A letter being issued by the Treasury about a new tax introduced in the Autumn Budget reveals that MPs have not been told the full story about the change, according to Steve Webb, Director of Policy at Royal London.
Prior to the 2017 Budget, individuals with money invested through insurance companies benefited from a tax break which meant that any investment growth that simply kept pace with inflation was not subject to tax. But in November 2017 the Chancellor announced that this ‘indexation allowance’ would no longer apply from January 2018. In papers published on the day and still displayed on the gov.uk website, the Government claimed that ‘This measure has no impact on individuals or households’. For further information see Corporation Tax: removal of capital gains indexation allowance from 1 January 2018.
As soon as the measure was announced, Royal London drew attention to the fact that more than 3 million of its policy holders would face increased tax on their policies as a result of the change, and it is estimated that more than 11 million people in total will lose out to the tune of around £250m.
Now Royal London has obtained a copy of a standard letter being issued by the Treasury to members of the public who write in to complain about the change which admits that there *will* be an impact on individual savers although claims it will be ‘small’. The letter says: ‘…the impact passed on to individual policy holders is likely to be small’ (though offers no evidence for this assertion). This directly contradicts the continued assertion that there is ‘no impact’ on individuals or households.
As the measure is contained in the Finance Bill which is still under consideration by MPs, Steve Webb is now calling for Parliament to revisit this measure in the light of this new information and the impact on millions of small savers, the large majority of whom are basic rate taxpayers.
Steve Webb, Director of Policy at Royal London said:
"MPs have clearly been misled by the information which the Treasury has put out on this issue. Far from having ‘no impact’ on households, this stealth tax will hurt around 11 million savers. If MPs had been told this from day one there would have been much more opposition to this measure. There is still time for Parliament to scrutinise this new tax and stand up for small savers up and down the country."
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About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.