The Government has delayed legislation which would increase the level of tax paid on income and gains from life fund surpluses.
The Association of British Insurers secured the delay in the rush to pass the finance bill of the current parliament.
The plans aim to tax the surpluses of with-profits funds at a corporate, rather than a policyholder level. This would mean that where policyholders paid 20% tax on the return, assets would now be taxed at shareholder level, which carries a 30% tax rate.
Groups such as Legal & General have argued that the surpluses are an integral part of the funds, which would eventually be passed down to policyholders.
The Government said it is putting forward the proposals in order to catch a minority of groups that were exploiting different tax levels in their accounts.
But Legal & General has estimated that the cost of the change would bring about a one-off drop of £300m in the embedded value on its UK long-term fund alone in the first year.
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