Life insurers need to know customers’ tax status
Insurers and financial advisers are required to know the tax information of their customers, according to guidance published by the Association of British Insurers (ABI) and the Association of Professional Financial Advisers (APFA).
The new requirement follows UK information exchange agreements including Foreign Account Tax Compliance Act, agreements with Crown Dependencies and an OECD initiative called Common Reporting Standard (CRS), which went live on 1 January 2016.
These agreements require financial institutions to establish the tax residency status of their customers, and report any related information to HMRC as necessary. This is part of international efforts to reduce tax evasion by citizens from a range of countries.
CRS applies to insurance products that have a ‘cash value’, meaning the legislation affects life insurers selling certain products such as annuities.
The document recommends that a self-certification of tax residency is required for all new customers via an application form or the equivalent process.
David Jordorson, taxation policy adviser at the ABI, said the guidance would support insurers and financial advisers in meeting the new and existing requirements “while helping to minimise the cost of compliance and reducing the potential impact on customers”.
The guidance also sets out both organisations’ views on how responsibilities between the insurer and the financial adviser could be divided; how to collect tax information for new policies; and assessing the tax residency of existing policyholders. It also provides suggested wording for confirmation of verification of identity forms.
Caroline Escott, senior policy adviser at APFA, said: “It is important that financial advisers and insurers continue to work effectively together in ensuring that information on tax residency is collected as seamlessly and effectively as possible under the CRS initiative.”
