UK Insurers Bemoan Pre-Budget Report Tax Changes

by Robin Pilgrim, LawAndTax-News.com, London

09 December 2004

Several of the UK's leading insurance firms have condemned a planned change to the tax treatment of their surplus funds unveiled recently, arguing that it will reduce policyholder returns.

Chancellor Gordon Brown last week announced that he plans to increase tax on reserves supporting with-profits funds, a move that some smaller insurance firms have suggested may have an adverse impact on their embedded value.

In an interview with Reuters on Tuesday, chief executive of Aviva's UK life insurance and pensions operation, Gary Withers revealed that the current worth of the life insurance policies that customers have with his firm is unlikely to be affected by the change in tax treatment.

However, he suggested that: "It will restrict the extent to which we have investment flexibility and that will lower returns."

He went on to add:

"We have written to the Financial Services Authority and the Treasury calling for this proposal to be scrapped. We have made it clear that it is an unreasonable change in tax law and it should have been consulted upon rather than sneaked into the back of a policy statement."

Speaking this week on behalf of the Association of British Insurers, Peter Vipond also condemned the move, accusing the Chancellor of hiding the details in last week's pre-budget report.

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