In the Sandler review of medium and long term savings, proposals have been made to remove some of the favourable tax treatment for investment bonds and endowment policies.
In terms of investment bonds, Mr Sandler proposed to withdraw the tax deferment allowances. This is where any withdrawals up to 5% of the original amount invested can be taken out each year without immediate liability to tax. This is of great benefit to higher rate taxpayers that may become basic rate taxpayers later in life when the investment is eventually cashed in.
In respect of endowment policies, Mr Sandler proposed to withdraw the 'qualification' rules. Generally, if a policy is a qualifying policy it escapes any tax on maturity. There are certain criteria to meet before becoming a qualifying policy but endowments generally do. By removing the favourable tax treatment for these types of savings and investments could generate a lot more tax for the Government.
However, people would be less likely to buy the products unless there was at least some form of tax benefit.