Currently, investments in life funds are only taxed when the asset is realised, such as at maturity or when surrendered. However, the Inland Revenue have proposed that life companies would have to pay tax annually on the capital gains on equities, land and property irrespective of whether they are realised or not.
This would leave policyholders facing an additional tax, effectively a tax on the value of their investments. The Government accepts the proposals may not be appropriate and will consult once the new regime has been agreed.
Norwich Union commented that these proposals would have significant repercussions on the levels paid back to life fund investors. The ABI have met with the Inland Revenue and have criticised the plans, saying that they have not thought through all the implications and have made it clear to the Revenue the impact this could have on life companies.