Insurance industry 'caught unawares' by tax hit

Scottish Widows, the life insurance arm of Lloyds TSB, has struck out at draft tax legislation on life insurers, saying that it is impossible to measure the full consequences because the industry was caught unawares.

This statement comes after the Association of British Insurers voiced worries that the ruling, which is another measure in the government's plans to eliminate tax dodging by 2008, was a 'smash and grab' on the savings industry.

The impact of the legislation has been largely disputed, with some life insurers claiming they will not be affected and others citing losses of up to £500m.

A spokesperson for L&A said: 'As this complex draft legislation was issued without any prior consultation, Scottish Widows is seeking clarification from the Treasury.

'Only once this clarification has been given will we be in a position to determine the impact on Scottish Widows.'

Legal & General has also released a statement, saying it believes that it could be one of the worst companies hit.

Sir David Prosser, group chief executive, commented: 'This draft legislation has been published without any consultation. The Government is proposing retrospective taxation on reserves which provide security for this industry’s customers.

'It is our understanding that the industry will be lobbying strongly to have this draft legislation withdrawn or amended. Legal & General will fully support such measures.'

The Treasury has rejected these claims, saying that they didn't need to consult the insurers because they have been deliberately trying to avoid tax. A spokesperson said: 'The whole purpose of anti-avoidance legislation is to defend the integrity of the British tax system.'

The ABI has called for the ruling to be postponed in order to give insurers time to evaluate the affects it will have upon their business.