Provider-backed cut to premium relief comes under scrutiny
Plans to abolish life assurance premium relief by the Treasury have come under fire from the Association of British Insurers, who has put forward complaints that providers are unhappy about the ‘disproportionate’ burden on administrators.
The Treasury has suggested scrapping premium relief along with thirty-six other tax breaks branded ‘obsolete’ in their Financial Bill for the year 2012. They’ve done so as a result of the pre-budget report done by the Office of Tax Simplification, which states that a total of forty-three tax relief systems could be considered ‘obsolete, unnecessary and distortive’ and should be done away with altogether. Tax reliefs on this list include; late night taxi’s, lunch vouchers and rare beers, but the main issue is the proposed ending of life assurance premium relief – an income tax relief of 12.5% on regular premiums paid to life insurance policies taken out on or before March 1984.
The Association of British Insurers argue that more than a million people could be affected by the decision to remove tax relief on all current policies, many of those at risk are already in or soon to be reaching retirement and will struggle considerably to increase their contribution at late notice or at all.
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Director of financial regulation and tax at the Association, Peter Vipond, points out that many will have to put more into their life insurance policies to keep their benefit levels on an even keel as they reach state pension age, much more, in fact, than they would have been expected to contribute over the last thirty years. ‘Many of these people will be retired and on low incomes.’ He says, ‘It will require new legislation to prevent tax charges arising if policies are changed to reflect the loss of tax relief. It will also cost the industry, as a whole, millions of pounds to make this change.’
Mr Vipond goes on to say that the decision was made over thirty years ago to let policies taken out before 1984 run their course, under tax relief, adding; ‘There is no logical reason to change this approach now as this tax relief will end naturally over time anyway without the government doing anything.’ The government has hit back, saying that ‘obsolescent’ relief has to be heavily legislated, despite the fact that the average amount of tax relief paid by policy holders every year is minimal.
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