Autumn Budget 2017: ‘Stealth tax’ to hit millions of savers, says former pensions minister

Published by Helen Knapman on 24 November 2017.
Last updated on 24 November 2017

Autumn Budget 2017: ‘Stealth tax’ to hit millions of savers, says former pensions minister

Millions of savers using products such as endowments and ‘whole of life’ insurance policies, could lose out under a tax change detailed in this week’s Autumn Budget.

Financial provider Royal London says the freezing of the so-called ‘indexation allowance’ for corporation tax from January 2018 will result in these savers paying more in tax.

Currently, when these investments grow, tax is paid only on the 'real' return, stripping out the effects of inflation. But Royal London says that under the government’s change, tax will be payable on the whole return, including anything which simply keeps pace with inflation. 

Royal London believes this could affect up to three million of its own customers alone, most of whom stand to lose between £25 and £50 when their policy reaches maturity. However, former pensions minister and director of policy at Royal London, says some could lose £100s.

‘The Treasury should urgently review the policy’

Mr Webb comments: “This is a 'stealth tax' on millions of people who have made sacrifices and saved hard and are now penalised with extra tax.  If the Treasury did know that this would be the impact of the tax then it should have been honest about the effect on savers.  But if it did not realise that this would be the consequence then it should urgently review the policy. 

“Most of these policyholders are on modest incomes and would not pay tax on their investment growth if they invested directly because of the generous annual allowances for capital gains tax. There is no reason why they should now face additional taxes simply because they have invested through an insurance policy.”

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