Budget 2017: Tax move will penalise savers, says insurer
Millions of small savers may be hit by a little noticed tax change in the Budget that affects long t..
Millions of small savers may be hit by a little noticed tax change in the Budget that affects long term policies sold by insurance companies and sometimes collected door to door.
When the chancellor announced he was abolishing the Corporate Indexation Allowance on Wednesday, the Treasury said it wouldn't affect individuals.
But Royal London Insurance said savers are likely to lose out.
It said the total cost could amount to hundreds of millions of pounds.
"From the early numbers that we've looked at we think that millions of people have these policies and they'll be losing relatively modest amounts of money, perhaps £25 or £50, some of them a lot more," said Steve Webb, director of policy at Royal London.
"But this all adds up to huge amounts, hundreds of millions of pounds for the Chancellor," he said.
Royal London says the tax change announced in the Budget will affect a group of investment policies or endowments, sometimes lasting decades and designed to provide a lump sum or something to pass on to family.
They are often bought from door-to-door sales reps, collecting a few pounds a week, or from adverts in magazines and papers or direct from the companies.
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Corporate Indexation Allowance, which will disappear in January, allows companies to reduce the tax they pay. Savings policies took advantage of that for the benefit of policy holders.
"Most of the people we're talking about are on modest incomes," said Mr Webb. He said the Treasury should acknowledge that the change in policy would have an unforeseen impact on these savers and put it on hold.
"It needs to be preferably cancelled, or at the very least postponed, so that ordinary savers aren't unfairly penalised."
The Treasury has suggested that fund managers could absorb the costs.
A Treasury spokesperson told the BBC: "The current system of indexation allowance provides benefits to companies that aren't available to individuals.
"The changes in this budget correct an imbalance in the system by removing an outdated measure.
"This is a tax incurred by the insurance company itself and most fund managers can choose not to pass on any additional costs to their clients."
