Widows plans note option for windfalls

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The Independent Online

Scottish Widows, the mutual life insurer, may offer a loan-note alternative to policyholders who are threatened with a big capital-gains tax liabilities as a result of the windfall payments they are expecting when Lloyds TSB completes its £7bn takeover next year.

Scottish Widows, the mutual life insurer, may offer a loan-note alternative to policyholders who are threatened with a big capital-gains tax liabilities as a result of the windfall payments they are expecting when Lloyds TSB completes its £7bn takeover next year.

The problem mainly affects long-standing contributors who are close to retirement, who stand to receive well above the £6,000 average payment Widows has promised. Policyholders who get sums close to the maximum of £40,000 could see as much as 40 per cent, or £16,000, go straight into the hands of the taxman if the windfall is in cash.

A loan-note alternative would allow those fearing a large tax bill to defer and possibly avoid some or all of their liability.

Mike Ross, the chief executive of Scottish Widows, said yesterday that the company was aiming to write to all its 900,000 with-profits policyholders in November with a formula that will enable them to calculate roughly what they should receive when the pot is distributed next year.

The remaining policyholders who do not hold with-profits policies will get an across-the-board payment of £500.

The idea of distributing Lloyds TSB shares - another way of avoiding a big CGT liability - was rejected as unworkable. Mr Ross said Widows was confident of persuading the Inland Revenue that the windfall payments are not dividends and should not be liable to income tax.

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