The problem mainly affects long-standing contributors who are close to retirement, who stand to receive well above the pounds 6,000 average payment Widows has promised. Policyholders who get sums close to the maximum of pounds 40,000 could see as much as 40 per cent, or pounds 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 pounds 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.Reuse content