The Finance Bill provides for a number of changes to the taxation of life assurance investments, including the abolition of the 0.1 per cent stamp duty charged on such policies.

The £1 per policy stamp duty charge on critical illness and permanent health insurance policies will also be removed, the Department of Finance said.

The Bill, which was made available in preliminary form last week, also contained some adjustments to the new tax arrangements for life assurance companies, which came into effect from the start of the year.

Since January 1st, all life assurance policies have been subject to an exit tax of 25 per cent at encashment.

However, the new exit tax will not apply in certain circumstances.

Charities which invest in life assurance companies will be exempt from the exit tax. This was welcomed by the industry as it will allow charities, which could previously invest only in unit trusts without incurring a tax liability, to look at life assurance policies.

Where policies are transferred as part of the assignment of assets in the case of divorce, the exit tax will not apply.

The Bill also provides that the same tax rate will apply to investment in both Irish and certain foreign life assurance companies and investment funds, as announced in the Budget.

But in the case of such foreign products, the investor and intermediary must notify the Revenue, both when making the investment and on receipt of the investment proceeds.

Where investors fail to inform the Revenue when making an investment, a penalty of £1,500 will apply.

Other changes in the Finance Bill relate to the taxation of annuity payments under retirement annuity contracts (RACs), which are subject to the standard rate of withholding tax.

At present, the annuitant is obliged to complete a tax return and pay tax at the marginal rate. But from January 1st, 2002, RAC payments will be subject to PAYE, like occupational pension schemes and approved retirement fund (ARF) payments.