A government letter has revealed the impact on savers of a tax change introduced this month, after initially claiming they would suffer no detriment.
The loss of the ‘indexation allowance’ for insurance companies will hit individual savers, despite an earlier statement claiming that it will have “no impact on individuals or households”, a statement still available on the Gov.UK website.
But a standardised government letter, which is being issued to members of the public who write to complain about the change, admits there will be an impact on individual savers.
It reads “the impact passed on to individual policy holders is likely to be small".
Steve Webb, former pensions minister and director of policy at Royal London, which uncovered the letter, said MPs had been “”misled” by the Treasury, and described the change as a stealth tax that would affect 11m people
Indexation allowance benefited those with money invested through insurance companies.
Prior to the 2017 Budget, these individuals received a tax break which meant any investment growth that simply kept pace with inflation was not subject to tax.
But in the November 2017 Budget the chancellor announced this indexation allowance would no longer apply from January 2018.
The measure is contained in the Finance Bill which is still under consideration by MPs. Mr Webb called for it to be reconsidered.
“There is still time for parliament to scrutinise this new tax and stand up for small savers up and down the country,” he said.
