HMRC Backtracks On Plans To Tax UK Insurance Firms

by Robert Lee, Tax-News.com, London

08 November 2005

The United Kingdom's insurance industry has welcomed a new proposal by HM Customs and Revenue to narrow the scope of a law aimed at preventing tax avoidance by insurance companies.

Under the new regulation, contained in draft anti-avoidance legislation published in September, life insurers would have been prevented from holding capital in their reserves in order to reduce taxable profits or create artificial losses.

Legal & General, one of the UK's largest insurers, had warned that the new provision could result in the company paying a one-off tax charge in the order of £500 million.

However, after lobbying by the industry, HMRC has proposed a change to the legislation limiting the scope of the tax to those companies with insignificant with-profits business with an investment reserve.

“This is a substantial improvement on the original proposals, and we recognise the Revenue’s efforts to address the industry’s concerns. We now have a welcome clarification of the Government’s intent, addressing much of the uncertainty originally created in the market," commented Peter Vipond, Director of Financial Regulation and Taxation at the Association of British Insurers.

“We look forward to a dialogue between the Government and industry regarding some remaining concerns, in particular to ensure that measures are confined to those companies where tax avoidance is identified, especially given the element of retrospection to the charge," Mr Vipond added.

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