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Revenue drops controversial proposal for one-off levy on non-profit funds

HM Revenue & Customs has dropped plans to tax investment reserves on insurers’ non-profit funds following intensive lobbying by the ABI.

Legal & General says the removal of the charge, which would have been a one-off levy on non-profit funds that do not pay out income and gains, will save it up to 500m.

The Revenue was criticised by the ABI, along with several providers, for not consulting the industry on its proposals, which were widely labelled a “smash and grab” raid that flew in the face of the FSA’s drive to get insurers to improve their solvency margins.

Although the proposals were intended to stop tax avoidance, they were regarded as so broad that they could end up hitting with-profits investors.

Other leading insurers, including Prudential and Friends Provident, said they would not have been affected by the charge.

ABI director of financial regulation and taxation Peter Vipond says: “This is a substantial improvement on the original proposals and we recognise Revenue efforts to address industry concerns.”

An L&G spokesman says: “The legislation as now proposed will have no tax consequences for the company.”

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