Endowment and whole-of-life policyholders could lose £841m

The Treasury is introducing a stealth tax this month that could affect 11.6 million savers.

Love Money
Last updated:29 January 2018 - 06.54pm

Almost 12 million long-term savers could have hundreds of millions wiped off their funds as a result of a new stealth tax.

People with endowments and whole-of-life plans at firms like Axa, Aviva, Prudential and Standard Life are likely to be affected.

Worryingly, 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.

[Read more: your income options in retirement]

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 from a Treasury official to a taxpayer said. It notes that said impact is "likely to be small".


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."

[Read more: How I saved enough to retire at 55]

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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