| Finance Bill brings surprise for industry |
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| Amendments to the Finance Bill will have far reaching implications for the financial services industry. The new measures will lead to an increase in the tax payable by Irish resident policy holders, while, according to its detractors, increasing unnecessarily the administrative burden on non-resident policy holders. |
Section 38 of the Finance Bill provides for exit tax at 23 per cent to apply to investment gains made under certain fixed term life assurance policies where the proceeds of those policies are rolled-over at the discretion of the policyholder.
 | | Brian Cowen, Minister for Finance |
The Bill also provides that exit tax will apply where there is any transfer under a life policy from one fund to another at any time five years or more after the start of the policy, where that transfer is at the discretion of the policyholder.
According to Jim Murphy, a director with Life Strategies, the implications of the amendment are that a roll-over of one tracker bond investment to another within a whole of life wrapper will in future trigger a tax event.
Similarly, a switch from one unit-linked fund to another within an open-ended single premium investment policy would trigger a tax event, where the switch takes place after five years from inception of the policy, he says.
He says that the intentions of the measure are quite clear – to accelerate the tax take for the Exchequer, and that, ‘a key benefit of unit-linked policies will become a disadvantage overnight… and not just for new policies; existing policies will also be affected as Section 38 effectively has retrospective effect’.
According to Murphy, a possible reason for the amendment is the change in the way that life assurance companies have packaged tracker bonds since 2001, as under the gross roll-up regime, when a tracker fund matures, the proceeds are then rolled over to a new fund within the life assurance policy, and policy holders don’t pay tax until the proceeds are taken from the fund.
The industry is due to meet with the Department of Finance to discuss the issue. |
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| Article appeared in the March 2005 issue.
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