Finance Bill Tracking Service 2010 | Budget 2010

BN21 FINANCIAL SERVICES COMPENSATION SCHEME INTERVENTIONS IN RELATION TO INSURANCE CONTRACTS

Who is likely to be affected?

1. Policyholders with insurance or annuity contracts and insurers providing those products, where the Financial Services Compensation Scheme (FSCS) intervenes to protect policyholders.

General description of the measure

2. Intervention by the FSCS can include the provision of financial assistance to an insurer, transferring policyholders' rights to another insurer or paying compensation to the policyholder.

3. Legislation will be introduced in Finance Bill 2010 to provide regulation-making powers to ensure that if the FSCS takes action to protect policyholders, there will be broadly the same tax treatment as if the FSCS had not intervened.

Operative date

4. The measure will have effect on and after the date that Finance Bill 2010 receives Royal Assent. Once the regulations have been made, they can apply to an earlier period, provided they do not increase any person's tax liability.

Current law and proposed revisions

5. A wide range of rules apply in connection with taxable and tax advantaged insurance and annuity products. However interventions under the FSCS may give rise to unintended tax consequences, such as the loss of tax advantaged status.

6. Section 74 of the Finance Act 2009 introduced a regulation-making power to address tax impacts arising from FSCS interventions affecting pension saving with insurers.

7. Finance Bill 2010 will introduce a regulation-making power to address tax impacts arising from interventions by the FSCS affecting mainly savings, investments and annuities outside pension schemes.

8. Regulations made using the powers in this measure will ensure that there will be broadly the same tax treatment for the continued cover or resulting payments as if the FSCS had not intervened. The regulations can apply to a period before they are made, provided they do not increase any person's tax liability.

Further advice

9. If you have any questions about this change, please contact Jon Prothero on 020 7147 2785 (email: jon.prothero@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk