Schedule 35 - Gains on policies of life insurance, etc: rate of tax
Finance Bill
9:30 am
Mr Howard Flight (Arundel and South Downs, Conservative)
The complexity point was why the amendment was proposed on an optional basis. The explanatory notes suggest that the reduction of the credit to the lower rate follows from the reduction of the tax rates payable by insurance companies. I note that the reference to schedule 32 is incorrect—it should be to schedule 33.
The explanation is somewhat misleading. For many years to come, policies that mature and give rise to chargeable gains will have accrued those gains in years prior to 2003, when the underlying gains will have been subject to the basic rather than the lower rate. It is somewhat misleading to imply, as paragraph 15 of the explanatory notes, does that
''all of the profits representing the policy holders' share of income and capital gains are liable to tax at a rate equivalent to the lower rate''.
The explanatory notes recognise that the effect for a higher rate taxpayer will be to increase the rate of tax
for which he will be liable from 18 per cent. to 20 per cent. That unfairness, which will affect policies that have been held for a long time, could be dealt with along the lines of our amendment. Therefore, we believe that this is an opportunity to sort out the issue.
Question put, That the amendment be made:—
The Committee divided: Ayes 6, Noes 16.