Following lobbying by the Association of British Insurers, HM Revenue & Customs has abandoned plans to tax investment reserves on insurers' non-profit funds. The Revenue was criticised by the Association of British Insurers and several other providers for not consulting with the industry on its proposals.
Though they were intended to stop tax avoidance, the proposals were thought to be so broad, that they would have ended up financially hurting with-profits investors. The charge, which would have been a one-off payment on non-profit funds that do not pay out income and gains, is estimated to have saved Legal & General around £500 million.
Other insurers, such as Prudential and Friends Provident do not believe that they would have been affected by the charge.
Our view
Common sense prevails. We argued against this when the story first came out in October.