Standard Life says scrapping taxes on gains within insurance bond funds is the best way to stop the damage that Chancellor Alistair Darling’s capital gains tax changes would do to the insurance industry.
The company considers that taxes on gains within the bond funds should be scrapped but the 20 per cent tax on both income and gains on exit from the fund should be kept.
The Association of British Insurers is thought to have called on the Treasury to continue taxing income and gains within insurance bond funds at 20 per cent but for the exit taxes to be removed.
But Standard Life head of pensions policy John Lawson says that this solution would require complicated legislation to prevent investors turning income into gains.
He says: “The only way that you could do this is if the Government introduced a serious amount of anti-avoidance legislation because it is easily possible to turn income into gains. Removing the tax on gains within the fund gets around this.”
The Chancellor told Parliament last week that the effect of capital gains tax on bonds was a complex area with no clear answers but pledged that the Treasury would hold further discussions with the insurance industry to find a solution.