| Industry wins concession in Finance Bill 2006 |
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| The life assurance industry has won a concession in this year’s Finance Bill, following the introduction of deemed disposal rules to life assurance policies in last year’s Finance Bill. |
The Government has introduced a slightly watered down version of its extension of the definition of a ‘chargeable event’ in this year’s Finance Bill. The proposal was originally introduced in the Finance Act 2005, to ensure that tax cannot be deferred indefinitely by the rolling over of a life policy without it becoming chargeable to tax.
Originally, in the Finance Bill 2005, the Government proposed to extend the definition of a ‘chargeable event’ for life assurance 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.
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 2005 provided 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 did not distinguish between policies issued after this proposal was published, and those already in place.
Over the course of the year however, there has been further compromise on the provision. The ‘deemed disposals’ basis will still apply to Irish investors with life policies which previously operated on a tax free basis until disposal, but the new provisions mean that at the end of an eight year period following the inception of the policy, any deemed gain will be subject to tax at 23 per cent. This period is increased to twelve years for policies with regular premium payments not exceeding €3,000 annually.
Moreover, the provisions now also apply to investment funds, as previously the life assurance industry was concerned that there was no longer a level playing field between life and funds products.
The new provisions apply from the passing of the Finance Bill 2006 and will include life polices acquired on or after 1 January 2001. Similar provisions apply to foreign life policies.
Jennifer Hoban, life assurance manager with the Irish Insurance Federation, told FINANCE that the amendments ‘certainly go some way towards addressing the industry’s concerns’, but that they are still considering whether or not it meets all concerns, and as such, she says, it is still a ‘work in progress’. |
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| Article appeared in the February 2006 issue.
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