L&G faces £300m hit from Budget tax change

New rules to clamp down on tax avoidance by life insurers, published alongside the pre-Budget report on Thursday, will result in "very material increases" in the tax burden of the UK's biggest with-profits providers, claims PricewaterhouseCoopers.

New rules to clamp down on tax avoidance by life insurers, published alongside the pre-Budget report on Thursday, will result in "very material increases" in the tax burden of the UK's biggest with-profits providers, claims PricewaterhouseCoopers.

Legal & General, the UK's third-largest quoted life insurer, was the first to face up to the potential consequences yesterday, releasing a statement to warn investors of a possible £300m reduction in embedded value. It added that the move would increase its tax bill by some £20m a year.

Aviva, the UK's largest insurer, said it was still considering the implications. Prudential and Friends Provident said they would not be affected by the changes.

In a note to clients, the accountancy firm PwC said: "These measures have fundamental implications for the life industry. They are likely to result in very material increases in the tax burden for with-profits life offices."

The industry has been angered by the manner in which the rules have been implemented, with the Inland Revenue giving firms three days to consult. John Whiting, a partner at PwC, said such a major change should not be sneaked through without facing parliamentary scrutiny. "This is affecting a very important sector of the UK economy, and the impact on individual companies could be significant," he said.

Ned Cazalet, an insurance analyst, said: "In net terms, over the past three or four years, the Inland Revenue has barely taken a penny out of the long-term funds of life companies."