Tax on life insurance bonds could be simplified under new HMRC consultation

Life insurance bonds have long been criticised for their overcomplicated tax structure. But now, following the launch of a HMRC consultation into how the bonds should be treated, life insurance bonds could be subject to significant tax simplification in coming years.

The news comes after a case was brought against HMRC by the Lobler family – a family who faced a hefty tax bill for withdrawing too much from bonds after misunderstanding tax legislation.

It has since been reported that HMRC faces an average of around 600 similar cases per year – a statistic which pushed Chancellor George Osborne to promise to review the ways life insurance bonds were taxed in the March 2016 Budget.

Now, HMRC has launched a consultation proposing potential new ways of taxing the bonds – one of which would see users able to withdraw up to 100 per cent of their premium without any tax charges whatsoever.

But critics have argued that some of HMRC’s alternative proposals could very well make the withdrawal process even more complicated than it already is.

There is every chance that investment bonds could continue to see a disproportionate correlation between tax complications and growth seen on investments, experts have warned.