Schedule 35 - Gains on policies of life insurance, etc: rate of tax
Finance Bill
9:15 am
Mr Howard Flight (Arundel and South Downs, Conservative)
I beg to move amendment No. 153, in
schedule 35, page 405, line 10, at end add—
'Transitional relief
6. (1) Where a person to whom a gain in respect of a policy is treated as accruing after 5th April 2004 by virtue of the provisions of this Chapter was entitled to the policy since before 1st April 2003, and provided that on or after 9th April 2003—
(a) no additional premium has been paid under the policy (other than a premium the payment of which was already required by the terms of the policy), and
(b) no sum has been paid for the acquisition of the policy or rights or interests in it,
that person may by notice to the Inland Revenue elect that the following provisions of this paragraph shall apply in relation to the amount of tax treated as deducted from the sum included in his income by virtue of section 547(5) (on its own or as applied by section 547(5AA)).
(2) Where an election is made under subparagraph (1) above the amount of tax treated as so deducted shall be ascertained by reference to the proportion of the person's period of ownership of the policy which fell after 31st March 2003, by applying the following table—
proportion of the taxpayer's period of ownership which falls after 31st March 2003 proportion of gain from which tax is treated as deducted at the lower rate proportion of gain from which tax is treated as deducted at the basic rate not exceeding 10% 0% 100% not exceeding 30% 25% 75% not exceeding 50% 50% 50% not exceeding 75% 75% 25% over 75% 100% 0% (3) A notice of election under subparagraph (1) above must be given in writing and may be given at any time not later than 31st January in the second year of assessment following the year in which the sum was included in his income.'.
When we exhaustively worked our way through clause 169 and schedule 33 on Tuesday, the Economic Secretary or the Paymaster General—I forget which—made the point that these complex arrangements, which have pluses and minuses, will save the insurance industry £40 million a year. The Economic Secretary has now said that it is specifically the changes that we are now discussing that will save the industry £40 million a year. Can he clarify that? I think that he did not mean two £40 millions and that it is these arrangements, not those under clause 169 and schedule 33, that have the net tax-saving effect.
The amendment is intended to provide transitional relief in respect of the increases in the effective rate of tax for taxpayers liable at more than the basic rate, when policies have been held for a significant time during which tax was paid by the insurance company at the basic rate, rather than the lower rate. Although we recognise that a truly fair system that took account of that might give rise to some complexity, there should be some form of transitional provision to cater for cases in which the gain has accrued over a significant period prior to the introduction of the changed regime for insurers. We suggest that that might be done by means of a sliding scale, as set out in the amendment, and that the relief should apply on an elective basis so that those who do not consider it worth while to invoke it need not go through the relevant complex calculations.