22 June 2010
Published in: Accounting - tax
UK budget is a mixed bag for insurers
Today's emergency budget in the UK delivered by the Chancellor of the Exchequer, George Osborne, revealed a number of positive commitments for the UK insurance industry, despite a rise in insurance premium tax (IPT).
The two announcements to be particularly welcomed, Colin Graham, insurance tax partner at PwC, told IERM, are the reduction in corporation tax to 24% by 2015 and a commitment to reform the rules on taxing foreign branches.
"The government appears to have listened to the industry's repeated calls for an exemption system for foreign branches," Graham commented. "This is a very positive announcement. With Solvency II, regulatory changes have been a catalyst for groups to restructure in Europe. The lack of exemption in the UK has been a disincentive to position underwriting activities over here so in terms of the competitiveness, this is very helpful."
IPT has been increased from 5% to 6%, the first rise since 1999 and will affect general insurers significantly more than life insurers. While no insurer will welcome a rise in this tax, Graham's colleague and insurance tax director, Ben Flockton, noted that many expected the rise to be even higher: "some may feel a sense of relief. The decision to be made now will be how much of the tax will be passed on to the customers. This will have to be made on a case-by-case basis."
One of the biggest disappointments is that the ongoing consultation on taxing UK subsidiaries based overseas has not been resolved and will continue for another year with legislation expected in 2011. "The CFC [controlled foreign corporation] regime is pivotal and we will have to wait and see what is decided. It is good, though, that a timeline has been set out," Graham said.
The Association of British Insurers (ABI) also expressed its disappointment with the delay. Its director general, Kerrie Kelly, said: ""We will review the interim measures announced to CFC rules...We urge the Government to fast track changes to CFCs as they will enable the UK to compete effectively."