HM Revenue & Customs has refused to get entangled in “Mickey Mouse” product launches and will not clarify whether critical illness can be added to a relevant life plan without changing a policies tax status.
HMRC was asked whether the addition of critical illness conflicted with government legislation with regard to what is allowed within a relevant life plan as laid down by the Income Tax (Earnings and Pensions) Act 2003.
Both Legal & General and Royal London have taken issue with Aviva’s addition of critical illness to its relevant life plan last month, with both providers stating they planned to raise it with HMRC over tax concerns.
A spokesman for L&G said the addition of critical illness conflicts with its current interpretation, and that of the market, of government legislation with regard to what is allowed within a relevant life plan as laid down by the Income Tax (Earnings and Pensions) Act 2003.
L&G’s spokesman said the insurer’s relevant life plan does meet the legislation, and if it is found that the legislation allows it to add critical illness and retain its current tax efficient status, it will add this feature to the plan.
Royal London also raised concerns.
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.”
However, a spokesman for HMRC said it does not discuss identifiable taxpayers and provided background information on excepted products.
He also added: “We cannot comment on every Mickey Mouse product launched.”
Aviva claimed L&G is wrong to question the protection product.
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 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.
Alan Lakey, partner at Highclere Financial Services in Hemel Hempstead, said: “This highlights how any form of legislation can be interpreted differently but what I find most troubling is that society as a whole would benefit by more people being insured, whether for life, or critical illness or other protection.
“It takes the weight off the NHS, less people apply for means-tested benefits.
“While HM Revenue & Customs may be very clever at counting the cost to them they need to look at the costs to society. There is a trade-off: there would be less people unemployed because employers would be able to keep the business afloat.