The Implications of changes to the Capital Gains Tax regime : Market Research Report

The Implications of changes to the Capital Gains Tax regime

Published by: Datamonitor

Published: Mar. 5, 2008 - 20 Pages

DATAMONITOR VIEW
CATALYST
SUMMARY
ANALYSIS: The current capital gains tax structure has provided some advantage to UK life companies selling investment bonds; Rates of capital gains tax are subject to an indexation allowance and taper relief; The existing CGT system is one that has continuously evolved since it was first introduced in 1965; Life insurance companies sell investment bonds and the tax structure has been key to this core part of their business; The current tax structure gives some advantage to investment bonds; A tax charge can arise whenever a chargeable event occurs; Top slicing relief; An investment bond carries a 5% tax deferred withdrawal allowance; In the Pre-Budget Report 2007, the Chancellor focused on personal tax and announced dramatic changes to capital gains tax; The most dramatic proposed reform is the introduction of a new 18% flat rate of capital gains tax; The abolition of taper relief has implications for the business of life companies; The change to CGT; Some general implications of the changes to the structure of CGT; Life bonds and taxation; Life companies and the changes in CGT; Investment bonds have special applicability; Future strategies for life companies in the UK are difficult to determine in a time of uncertainty; The legislative future is unclear, making market predictions very difficult; New products may need to be the focus for life companies if investment bonds no longer hold tax advantages.; Greater focus on the offshore bond market could help providers bridge the gap; Life companies need to consolidate their position in the SIPP market to ensure they keep this market as an important part of their business; More direct and worksite marketing of their full range of products and services could improve the position of life companies; Direct marketing is sent directly to the consumer and has traceable, measurable results; There is also the potential for worksite marketing to become more widespread and change in its nature; The government is likely to continue reforms to simplify financial products and services
APPENDIX: Definitions; Single premium policy; Regular premium; New business; Wrap accounts; Product definitions; Life based savings products; Life Assurance; Single Premium Life; With-profit bond; Unit-linked bond; Income and growth bonds; Guaranteed Equity bonds; Distribution bonds; Purchased Life Annuities; Other bonds; Annual Premium Life; Endowment Policy; Whole of Life Insurance; Term Assurance; Income Protection; Critical Illness; Collective Life; ISAs; Personal Pensions; Stakeholder Pensions; Group personal pensions; DSS Rebates; Employer Sponsored Stakeholder pension (ESS); SIPPs (Self Invested Personal Pensions); FSAVC (Free-Standing Additional Voluntary Contributions); ABI definitions of distribution channels; Independent Financial Advisors (IFAs); Direct sales forces; Tied agents; Multi-tied agents; Bancassurance; Direct marketing; Telesales; Other; Methodology; Further reading; Relevant links; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Rates of capital gains tax; Table 2: Indexation allowances to April 1998; Table 3: Taper relief (for gains on disposals after April 5, 1998); Table 4: Changes leading to the existing CGT system; Table 5: Use of use offshore bonds by IFA clients

Abstract

Introduction

This report examines the proposed changes to the CGT regime in the UK announced by the Chancellor in October 2007. It examines the likely impact on the sale of bonds by life companies and suggests some future strategies to consolidate their market position.

Scope

This report examines the current and future relationship between CGT and the investment bond market in the UK. Extensive secondary research and primary research with industry representatives was undertaken to assess the current and future bond market. Future strategies for life companies in the UK are difficult to determine in a time of uncertainty.

Highlights

Although future strategies are difficult to determine in an uncertain market, Datamonitor focuses on some key ways forward for life companies, irrespective of whether the CGT reforms go through as envisaged. Datamonitor concludes that there are still circumstances where investment bonds are still an appropriate choice and therefore the outcome for life companies may not be as precarious as some have predicted. The CGT system is one that has continuously evolved since it was first introduced in 1965 and therefore life companies are familiar with upheaval and have the ability to adapt to market changes.

Reasons to Purchase

Offers in-depth insights into the how the existing CGT structure has advantaged life companies selling investment bonds. Provides detailed analysis of the proposed changes announced by the Chancellor in his PBR and their impact on life companies. Assists life companies operating in the market to improve their market position if the CGT changes go ahead as announced.

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The Implications of changes to the Capital Gains Tax regime

Table of Contents

Abstract