Extract from the Written Ministerial Statement by the Financial Secretary to the Treasury (Mr Stephen Timms)

Avoidance using life insurance policies

Schemes designed to avoid income tax have been identified by HMRC. The schemes purport to create income tax loss relief from offshore life insurance policies that can be set against other taxable income. The Government does not accept that the schemes have the effect sought or that there are any circumstances in which income tax loss relief can arise on life policies. However, to put the position beyond any doubt, legislation will be introduced in the forthcoming Finance Bill that will prevent income tax loss relief from being available from transactions on offshore life policies.

This change, effective from 6 April 2009, will ensure that claims cannot be made for income tax loss relief from offshore life insurance policies relating to the years 2009/10 onwards. Furthermore, it will ensure that tax deductions will not be allowed for the years 2009/10 onwards even if the loss related to a previous year.

The change will also have effect from today to all new offshore life insurance policies. It will also apply to existing offshore policies which on or after today are wholly or partly assigned to the person claiming a deduction, become used as security for a debt, or are varied so as to increase the benefits secured.

A copy of the draft legislation (PDF 48K) together with a draft explanatory statement will be published shortly on HMRC’s website.

HM Treasury
1 April 2009