The government has responded to its consultation on the removal of a range of tax reliefs and confirmed that it will remove tax relief on life assurance premiums in the 2012 Finance Bill.
The decision comes as part of the publication of draft clauses for the financial bill, which was published on 6th December and follows on from the Chancellor’s Autumn Statement.
Under the current rules, UK residents who pay regular premiums under life insurance policies issued before 14 March 1984 are entitled to income tax relief of 12.5 per cent of the premium.
The government has previously removed similar relief for policies issued on or after 14 March 1984, but those taken out before this date are currently still eligible for relief.
In the overview of its draft financial bill, HM Treasury claimed that the relief is “obsolescent”, but that it “still requires long and complex legislation although the average value of the relief per policy is minimal”.
The proposed changes will include those premiums paid by employers under employer-financed retirement benefit schemes.
The repeal of this measure will save the Treasury an estimated £5m in 2015-16, according to the initial findings, although the final costing will be set out in the 2012 Budget.
Analysts have suggested that the figure of savings for the Treasury has been over-estimated given that the average amount claimed per policy per year is just £14.
The costs of repealing this tax relief could, however, hit policy providers hard, as they will have to contact policyholders and make changes to IT and collection systems.
According to the Treasury statement, one industry representative body estimated the cost to each provider as ranging from £100,000 to £200,000.
Presuming that these costs are wholly or partly passed on to consumers then this small change could have price implications for the entire Life Assurance market.
