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ABI lobbies Treasury over CGT hit to bonds

The Association of British Insurers and member firms have met with the Treasury this week to lobby against the proposed introduction of a flat rate of capital gains tax amid concerns it could seriously damage the life industry.

They claim Chancellor Alistair Darling’s pre-Budget reforms to CGT will damage the £30bn insurance bond market and have huge implications for life insurers.

Prudential, Skandia, Legal & General, Norwich Union and Friends Provident are understood to have been at the meeting with the Treasury.

ABI members are expressing grave concerns over the fact that individuals selling unit trusts or shares will face an 18 per cent flat rate of CGT while funds in an insurance bond will be subject to tax at 20 per cent with indexation.

When crystallising gains in offshore bonds, the gains are converted into income taxed at 40 per cent. This compares with 36 per cent of the gain effectively for onshore bonds because there is no grossing up of the gain to calculate the higher tax rate.

Many life companies are understood to be reviewing their onshore and offshore bond products to see how they will be affected.

Norwich Union head of marketing for investments Richard Kelsall says: “It is fair to say we are concerned. I think financial advisers will be nervous about selling bonds now and this could be damaging to the life industry.

“There are not going to be any winners from the capital gains tax changes on the life insurance side.”

ABI spokesman Jon French says: “We are aware there are issues for the life industry in the changes to the CGT regime and have met with the Treasury this week to talk about them.”

A spokeswoman from another provider, which did not wish to be named, says: “I would not rule out the Treasury adjusting the rules because it is possible that it has not thought about the impact on the life insurance industry. I would not be surprised to see some changes.”

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