Mr Howard Flight (Arundel & South Downs, Conservative)

Clause 81 is the result of considerable work between the industry and the Inland Revenue to remove anomalies in the law and give policyholders greater certainty about their tax position.

Introducing the new requirements by April 2002 will involve insurers in a large task. There is a new rule that insurers must advise the Inland Revenue, not when a potentially taxable gain has arisen, but where there is a large gain; insurers will therefore have to separate out what is deemed large. Dealing with that efficiently over a one-year period could create problems, although it would not do so in the longer term. It might be helpful if the threshold for reporting to the Inland Revenue were optional for the first year.

The main point of the clause is to clarify the position where an insurance policy is held jointly and transferred into the sole name of one of the holders prior to the 10th anniversary of commencement. The transfer is then taxed as if part of the policy had been cashed in early. The key question is whether the clause and the relevant parts of the schedule will impose a new stealth tax on divorce where a policy supporting a mortgage is transferred into a sole name because only one of the parties is henceforth responsible for the mortgage. While we may be in favour of fiscal incentives in support of marriage, we are not in favour of fiscal stealth tax because people have the misfortune to get divorced. If, as we have been advised by various parties in the case, that is the impact of the Bill, the clause will have to be amended and should not be passed in its present form. It would be useful if the Minister could assure me that that will not be the effect in the event of divorce.

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