Clause 81 - Life policies, life annuity contracts and capital redemption policies
Finance Bill
10:45 am
Miss Melanie Johnson (Economic Secretary, HM Treasury; Welwyn Hatfield, Labour)
The hon. Member for Arundel and South Downs (Mr. Flight) seems to believe that the legislation changes the current position, but it will simply bring clarity to a confusing and unclear situation. We have always taken the long view that, in a transfer of interest in rights under a policy, the clear legislative intent is that what is transferred is only a part of the beneficial interest in the rights under the policy. In fact, difficulties have arisen because in transfers of interest in law, there are different ways in which co-owners may hold the rights under the policy. In England, Wales and Northern Ireland, those differences bring uncertainty to the tax treatment of a part transfer. The tax treatment of such a transfer in Scotland is certain and accords with the original legislation's intention. The measure will bring clarity to an unclear situation and help both the industry and individual policyholders.
A small gain in tax is projected as a result of the change, but only because of better communication between the life industry and policyholders, which will lead to greater compliance in self-assessment forms. That is the only way in which any tax change will result from the measure; there is no hidden tax, as the hon. Gentleman suggested there might be. Indeed, the tax charge on changes in the ownership of life policies has existed since 1968, so there is no intention to change the overall position.
If the assignment is exempt before the change, it will remain so after it. In fact, the measure introduces a new exemption if the share in the policy is gifted. It appears that the charge does not apply consistently, even though no relevant distinction in economic terms results from the different interpretations and forms of ownership. The clause and the schedule will bring consistency and certainty of treatment for insurers and policyholders alike, and I hope that that clarifies the position for the hon. Gentleman.
The right hon. Member for Fylde (Mr. Jack) asked what communication there would be. I can let him know in more detail, but the basic idea is that there should be an annual statement from the insurance company to policyholders to give them a much clearer understanding of what is happening and, by providing them with the necessary figures, to help them to complete their self-assessment tax forms. If that is not sufficient detail for the right hon. Gentleman, I will write to him with further information.