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Eurolife forced to cut bond payouts in Revenue battle

Eurolife has had to slash mat-urity payouts on its high-inc-ome bonds while it fights the Inland Revenue over its reinterpretation of the rules governing the bonds.

The FSA has told Eurolife to hold additional reserves in the event that the Revenue&#39s decision cannot be overturned, leaving the life office facing a massive tax bill.

Eurolife will have to cut payouts on bonds maturing this year by up to 4.75 per cent.

The firm says it is prepared to take the Revenue to court to get taxation restored on a capital gains tax basis after the Revenue changed the rules to charge tax annually on growth.

Another provider is going before the Revenue&#39s commissioners on June 11 to fight the same case. GE Life, Scot-tish Widows and Citibank are among other providers offering high-income bonds.

If Eurolife defeats the Rev-enue, it will reinstate the red-uction with interest. It is also offering an alternative investment that will provide a bonus equivalent to the reduction.

Managing director David Wootton says: “On the advice we have, the Revenue does not have a case. The cuts in payouts are only a short-term problem – we do not expect it to cost anything to our policyholders. We know this will go to the courts and we are not giving in.”

A Revenue spokeswoman says: “The tax treatment on high-income bonds remains the same. It is up to individual companies to appeal before the commissioners.”

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