The Budget had some positive points for the industry, but how much will change after 6 May?
Most commentators were nonplussed by the recent Budget, with the general verdict that the substantial decisions on tax and spending would follow next month’s general election. Nevertheless, for the insurance industry there were a couple of tasty tidbits.
Insurance premium tax
The headline news from the industry’s perspective was the resolution of the row over insurance premium tax. December’s pre-Budget report (PBR) sprung an unwelcome surprise on the sector by dramatically widening of the scope of IPT.
The bad news is that the scope of the tax remains wider than it was before December. The good news is that the widening is not as great as that originally envisaged when the draft proposals were published in the PBR.
Under the revised rules announced in the Budget, IPT will not be levied on fees charged by intermediaries where the level of premium has been arrived at without a comprehensive assessment of the customer’s individual circumstances. Neither will the tax apply in those circumstances where the customer cannot negotiate the terms and price of the intermediary’s contract.
Last week’s announcement rules many brokers out of the IPT they faced having to pay under the December proposals. The changes mean that arrangement fees on personal lines like household and motors, which tend to be determined on a lump-sum basis, will generally not be liable for IPT.
And liability for any tax due under the changes will only apply from Budget day itself (24 March), not from 9 December, the date of last year’s PBR. The government has confirmed that insurers, rather than intermediaries, will continue to be responsible for paying the tax.
However, while the rate of IPT stayed unchanged in the Budget, the industry should continue to be on its guard about a possible increase.
Capital gains tax
Turning to other tax matters, the rate of capital gains tax (CGT) remained the same despite considerable pre-Budget speculation that it would go up. But the big change on CGT was the doubling in the relief for the so-called ‘entrepreneurs's allowance’.
The allowance covers profits on the sale of any business, including shares or assets. Under the changes, which came into force on 6 April, the first £2m of capital gains will be subject to a rate of 10%, as opposed to the general rate of 18%. If an individual were to sell a business for a gain of over £2m in 2010/11, the overall tax liability will be £380,000, representing a tax saving of £80,000 on how much they would have paid in 2009/10.
And the good news for those looking to start up a fresh business is that this allowance can be claimed over a lifetime. The additional £1m relief will also be available for vendors who have previously used this relief, but only on qualifying gains from 6 April.
The measure has been nodded through by the Conservatives, meaning that it is extremely unlikely that it will be reversed if they form the next government. However, those wishing to exit their business would be well advised to think about selling up. Even though there was no change on CGT in this Budget, an increase is widely anticipated following the general election, given the increasingly wide gap that has opened up between the new 50% top rate of income tax for earnings over £150,000 and the 18% general rate of CGT. For the insurance industry, like everybody else, the real Budget is likely to happen later this year.
david.blackman@insurancetimes.co.uk
Key points
- The row over IPT seems to have been resolved in the recent Budget, with the new rules not applying in many circumstances
- The ‘entrepreneurs' allowance’ CGT?relief has been doubled, so that the first £2m of capital gains will be subject to a reduced rate of 10%, as opposed to the standard 18%
- Despite these sweeteners, however, businesses will be watching carefully when the ‘real’ Budget emerges after the general election
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