The Final Curtain for Life Assurance Premium Relief – CII FA1, R05
Life Assurance Premium Relief (LAPR) is on its way out. Read on to learn what impact this change will make on policyholders and the industry. This article is relevant to takers of the CII FA1 and R05 exams.
Looking through the new FA1 manual, it jumped out at us here at Brand Financial Training that there are over three pages dedicated to Life Assurance Premium Relief (LAPR). So much information considering the Finance Act 1984 abolished it for all policies taken out after 13 March 1984 and will be abolished completely next year for those policies taken out before then.
Those affected are policyholders paying regular premiums under qualifying life policies net of 12 ½% life assurance premium relief. (The insurer or friendly society then reclaims this back from HMRC – subject to certain minimums.) The legislation is long and complicated, yet the average amount of relief claimed per policy is reported to be about £14 per year, but this will be an average, and some policyholders are bound to be affected much more than this.
The change will affect around 70 companies, and according to HMRC, is expected to reduce tax relief repayments to them by approximately £5 million in 2015-16. Based on that figure, it’s not surprising the curtain is finally closing on this very old piece of tax law and the entitlement to LAPR will be removed for premiums that are due and payable or, are paid, on or after the 6th April 2015. The policies will still keep their qualifying status despite their being changed.
The impact for policyholders depends on the policy itself, the expected life of the policy (based on age) and the action taken by both them and the insurance companies in response to the removal. Amounts paid into the policies might have to be increased by the amount of withdrawn relief, or benefits from a policy may have to be reduced proportionately (death/maturity benefits) based on the net premium. Other policyholders may simply decide to stop paying premiums – although this could mean the complete loss of cover for that family.
The industry was consulted on this, and responses to that process suggested that the admin burden of operating the scheme is not significant, but in abolishing the relief there will be a significant one-off cost – from having to contact policyholders, to changing IT systems. The cost, estimated by the ABI, is expected to be in the region of £100,000 to £200,000 for each provider.
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