The Government has effectively “killed off” the market for maximum investment plans after it placed a £3,600 annual cap on the contributions that can be paid into the schemes.
A MIP is a regular premium savings plan which allows investors to save for a period of 10 years or more.
MIPs are a ‘qualifying policy’, which means any growth from the investments is free from higher and additional rate income tax and capital gains tax, provided regular investments are payable each year for the full term of the policy.
Skandia, Legal & General and Transact have all pushed MIPs as an attractive tax planning alternative after the Government reduced the annual allowance from £255,000 to £50,000 in April last year.
Although the Government says the change will apply from next April, the requirement effectively imposes a £3,600 limit on new policies taken out from today onwards. This is because a reduction in contributions next year of more than 50 per cent would result in the policy becoming non-qualifying.
The Budget document says: “The Government will limit the premiums that can be paid into Qualifying Policies issued from 6 April 2013, to £3,600 a year.
“Income tax relief will continue to apply to benefits from qualifying policies issued from 21 March 2012 and before 6 April 2013, but only in respect of the premiums paid in this period and premiums paid up to the limit thereafter.
“The Government will consult on the implementation of these changes during 2012.”
Standard Life head of pensions policy John Lawson says: “A lot of companies were pushing MIPs as an attractive pension planning alternative when the annual allowance was cut.
“This change has effectively killed off the market for MIPs. Anyone thinking about putting a policy in place today should not put in any more than £300 a month.”
St James’s Place private client director Colin Jelley says: “This was one attractive way of building up funds in excess of the lifetime allowance but change brings opportunity and there continue to be other alternatives.”