“This consultation is a step in the right direction and we support its stated objectives as they will see the Government better align the taxation of life insurance policies with the economic benefits taxpayers actually get from them. Under the current regime as well as anomalies, which can sometimes result in people paying tax on policies even when they lose money on the underlying investments, the rules are complicated and often mis-understood by tax payers. This has, in many cases, led to inadvertent tax non-compliance, and to HMRC enquiries which would have been avoided if the rules had been simpler. Of the possible alternative options suggested by HMRC, we strongly endorse the “100% allowance” option as this would offer the greatest degree of simplification and would go furthest in our view to maximising tax payer compliance. In turn, that should greatly reduce HMRC resource spent on enquiring into insurance policies.
“One area where we have sought clarification is with regard to the proposed treatment of existing life insurance policies. We feel that it is very much in the public interest that such policies should also benefit from the fairness to be brought about by the new rules – albeit that will require HMRC to give thought to and consult on the necessary transitionary rules at the next stage of the process. We have also sought clarification that the changes will apply to both so-called “non-qualifying” and “qualifying” policies. Although, it is clear that chargeable event gains generally relate to “non-qualifying policies” they do sometimes arise on “qualifying” policies so explicit confirmation would be welcome in that regard.
“We look forward to participating in consultation meetings on this in the expectation the initiative will bring about a much simpler and fairer system for the taxation of insurance products.”
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