The Implications of changes to the Capital Gains Tax regime

This report examines the proposed changes to the CGT regime in the UK announced by the Chancellor in October 2007. It examines the likely impact on the sale of bonds by life companies and suggests some future strategies to consolidate their market position.



Report Highlights
Although future strategies are difficult to determine in an uncertain market, Datamonitor focuses on some key ways forward for life companies, irrespective of whether the CGT reforms go through as envisaged. Datamonitor concludes that there are still circumstances where investment bonds are still an appropriate choice and therefore the outcome for life companies may not be as precarious as some have predicted. The CGT system is one that has continuously evolved since it was first introduced in 1965 and therefore life companies are familiar with upheaval and have the ability to adapt to market changes.


[Studien Infos ausblenden]

DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The current capital gains tax structure has provided some advantage to UK life companies selling investment bonds 2
Rates of capital gains tax are subject to an indexation allowance and taper relief 2
The existing CGT system is one that has continuously evolved since it was first introduced in 1965 4
Life insurance companies sell investment bonds and the tax structure has been key to this core part of their business 5
The current tax structure gives some advantage to investment bonds 5
A tax charge can arise whenever a "chargeable event" occurs 5
Top slicing relief 6
An investment bond carries a 5% tax deferred withdrawal allowance 6
In the Pre-Budget Report 2007, the Chancellor focused on personal tax and announced dramatic changes to capital gains tax 7
The most dramatic proposed reform is the introduction of a new 18% flat rate of capital gains tax 7
The abolition of taper relief has implications for the business of life companies 7
The change to CGT 7
Some general implications of the changes to the structure of CGT 8
Life bonds and taxation 8
Life companies and the changes in CGT 9
Investment bonds have special applicability 9
Future strategies for life companies in the UK are difficult to determine in a time of uncertainty 10
The legislative future is unclear, making market predictions very difficult 10
New products may need to be the focus for life companies if investment bonds no longer hold tax advantages. 10
Greater focus on the offshore bond market could help providers bridge the gap 11
Life companies need to consolidate their position in the SIPP market to ensure they keep this market as an important part of their business 11
More direct and worksite marketing of their full range of products and services could improve the position of life companies 11
Direct marketing is sent directly to the consumer and has traceable, measurable results 11
There is also the potential for worksite marketing to become more widespread and change in its nature 12
The government is likely to continue reforms to simplify financial products and services 13
APPENDIX 14
Definitions 14
Single premium policy 14
Regular premium 14
New business 14
Wrap accounts 14
Product definitions 14
Life based savings products 14
Life Assurance 14
Single Premium Life 15
With-profit bond 15
Unit-linked bond 15
Income and growth bonds 15
Guaranteed Equity bonds 15
Distribution bonds 16
Purchased Life Annuities 16
Other bonds 16
Annual Premium Life 16
Endowment Policy 16
Whole of Life Insurance 16
Term Assurance 17
Income Protection 17
Critical Illness 17
Collective Life 17
ISAs 17
Personal Pensions 17
Stakeholder Pensions 17
Group personal pensions 18
DSS Rebates 18
Employer Sponsored Stakeholder pension (ESS) 18
SIPPs (Self Invested Personal Pensions) 18
FSAVC (Free-Standing Additional Voluntary Contributions) 18
ABI definitions of distribution channels 18
Independent Financial Advisors (IFAs) 18
Direct sales forces 18
Tied agents 18
Multi-tied agents 19
Bancassurance 19
Direct marketing 19
Telesales 19
Other 19
Methodology 19
Further reading 19
Relevant links 19
Ask the analyst 20
Datamonitor consulting 20
Disclaimer 20

[Inhaltsverzeichnis ausblenden]

Table 1: Rates of capital gains tax 2
Table 2: Indexation allowances to April 1998 3
Table 3: Taper relief (for gains on disposals after April 5, 1998) 3
Table 4: Changes leading to the existing CGT system 4
Table 5: Use of use offshore bonds by IFA clients 11



[Tabellenverzeichnis ausblenden]