Life assurance deficiency relief
The measure
Life assurance deficiency relief allows policyholders to claim a loss arising on
the surrender or maturity of a policy against their higher rate liability and
dividend upper rate of tax. The loss is only allowable to the extent that
earlier part surrenders have produced policy gains and cannot be used to reduce
the policyholder's basic rate tax liability.
The government will not allow this relief to reduce the policyholder's
additional rate (50%) liability.
Who will be affected?
Policyholders who are additional rate taxpayers who have policies that mature or surrender policies where there is a deficiency.
When?
From 6 April 2010.
The change will only affect a small minority of taxpayers. Currently it may be fair that taxpayers who only paid tax at 40% on the gains that gave rise to the subsequent deficiency only obtain relief against their 40% liability. However, going forward there will be taxpayers who will suffer 50% tax on gains, giving rise to a subsequent deficiency, who would regard this tax treatment as unfair.
