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Gov’t relaxes MIP rules but stands firm on £3,600 cap

Gov’t relaxes MIP rules but stands firm on £3,600 cap

The government will push forward with a £3,600 annual limit on payments to qualifying policies, including maximum investment plans (MIPs), but has made a series on concessions on proposed rules, following a consultation.

A qualifying policy is a life insurance policy whose terms meet certain rules on regularity, premiums paid, and the minimum sum assured. MIPs are qualifying policies and are often marketed as an alternative to pensions saving for those who have already reached the £50,000 a year limit for contributions.

The £3,600 limit was proposed in the March 2012 Budget, and the government has confirmed this will go ahead as planned.

However there have been a few adjustments to proposals following a consultation by HM Revenue & Customs.

The limit will apply to other 12 month periods rather than just the tax year. The cap will apply to payments due in any 12 month period.

The consultation proposed that regardless of the number of lives assured for tax purposes there should be an individual who is treated as the sole beneficial owner of rights under qualifying policy.

The government has abandoned this proposal. Respondents either said that joint ownership should continue or that the planned rules would fail to stop it

The definition of beneficial ownership has also been adjusted with regard to the new rules. The rules will refer to a beneficiary under a life policy, which is whoever beneficially owns any rights under a policy or any share in any rights.

Backdating will be allowed except for the purposes of avoiding the annual limit.  A policy made between 6 April 2013 and 5 July 2013 cannot be backdated to a date before 6 April 2013.

Also the government agreed it would be ‘unduly harsh’ to bring in qualifying policies issued before 21 March 2012 into the new rules where the policy modification arises solely from the need to increase premiums to meet a mortgage endowment policy target value.

Legislation will exclude existing mortgage endowment policies from the new annual limit, even if modified on or after 21 March 2012.

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