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Financial Services Compensation Scheme: Protection of policyholders

When an insurance company goes into administration, measures taken by the Financial Services Compensation Scheme (FSCS) to protect policyholders can include providing financial assistance to an insurer, transferring policyholders’ rights to another insurer or paying compensation to the policyholder.

Those transactions can have a tax impact and, in the absence of special rules, lead to unintended tax distortions.

BN21 announces that tax legislation will be introduced in the Finance Bill 2010 to provide regulation making powers to ensure tax neutrality. The legislation may be retrospective, but only as long as it does not increase a person’s tax liability.

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