capital gains tax rise was less painful than many expected.
The Government was widely expected to raise CGT in line with income tax to a top rate of 40 or even 50 per cent. Insurance bonds, which suffered a drop-off in sales over the past two years since the Labour Government introduced a flat rate of 18 per cent CGT in 2008, were tipped to see a resurgence in popularity.
But Chancellor George Osborne kept the 18 per cent rate for basic-rate taxpayers and raised the rate to only 28 per cent for higher-earners so the predicted move to insurance bonds is now considered unlikely.
Fidelity director of tax and trust planning Paul Kennedy says: “Comparatively, collectives got a little bit less attractive in the Budget but crucially the annual exemption is maintained. The broad argument of insurance bonds versus collectives for capital growth did not change that much.”
Ernst & Young insurance tax partner Matthew Taylor says the new higher rate of CGT will somewhat increase the attractiveness of insurance bonds but adds: “The existence now of the additional rates of tax on dividends and income will mean that the extent of this will only be apparent from detailed comparisons.”
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