The chancellor expects to raise hundreds of millions of pounds by freezing the ‘indexation allowance’ for corporation tax.
The technical change means that the tax on returns from investments is set to leap.
Under the current rules, tax is paid only on returns after inflation – but from January 2018, duty will be paid on the whole return, Royal London found.
The tax is collected by the insurance companies and automatically passed on to the Government.
Steve Webb (pictured), former pensions minister and director of policy at Royal London, called for the policy to be reviewed and implementation delayed.
Millions could lose out
Royal London estimates up to 3m of its own policy holders will be affected and millions more across the sector.
Treasury documents accompanying the announcement state there is ‘no impact on individuals or households’.
Webb said: “This is a ‘stealth tax’ on millions of people who have made sacrifices and saved hard and are now penalised with extra tax.
“If the Treasury did know that this would be the impact of the tax then it should have been honest about the effect on savers.
“But if it did not realise that this would be the consequence then it should urgently review the policy.
“Most of these policy holders are on modest incomes and would not pay tax on their investment growth if they invested directly because of the generous annual allowances for capital gains tax.
“There is no reason why they should now face additional taxes simply because they have invested through an insurance policy.”
Mortgage Solutions has contacted the Treasury for comment.