Millions of savers will be hit by a change in the indexation allowance for capital gains announced in Wednesday’s (22 November) Autumn Budget, Royal London has warned.
Chancellor Phillip Hammond announced in Parliament that the relief for inflation given to companies will be removed after January.
Sir Steve Webb, director of policy at Royal London, said that although companies are being taxed, this will affect individuals who have savings products such as endowments and 'whole of life' policies with insurance companies.
Under current rules, insurance companies have to collect tax for the government when these investments grow above inflation.
But from next year onwards, tax will be payable on the whole return, including anything which simply keeps pace with inflation.
According to Sir Steve the amount each person pays is not huge but it might be around an extra £50.
However, “there are so many people affected [that] it adds up to a large amount of money,” he said.
Royal London estimates that this could affect up to three million of its own policyholders and many millions more across the whole insurance sector.
According to the provider, HM Treasury expects to raise more than £500,000 a year once this policy is fully implemented.
Sir Steve said: “This is a 'stealth tax' on millions of people who have made sacrifices and saved hard and are now penalised with extra tax.
“If the Treasury did know that this would be the impact of the tax then it should have been honest about the effect on savers. But if it did not realise that this would be the consequence then it should urgently review the policy.”
According to Sir Steve, most of these policyholders “are on modest incomes and would not pay tax on their investment growth if they invested directly, because of the generous annual allowances for capital gains tax”.
He said: “There is no reason why they should now face additional taxes simply because they have invested through an insurance policy.”
An increase in the personal allowance also announced in the Budget will increase the number of low earners that won’t be able to get tax relief for their pension.
maria.espadinha@ft.com
