HMRC was asked whether the addition of CI 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.
Legal & General and Royal London have taken issue with Aviva’s addition of CI to its relevant life plan last month, with both providers stating that they planned to raise it with HMRC over tax concerns.
A spokesman for L&G said the addition of CI 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 CI and retain its current tax efficient status, it will add this feature to the plan.
Royal London also raised concerns.
L&G would like to add their own CI cover to the relevant life plan but don’t want to go down the route and be stopped by HMRC. It does read like sour grapes. Alan LakeyIan Smart, product architect for Royal London, 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 accepted 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 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 had 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, critical illness or other protection. It takes the weight off the NHS so 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.
“Obviously, there needs to be clarity on this issue. Royal London has had the brakes put on in relation to products in the past.
“Aviva has consulted two QCs who say this is within the rules. L&G would like to add its own CI cover to the relevant life plan, but don’t want to go down the route and be stopped by HMRC. It does read like sour grapes.
“Were I the chancellor or prime minister I would be angling for all forms of insurance protection to have tax relief at source to make more people take it up. I hope the Revenue come back and says this is within the intention and the rules.”
