Corporate tax rate cut in Budget would boost insurers, says PwC

A reduction of the corporate tax rate to 20% by the Chancellor in Wednesday’s Budget would be well received by the insurance industry, according to a leading consultancy.

But PricewaterhouseCoopers warned that those companies carrying forward tax losses might have to reduce the value of their tax assets on the balance sheet.

However it added that most would have their longer-term values boosted, particularly life insurers who were able to take the lower tax rate into account in their calculations.

The Chancellor George Osborne is expected to reaffirm his commitment to reducing the rate of corporation tax to 23% by 2014.

Colin Graham, UK insurance tax leader at PwC, said: “Again for life insurers, there could be some interesting implications of a situation where the shareholder and policyholder tax rates become aligned at 20%.  Perhaps the most likely outcome, and our prediction, is for an announcement signposting an intention to reduce the rate within a package of wider corporation tax reform.

“Again for life insurers, there could be some interesting implications of a situation where the shareholder and policyholder tax rates become aligned at 20%.

“Perhaps the most likely outcome, and our prediction, is for an announcement signposting an intention to reduce the rate within a package of wider corporation tax reform.”

Graham also expects to get an update on tax reform in the speech, focusing on the Controlled Foreign Company rules.

Also on the agenda could be a general anti-avoidance rule, but Graham cautions that it was important that any changes did not create uncertainty for business or undermine the progress made on reform.

Among the other possibilities are the conclusion of the two-year long consultation on the taxation of life insurance business, but he does not expect any surprises there.

Further down the list are temporary cuts in VAT and employer’s National Insurance Contributions, as suggested by the Institute for Fiscal Studies, both of which would benefit the sector but are unlikely to happen given government’s response to similar suggestions, according to Graham.

In terms of pension tax relief, reducing the annual allowance for tax efficient pension saving would be the least painful move politically and may therefore be the most likely scenario if the Chancellor went down that route, said Graham.

Other possibilities include reducing pension tax relief to the basic rate or taxing lump sums on retirement, he said.

“Our view is that any further changes to pensions would seriously undermine retirement saving and would be a blow to the viability of parts of the UK insurance industry,” he said.