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Life insurance deficiency relief

HMRC has backtracked on their original statement of 24 March 2010 that life insurance deficiency relief would apply to the additional rates of income tax as from 6 April 2010. This would have seen a favourable tax result for individuals set to pay tax at the additional rates of 50% and 42.5% as they could claim relief at the additional rate despite originally having suffered tax at the higher rate.

Instead, HMRC has stated that relief will only be available at the higher rates of 40% for non-savings income and 32.5% for dividends.

The relief is available where an individual whose non-qualifying life insurance policy, life annuity policy or capital redemption policy comes to an end producing a negative result in its tax calculation for the purpose of the chargeable events legislation… and previous chargeable events had triggered a chargeable gain.

For Mazars’ original comment on the statement of 24 March, please click here.

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