The Inland Revenue has closed the deficiency relief tax avoidance loophole, which had allowed higher rate taxpayers to offset the losses of life insurance policies against any higher rate income tax.
Life office officials say use of deficiency relief – under section 549 of the Income and Corporate Taxes Act 1988 – is a practice recognised to be against the spirit of the original Revenue proposals and few firms encouraged its use, because deficiency relief had never been intended to allow higher-rate taxpayers to offset the income of a life insurance product against their earned interest. Deficiency relief allows a deduction against an individual’s total income for the year in which the policy matures or ends, and allows the relief to be set at the difference between higher rate tax a...
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