Change tax regime or see insurers desert UK, ABI warns government

Published on Tuesday 15 September 2009 21:44

INSURERS will desert the UK for more favourable tax regimes overseas unless the government makes immediate changes to the tax system, the Association of British Insurers (ABI) has warned.

In a report published yesterday, the trade body called on the government to establish a personal and corporate taxation regime that would remove uncertainty and deter its members from moving to more competitive tax regimes, such as Bermuda and Ireland.

It said that more than 80 per cent of executives in the industry believe insurers will leave the UK unless the tax system was made less anti-competitive.

Several major UK insurance companies have already moved their headquarters for tax reasons in recent years, including Hiscox, which moved to Bermuda in 2006, and Brit Insurance, which earlier this year announced it would relocate its corporate headquarters to the Netherlands.

Stephen Haddrill, director general of the ABI, said that while tax was not the only consideration in relocation decisions, the tax systems of countries such as Bermuda, Ireland and the Netherlands offered significant advantages.

He said: "The rise of Bermuda in recent years in the reinsurance sector shows how easily other countries can capture significant quantities of financial business from London, despite all its strengths and talent."

The proposals outlined in the ABI report include a corporation tax exemption for insurers with branches aboard to encourage them to maintain or establish headquarters in the UK.

It also said the controlled foreign companies rules should be reformed to recognise the importance of capital to insurers and reinsurers by moving the bias away from returns from labour to returns from capital.

And the tax system should allow for the impact of natural catastrophes in the volatility of insurers' earnings by allowing them to carry forward their catastrophe exposures and pay-related tax over several years.

The report also called for a cut in corporation tax, pointing out that the 10 billion in tax revenues contributed by insurers in 2007 was the third-highest tax on any sector.

Immediate changes to the personal tax system are also needed, said the ABI. Almost three-quarters of individual insurance company managers surveyed said they could be forced by the UK's personal tax system to move overseas, citing the increase in the upper rate of income tax to 50 per cent and changes to pensions tax relief.

Rhona Irving, head of tax at PricewaterhouseCoopers Scotland, said

concerns were about "a combination of corporate tax and uncertainty and changes to personal tax rates".