Legal & General is taking issue with a business protection product launched by Aviva last month, and plans to raise it with HMRC over tax concerns.
In a market-shaking move last month, Aviva launched the Relevant Life plan with integrated critical illness cover.
The inclusion of critical illness benefit represented a significant change for the market and made it easier for advisers to cover clients’ business protection in one application.
However, L&G has now stepped in to criticise the critical illness option.
Richard Kateley, head of specialist protection at L&G, said: “The addition of critical illness conflicts with our current interpretation, and that of the market, of the government legislation with regard what is allowed within a relevant life plan as laid down by the Income Tax (Earnings and Pensions) Act 2003.
“We are currently re-examining the legislation and will be raising the issue with the HMRC to get further clarity on the situation.
“Our first responsibility has to be to our policyholders and advisers and we do not want to make any changes to our product, which could jeopardise its adherence to the HMRC rules and it retains its current tax efficient position.”
Mr Kateley said Legal & General’s own Relevant Life plan meets the legislation, and if HMRC allowed the option, they would add this to their own plan.
A spokeswoman for Aviva said: “Relevant Life Insurance is complex, but under the current tax legislation these plans can include critical illness benefit (it is the same legislation that lets providers include a terminal illness benefit).”
The provider’s spokesman added it liaised with HMRC at its Relevant Life launch and took legal advice from a QC who confirmed that the product was compliant with the relevant legislation and therefore qualified as a relevant life plan.
The spokesman for Aviva added: “We take great care to assess our products before putting them into the market.”
Other providers have also expressed concern. Ian Smart, Royal London product architect said: “We are looking at this closely to form our own opinion as to whether this is actually possible, but have concerns that this could prompt HMRC to think again about whether the legislation around relevant life policies is working as originally intended.”
