Single premium insurance policies, guaranteed growth bonds, single premium endowment policies and unit-linked savings products may all have been used as vehicles to avoid declaring large lump sums for tax purposes, according to the Revenue Commissioners. Laura Slattery reports.

Although several hundred thousand people invested in them, the proportion which may have been used to evade tax has yet to be determined. Single premium insurance policies will be the main focus of a Revenue investigation to take place next year.

Individuals could invest the money into these lump sum investment products for a specific term. In some cases, they may have had access to all or part of their funds during the lifetime of the policy.

Although the investment returns were likely to have been modest compared to other policies linked to the equity markets, the ability to hide money from the Revenue may have made such policies attractive to thousands of Irish and overseas investors.

Up until January 2001, the tax on income earned under these investment products was paid by the life assurance fund and the policyholder had no further tax to pay when he or she received a payment from the policy.

"Black economy" income or inherited lump sums that had not previously been declared could thus emerge from the policies as legitimate money.

Since January 1st, 2001, all new life assurance policies have been written on a gross roll-up basis. No tax is paid by the fund but an exit tax of 23 per cent is deducted by the insurance company before it is paid out to the policyholder.

In 2000, there were 12 insurance companies with their head offices in the Republic that were selling single premium insurance policies to Irish customers, according to the Department of Enterprise, Trade and Employment's annual report on the insurance sector, known as the "Blue Book".

They were Irish Life; AIB's life assurance arm, Ark Life; Lifetime Assurance; New Ireland; Hibernian Life & Pensions; Hibernian Life Ltd; Canada Life Assurance (Ireland); Friends First Managed Pension Funds; Friends First Life Assurance Company; Eagle Star Life; Acorn and Quinn Life.

During the boom years between 1997 and 2000, when the bulk of the single premium business under investigation was written, Ark Life sold over 65,000 single premium contracts, while Irish Life sold over 55,000.

According to the Blue Book figures, the value of the investments placed in Irish Life single premium policies during this period was over €3.4 billion, while Ark Life wrote over €1.3 billion in single premium business.

A number of other companies that have operations here sold policies to individuals living overseas. The percentage of single premium insurance policies written in the Republic for clients in other EU countries grew dramatically between 1988 and 2001, from 2 per cent to 53 per cent.

A spokesman for Irish Life & Permanent said it had heard nothing formally from the Revenue and knew only what it had learned from the media. "We will await a more detailed explanation as to what is involved before we comment further," he said.

A spokeswoman for Ark Life said the company had had no formal contact with the Revenue Commissioners on the issue, but that it would co-operate with any investigation into its business.

Meanwhile, a spokeswoman for Bank of Ireland, which owns New Ireland and also owned Lifetime Assurance before it was subsumed into New Ireland, said the bank would always co-operate with any Revenue enquiries.

A spokeswoman for the Insurance Federation said insurance companies would co-operate with the Revenue in relation to the matter.