The Government has revealed plans to remove protection business from the income minus expenses basic life insurance tax regime.
In its Budget document, the Treasury says: “The Government will introduce legislation to remove protection business from the income minus expenses life tax system designed to tax investment type business and align it with the tax treatment of other trading entities.”
The change will be effective from January 1, 2013.
HM Revenue & Customs has already consulted on the move.
Speaking at the Protection Review conference last July, Grant Thornton senior actuarial consultant Nigel Cooke predicted that if the proposal to remove protection business from the I-E regime were to go ahead, protection premiums could rise by up to 10 per cent.
He said: “If HMRC quite logically decides that pure protection should not be within the basic life insurance tax regime, it probably means that for a large number of insurance writers those premiums will rise by 5 to 10 per cent, before anybody adds insurance premium tax to that.”
But in a statement released today after the Budget announcement, Friends Provident says it believes the move will create a level playing field among insurers.
Friends Provident chief executive Trevor Matthews says: “This is good for consumers and positive for the protection industry. It will help to promote a more sustainable and stable competitive marketplace and preserve the value of business already written. I am delighted that the Government has taken this positive step.”
Under the current I-E structure, companies with large savings books can use their savings business to offset the expense of writing protection business, meaning they could offer lower premiums as a result.
With protection business removed from I-E scheme, Friends Provident argues that providers can price protection from an equal starting point.