The insurance bond market could take a severe battering because the Chancellor has left investors out in the cold while he indulges small businesses with CGT changes.

Industry representatives warned that bond holders could cash in their stakes in favour of unit trusts.

Currently, unit trusts investors occupying the highest tax band pay 40% on profits, but the CGT changes mean that they will enjoy a lighter tax burden.

Speaking to the Daily Mail, Jonathan French, spokesman for the Association of British Insurers said: 'The proposals as they stand mean that alternatives to bonds are taxed more lightly and we think the playing field is no longer level.'

Those with insurance bonds pay 20% tax on their investments, which can include shares, property and with-profits funds. But when a higher rate tax payer cashes in these bonds, they are charged a further 20% on any profit, adding up to a total of 40%.

French added: 'This means many bond investors might be able to cut their tax bill on future profits if they switch to funds such as unit trusts.'

Further reading:

Employers bodies unconvinced by CGT relief

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