A ‘stealth tax’ contained in the details of chancellor Philip Hammond’s Budget this week will hit “millions of people” with whole-of-life insurance policies, UK-based insurer Royal London has warned.
Specifically, said Hammond, the Treasury will freeze indexation allowance on corporation tax to raise £525m for the government by 2023.
The policy would “align the treatment of capital gains by companies with those by individuals”, said the Treasury.
However, said Royal London policy director Sir Steve Webb, this will hit private savers with products such as endowments and whole-of-life insurance policies.
Current regulations mean that companies only pay tax on returns that are greater than the inflation rate on such products.
The change announced by Hammond, though, will alter the rules so that the whole of the return will be subject to tax, and not simply the “above-inflation” element.
The amount of tax that will become due annually from individual policyholders was small, Webb conceded, about £50 per person, but “there are so many people affected, it adds up to a large amount of money,” he said.
Royal London has deemed that about three million of its own customers will be hit by this added tax, said Webb, meaning that it is likely to be millions of policyholders in the UK that will pay the extra money.
‘This is a stealth tax on millions of people who have made sacrifices and saved hard and are now penalised with extra tax,” said Webb.
“If the Treasury did know that this would be the impact of the tax then it should have been honest about the effect on savers.
‘But if it did not realise that this would be the consequence then it should urgently review the policy.
“Most of these policy holders are on modest incomes and would not pay tax on their investment growth if they invested directly because of the generous annual allowances for capital gains tax.
“There is no reason why they should now face additional taxes simply because they have invested through an insurance policy.’