Changing CGT could be a bigger disaster for the UK financial services industry than the Northern Rock scandal, Premier Wealth Management warns.
Managing director Adrian Shandley says if the CGT changes go ahead, he can envisage a mass exodus from insurance bonds.
Shandley noted insurance companies heavily rely on these bonds and could even “go to the wall” if there are huge consumer outflows.
“The CGT changes could destabilise the whole life and insurance bond market,” he says.
“The simple fact is if there is a more tax efficient alternative out there, why would anyone stay in insurance bonds.
“The ultimate conclusion is that if you find an insurer or a couple of smaller insurers who depend on this bond business in trouble, it will solely be the Government’s fault.
“Unlike Northern Rock which was out of his control; this will be all Alistair Darling’s own making.”
Legal & General wealth policy director Adrian Boulding says while he expects smaller levels of insurance bond take-up post CGT changes; he doesn’t think an exodus will occur.
“I can’t see any big outflows in existing money, for the simple reason there could be hefty withdrawal charges,” he says. “In some cases it could be 5% of your money.”
Boulding can see advisers reconsidering insurance bonds at the point of purchase.
“It’s basically a story of winners and losers, in regard to lower basic rate taxpayers, the bond may seem more attractive (after the CGT changes),” he says.
Boulding says it is “highly unlikely” insurers would suffer too much on the back of the CGT changes.
“Insurance companies today have a diversified range of products, so we won’t see any going under,” he says.
Hargreaves Lansdown financial practitioners head Danny Cox says there should have been a consultation period before the CGT change.
“There is no doubt if the 18% goes ahead, like it seems it will, the attractiveness of insurance bonds will certainly diminish,” he says. “We are currently reviewing how we sell insurance bonds.”
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