As revealed by Money Marketing yesterday, the Chancellor’s pre-Budget changes to capital gains tax will damage the insurance bond market according to tax experts.
Hargreaves Lansdown head of financial practitioners Danny Cox says: “The pre-budget report has thrown financial planning into chaos. If the proposed changes go through, the market for both onshore and offshore bonds shrinks massively. The insurers must be very worried. The potential impact of this is huge.”
Cox says where the investment is not completed or if clients are still in the cooling off period they will be given the opportunity to cancel if the investment may not be suitable.
He says: “The main market for offshore bonds is higher rate tax payers. Why would you now use an offshore bond where the tax will ultimately be 40 per cent when you can stay onshore in collectives or shares and not pay more than 18 per cent?”
Cox says bonds may still be suitable for trusts, certain basic rate tax payers who need income and who might be caught by the age allowance trap and for IHT planning.
Technical Connection director John Woolley says: “The UK lump sum investment market via insurance bonds will be damaged by this. The playing field between life insurance funds and other collective investments is no longer level.”