The Government is being urged to make compensation payments to the victims of Equitable Life scandal exempt from tax.
Payouts are expected to commence within the year, more than a decade after the mutual came to the brink of collapse.
The former government had been found guilty of maladministration by the Parliamentary ombudsman and ordered to pay compensation. However, in its recent commitment to pay up, the Treasury would not say if tax would be levied on the payouts. The statement said that a decision would be "made on taxation of these payments at an appropriate point".
Accountancy firm UHY Hacker Young said that the payments could be taxed as income which could see tax levied at a rate of 40p in the pound. "Politicians have made a lot of political capital out of the scandal. With compensation payments likely to be just a 10th of what policyholders were hoping for, taxing those payments would add insult to injury," said Roy Maugham, tax partner at UHY Hacker Young. "The Government has it within its power to rule out taxing these compensation payments right now, so why leave any doubt? By not legislating for compensation to be made tax- free, the Government is shirking responsibility and hiding behind existing law."