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Last-ditch bid by the ABI to save bond tax benefit

The ABI is mounting a desperate rearguard action to save the 5 per cent deferred tax rule on life bonds after the Government privately indicated it could be scrapped as soon as this year&#39s Budget.

The Inland Revenue is understood to have told the ABI that the industry needs to make an overwhelming case very quickly on why the tax concession should not be abolished.

The ABI estimates around 660,000 people over 65 took advantage of the rule to make withdrawals from life policies last year – most of them basic-rate taxpayers.

The abolition of the 5 per cent tax-deferred withdrawal rule was first recommended by the Sandler review last year which claimed that the concession tilted the playing field towards life companies.

Scottish Equitable technical manager Margaret Jago says: “Looking at the 5 per cent rule in isolation does not seem sensible. It stimulates savings as it is so simple and avoids complex tax implications.”

Clerical Medical marketing manager Adrian Smith says: “Taken together with the problems with with-profits, this is a provocative combination. If it was imposed retrospectively, it would be horrendous. We would also have to be careful about a closing-down sale.”

ABI spokeswoman Leonie Edwards says: “We have had a meeting with the Inland Revenue. We have asked our members for information and will use it to present a case to the Government about why it should stay.”

A spokesman for the Inland Revenue says it is considering the Sandler report as part of the annual Bud-get process.

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