The Treasury has introduced a stealth tax affecting 11.6 million savers. Here's what you need to know.
Almost 12 million long-term savers could have £841 million wiped off their wealth by a stealth tax coming into effect this month.
Those who have endowments and whole-of-life plans at firms like Axa, Aviva, Prudential and Standard Life are likely to be affected.
Alarmingly, money earned on these policies as an annual return will be subject to a 19% Corporation Tax.
Before now, annual profits have only been taxed if they were higher than the rate of inflation.
Not what it seems
When announcing the change, Chancellor Philip Hammond claimed it would have “no impact on individuals or households”.
However, a leaked letter from the Treasury reveals that the measure would affect ordinary investors.
“This impact will depend, amongst other things, on the amount of money that policyholders have invested,” the letter said.
When asked for comment, a spokesperson for HM Treasury responded: “We are changing the system to correct an imbalance. We expect any impact on policy holders to be small.”
'MPs misled'
Companies face a bill of £841 million over the next five years, twice the amount outlined by the Treasury, according to the Association of British Insurers (ABI).
Experts think this could be passed on to customers. The ABI reckons that each policyholder will be up to £150 a year worse off.
Royal London’s director of policy, Steve Webb, called for parliament to revisit the tax. “MPs have clearly been misled,” he said.
"If MPs had been told this from day one, there would have been much more opposition to this measure. There is still time for Parliament to scrutinise this new tax and stand up for small savers up and down the country."
What to do now
Not sure if you're affected? Have a word with your provider to get some more information and find out what your options are from here.
It is possible to leave endowment and whole-of-life policies, but it's vital that you know how much you'll lose in exit charges.
It'll also be more difficult for you to open a similar product down the line as you'll be older and more likely to have a health condition, meaning that you'll pay more in premiums.
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