Insurance tax relief cut will hit 1.5 million - ABI

It said it appreciated the coalition's attempts to simplify the tax system but felt this was the wrong target to choose and could result in confusion for many elderly customers.

People paying into qualifying life insurance policies taken out before 1984 currently get 12.5% tax relief on their income tax.

In 1984 this was abolished for new customers, but the decision was taken to keep it for current customers as it would end on the death of individual policyholders.

The government's proposals will now end this exemption.

Mark Edwards, head of taxation at the ABI, said: "Whilst we strongly support the government's efforts to simplify the tax system, we are disappointed that they have chosen to end life assurance premium tax relief.

"The relief is not obsolete. It still benefits hundreds of thousands of people, many of whom are retired and on low incomes.

"This move will lead to confusion not simplification - people with affected policies will now have to get to grips with what this change means for them and get financial advice to understand the impact it could have on their policies and benefits."