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The rules on the taxation of Life policies have been
in place for some time and would say that they no longer suit the type
of products currently available in the market. |
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Since 1988 the Inland Revenue has given notice of its
intention to alter the treatment of Life Assurance plans with regard to
taxation. |
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Their reasons for change can be summarised as
follows:
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The current rules are out of date. |
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The current rules are overly complicated |
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The current rules cause uncertainty; |
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The current rules are inconsistent, |
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Under the rules the consultative document proposed a
plan's position with regard to taxation could be either:
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Completely exempt. |
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Exempt from Basic Rate Tax. |
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Fully chargeable. |
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It is clear that this move from pre-certification of
policies which has classification at entry, to a system in which a plan
is tested on exit allows for the introduction of gross investment funds
at a later date, bringing us closer to our European neighbours. Indeed
European Legislation may force this issue. Although the document was
subsequently shelved, many of its elements were evident in the March
1998 Budget and the subsequent Finance Bill. |
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In the first Budget of the New Labour government, the
Chancellor of the Exchequer, Gordon Brown, gave notice of a new savings
vehicle which is to be available from 1999, the Individual Savings
Account or ISA. |
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The intention is for ISA to replace both
PEPS and TESSAS with the emphasis moved from an annual payment to a more
frequent investment, say monthly. Although the amount invested will come
from after tax income, all income and or capital gains on the
investments will most probably be tax free. These tax incentives may be
lost if the plan runs for less than 5 years. The impact on more
traditional forms of savings such as endowment policies is likely to be
more significant especially if the plans allow for a diversity of
investments and are not just deposit accounts. |