| Life sector wins temporary reprieve |
Back |
| Following urgent representations by the life insurance industry, proposals introduced in the Finance Bill 2005, which would see additional charges being levied on life policies, have been amended by the Minister for Finance, Brian Cowen, and the introduction of the proposals have been suspended, pending a Ministerial Order. |
The life insurance industry has won a key battle in getting Brian Cowen to re-consider his proposed changes to life policies, but it is likely that despite the industry's concerns, the Minister will introduce these proposals, in some form.
As reported in FINANCE March, Section 38 of the Finance Bill proposed to extend the definition of a ‘chargeable event’ for policies linked to funds to include either the ending of a fixed investment period where one exists (as defined by the Bill) or switching between funds after five years, with the intention of accelerating the tax take for the Exchequer. Previously, under the gross roll-up system introduced in 2000, a chargeable event would have been when the policy matured.
However, following urgent representations on the part of the industry, the Minister of Finance, Brian Cowen, amended the Bill and Section 42 of the Finance Act now provides for a ‘chargeable event’ on every seventh anniversary of the inception of the policy, when tax is payable on gains realised in the policy. The Act does not distinguish between policies issued after this proposal was published, and those already in place.
But as consultation with the industry is on-going, this amended version has not yet been invoked. Jim Murphy, a director with Life Strategies, says that the outcome of this is still very much up in the air. ‘Clearly, one possibility is for the Government to invoke Section 42 in full as it stands’, he says, ‘However, the Act also provides for partial application by type of business, or we might yet see a revised structure that addresses the Government’s exchequer funding concerns but which is more palatable from an industry and consumer perspective’.
Writing in this month’s KPMG Tax Monitor, partner Brian Daly writes that, ‘It seems quite unfair that such an adverse change to the tax regime applying to a life assurance policy should be imposed on policies entered into in good faith on the basis of a tax regime introduced only five years ago’.
According to Daly, in the D?il debates the Minister said that the Revenue had only become aware that life assurance policies were being used as a form of long-term investment combined with a facility to switch the type of funds to which the value of the policy was related. The Minister said that this was not intended. Calling the Minister’s explanation ‘astonishing’, Daly says that, ‘it is a bit disingenuous to suggest that it was not known when the Finance Act 2000 was enacted, that life assurance policies could have a long duration, or that the asset backing for them could be actively managed portfolios’. |
|
| Article appeared in the May 2005 issue.
|
|
