Protection Update - Issue 89
Basic Rate Tax changes affecting Tax Efficient Life Insurance Plans
On 6 April 2008, the basic rate of Income Tax will decrease from 22% to 20%. This is one of a number of tax changes announced in March 2007 by Gordon Brown (the then Chancellor of the Exchequer) and will affect the tax relief given at source on Legal & General's Tax Efficient Life Insurance Plans (TELIP) for level and decreasing cover.
TELIP (level and decreasing) differs from other recent life insurance plans in that tax relief is available on the premiums the client pays and this therefore reduces the cost to the client. We launched TELIP to the IFA market on 10 April 2006 and it was withdrawn from new business on 6 December 2006.
When the client took out their plan, we explained to them in the Key Features document under the ‘Risks’ section, that tax rates may change and that they should take this into account when considering the affordability of the plan. In additions, if the basic rate of tax were to change it may mean they need to pay a higher premium.
If the client pays a higher rate of tax they will still be able to claim back the difference between the basic rate of tax and the higher rate of tax by their tax return.
Please note that with the changes taking effect on 6 April 2008, tax relief will be based on the day the premium is paid (the payment date) and not on the date it is due (the due date). Premiums paid before 6 April 2008 will see a basic rate of tax of 22% applied. Premiums paid on or after 6 April will see a tax rate of 20% applied.
We will be writing to all affected clients from 8 February 2008 to let them know about these changes.
For a series of questions and answers on this topic as well as examples of the letters we will be sending, please click here.
If you’d like any more information, please contact us.
This is not a consumer advertisement. It is intended for professional financial advisers and should not be relied upon by private individuals or any other persons.
