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Budget 12: Govt ‘kills off’ market for MIPs

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.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. MIP = 10 year qualifying endowment policy – once a staple diet in Financial Services. This seems a surprisingly ‘socialist’ move on a decades long standing plan which was largely only of interest to higher rate taxpayers with capital which they wished to ‘convert’ into a semi tax sheltered environment and which was largely unused by the majority of advisers. There is also a danger of retroactive effect on business already done – depending on the fine print in the Finance Bill.

    First destroy endowments, then pensions, now Mips which are actually taxed for both CGT and Income tax @ source, personally I have never been a fan but with ISA investment limited the only thing left is Under utilised, use OICs U/T and Investment trusts to utilise the CGT allowance, and O/S bonds to crystalise CGT by bed and breakfasting (yes B&B exists ) by assigning the gains, (crystilisation) to a bond each year.

  3. Terence P.O'Halloran 21st March 2012 at 5:37 pm

    Whoever said that MIP savings plans are not used by ordinary people with ordinary objectives (ie saving for their future) is a fool. MIPs are not about tax avoidance and if someone uses them as an alternative to pensions they could be said to be paying tax unnecessarily.

    Ask the FSA and FOS?

    Who feeds the ministers with this drivel? You are so right Rod, although the language is a little fruity, the MIP is taxed internally. Now who loses? Everybody.

    I have promoted MIPs for years and they have achieved good results for people wishing to save. I do hate incompetent politically inspired interference.

  4. Incompetent Regulators Award Team 21st March 2012 at 5:55 pm

    Lets face it boys. The life insurance industry for all the reasons about savings and RDR as we knew it, has been killed off.

    Better find another job. Regulations………mmmmm

  5. Could this be a blessing in disguise. If the Government reduce the viability of savings products there becomes very little for the IFA to advise upon that is under FSA regulation. Hence the argument for the industry deregulating en masse becomes stronger.
    Mainstream products rarely enough gave problems; most of the recent failures have related to specialist products poorly understood and poorly managed. Avoid them, and there is little enough left.
    I’m sure SJP can find many ways to make money. I’m not sure that many IFAs will want to go down their path.
    Having dealt with regular savings policies, how long before they turn their attention to single premium policies?
    These are strategies to increase the savings rate in this country – but not as you understand them, Jim.

  6. How strange for a Conservative chancellor to be attacking savings and wealth creation. As for his comments to the effect that people ‘must’ pay stamp he should, instead, have been paving the way for people to pay less tax, not more.

    I think there should be term limits for politicians so that their connection with the real world is maintained. Perhaps then they would be less savage in their dealings with the things ordinary people want to do to make their lives a little easier by protecting their capital from claim from the tax man in his quest to reward the feckless.

    As for raising the Income Tax threshold, this is as daft as it gets. People should contribute to the welfare state, regardless of income level. As it is, people make appointments with NHS specialists only to fail to show up and waste everyone’s time. If people had to pay even a token charge for an appointment it would ensure the ‘no show’ rate fell to a minute figure thus ensuring lower costs and more efficiency.

    The Chancellor may be a Conservative not he’s not very conservative.


  7. Will Term assurance and WOL (non investment) policies be affected?

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