Clause 170 - Policies of life insurance etc: miscellaneous amendments
Finance Bill
8:55 am
Mr Howard Flight (Arundel and South Downs, Conservative)
Sir Nicholas, may I welcome you to chairing our sitting this morning and wish you a restful break?
As the Economic Secretary commented, in principle the industry welcomes the exclusion of group life policies from chargeable events, which is the main issue in the clause. The Law Society and others have raised some aspects for clarification and discussion relating to the pertaining conditions. Our coming amendments relate to those aspects. First, we want to clarify whether sums paid to a partnership for its benefit should be regarded as belonging to the individual's beneficiary. Secondly, we want to find out why, in principle, a charity that has a life policy gain should pay tax on it when it would be exempt from capital gains tax if it had arisen in the individual's hands. Thirdly, we want to focus on the disparity of treatment between charities according to their constitution and whether they are trusts, companies or associations—using ''charities'' in its loosest sense.
The new exemption for gains on some closely defined group life policies in section 539A of the 1988 Act appears to exclude policies in which the beneficiaries are any person other than individuals or charities, and policies in which one is insured for life benefit on the death of another by virtue of any right that is related to his being one of the insured lives. There are frequently policies in pension schemes—I recollect that the arrangements are thus for Members of Parliament—where individuals are invited to nominate whether they want their spouses or partners or children to benefit on their death. Would that be affected in any way by the provisions?
No reason is given for the restrictions that could significantly inhibit the value for exemption. For example, how is the insurer or anyone else to know whether a real trust created by an insured life will meet the conditions for exemption, and why should the exemption not apply to a group policy on the lives of members of the partnership with the firm as a beneficiary? Again, there is a practical point to be made, which is that partnerships, as with companies, will often want key man insurance that may be structured in that way, it being crucial that the partnership should benefit from the key man insurance.