An insurance company has warned that small savers may be affected by a tax change announced in Wednesday’s Budget Statement.
According to Royal London, the abolition of the Corporate Indexation Allowance could result in savers losing out, despite the Treasury stating that the change would not affect individuals. Whilst the amounts gathered may not be significant on a personal level, the insurer stated that this could amount to millions for the Chancellor on a widescale basis.
Royal London state that a group of endowments or investment policies are likely to be impacted by the change, often purchased door-to-door, from printed adverts or from companies directly.
For the sake of their holders, savings policies harnessed the benefits provided by the Corporate Indexation Allowance; this enabled companies to reduce the amount of tax owed. However, the Chancellor announced that this will be abolished in January.
Royal London state that this affects savers unfairly, and that the abolition of the allowance should at least be put on hold.
Steve Webb, Director of Policy at Royal London stated: “Most of the people we’re talking about are on modest incomes,” said Mr Webb. He said the Treasury should acknowledge that the change in policy would have an unforeseen impact on these savers and put it on hold.
“It needs to be preferably cancelled, or at the very least postponed, so that ordinary savers aren’t unfairly penalised.”
Responding the criticism, a spokesperson from the Treasury told the BBC that the change would correct a system disparity. They also purported that the costs could be absorbed by the fund managers, stating: “The current system of indexation allowance provides benefits to companies that aren’t available to individuals.
“The changes in this budget correct an imbalance in the system by removing an outdated measure.
“This is a tax incurred by the insurance company itself and most fund managers can choose not to pass on any additional costs to their clients.”
