View more on these topics

Budget update

LIFE POLICYHOLDER TAXATION

In any Budget there are some proposals that are directly relevant to financial services, some that are indirectly relevant and some that are just irrelevant.

Inland Revenue Budget Press Release BN25 related to life insurance companies which in our books puts it in the &#34directly relevant&#34 category.

And there is one part of it (para 11) that is of particular importance, namely the reduction of the rate of tax on the policyholders&#39 share of income and gains arising to the fund to the &#34lower rate&#34 of tax. Our conversations with the Inland Revenue on the &#34morning after&#34 (so to speak) have confirmed that, for this purpose, the Inland Revenue mean 20% – at the current time – and not any other rate.

It is this rate that policyholders will be treated as having paid when determining if and, if so to what extent, gains made on or after 6 April 2004 are assessed to tax.

The Inland Revenue have also confirmed that this reduction (from 22% to 20%) will not mean that basic rate taxpayers will have a liability to tax on gains; gains made by basic rate taxpayers will continue to be free of tax provided (presumably after top-slicing relief) they do not take the taxpayer over the higher rate tax threshold.

Higher rate taxpayers will continue to be assessed on any policy gains but at a rate of 20% (ie 40% – 20%) as opposed to 18% currently.

It is thought that, given that most life companies&#39 effective average rate of tax is probably 20% or less in any event, the overall effect of this reduced policyholder credit is likely to be (possibly only slightly!) detrimental to the higher rate taxpayer – each case will clearly depend on its own facts.

UK trustees will pay tax on gains at 14% (34% – 20%) instead of 12%.

It&#39s worth remembering that in taxing chargeable event gains on UK companies they are entitled to no credit in respect of life company tax on funds. Thus, although this latest proposal will not worsen their tax position, investment in UK life assurance bonds by UK companies should not, at least on tax grounds, be made.

Finally, the Inland Revenue have confirmed that the whole of all policy gains realised on or after 6 April 2004 will be taxed as set out above regardless of when the policy was effected. In other words, there will be no apportionment of the gain between different periods to reflect different rates of life company tax.

Recommended

Bonds hit as ScotEq slashes payouts

Scottish Equitable has imp-osed swingeing cuts on payouts from its closed with-profits funds following heavy investment losses, leaving some bond investors with less than the value of their original investment.After five years invested, a £10,000 investment in a with-profits bond will now be worth only £8,402 compared with £13,911 last year as its terminal bonus […]

Forsyth offers alternative route to income

FORSYTH PARTNERS FORSYTH ALTERNATIVE INCOME FUND Type: Hedge fund of funds Aim: Income and growth by investing in fixed interest hedge funds, sovereign, corporate and emerging market bond funds Minimum investment: Lump sum $20,000 Place of registration: Cayman Islands Investment split: 100% in fixed interest hedge funds, sovereign, corporate and emerging market bond funds Charges: […]

Employee share schemes

Proposals have been announced to simplify and modify legislation in certain areas. CSOP Under the Company Share Option Plan (CSOP), which is the discretionary approved share option scheme under which options can be granted for up to £30,000 for an employee, it will be possible to exercise options, without the tax benefits, within 3 years […]

Property price rises showing slowdown

Nationwide says property prices in the first quarter of this year rose at a slower pace than in the final quarter of last year.The increase of 3.9 per cent in Q1 was a marked decline on the 6.7 per cent rise in Q4 last year.However, Nationwide is maintaining its forecast for the year of 10 […]

The investment clock

While Trump blazes blond in the political foreground, it’s easy to overlook the economic background to the new political dimension of 2017. Political risk will be a feature of the year: the unpredictable and untested Trump administration has already created uncertainty, which is unlikely to diminish, especially if protectionist rhetoric starts to outweigh promises of […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com