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ABI Forces Government Climbdown Over Tax Change Consultation

by Robin Pilgrim, LawAndTax-News.com, London

14 December 2004


Pressure from the insurance industry has forced the UK government to allow for proper consultation on plans to change the tax treatment of with-profits life assurance funds.

In his pre-Budget report, Chancellor Gordon Brown announced plans to increase tax on reserves supporting with-profits funds, a move that some insurance firms have suggested may have an adverse impact on their embedded value, as well as reducing policyholder returns.

Initially, the industry was given less than a week to comment on the matter. However, according to a recently released statement from the Association of British Insurers (ABI), the proposals have been removed from the new regulations now before Parliament, and will be debated instead as part of next year’s Finance Bill.

Commenting on the government's change of tack on the matter, Peter Vipond, the ABI’s Director of Financial Regulation and Taxation, explained that:

“Following strong representations from the ABI and members of the life insurance industry, the Government now recognises our concerns and has agreed to consult with the industry before issuing new legislation changing the method of taxing surplus assets of life funds."

He went on to add that:

“We are satisfied that the Government appreciates the seriousness of the industry's concerns and welcome the opportunity for proper consultation in order to achieve better legislation.”


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