Schedule 29 - Gains and losses of a company from intangible fixed assets

Part of Finance Bill – in a Public Bill Committee at 10:30 am on 13th June 2002.

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Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 10:30 am, 13th June 2002

I thank you, Mr. Gale, and I apologise.

Although I have not tabled an amendment on the issue, I want to mention the insurance industry's position. We have already dealt with the position of Lloyd's, and I want to deal with the major reform introduced by clause 83 and schedule 29, which provides tax relief for purchasing goodwill and other intangible assets. The insurance industry's concern is that, although insurance companies writing life assurance business are within the regime in which they purchase royalties and computer software, they are not benefiting and will not benefit from the goodwill reform. Paragraph 78(1) excludes intangible fixed assets held for the purpose of life insurance business. The reason why that is the case is a fundamental question. Surely, if a life insurance company purchases goodwill, it should be treated as any other company.

I suspect that the Government's argument for exclusion will be that the special method of taxation for life insurance companies, known as the IE system—income minus expenditure—is primarily a charge on policyholders' investments, and that goodwill relief is a matter for shareholders. It may be accepted that the new regime needs to be adapted so that it applies appropriately to the IE system, but surely goodwill held by shareholders outside the insurance companies' long-term business fund should in principle be entitled to the relief available to most other corporate taxpayers.

The Government's decision not to allow relief for goodwill purchased by insurers writing life assurance business, and held outside the long-term business fund, contrasts with their acceptance of the principle elsewhere in the Bill of the exemption from tax of capital gains on substantial shareholdings. Elsewhere, shares held by a life insurance company outside the long-term business fund qualify for relief, just as the shares of any other company would.

What is the logic on which the particularly narrow category of outside assets of the insurance industry has been excluded? Do the Government have the matter under consideration, and are they likely to include it, according to the logic of what they have done in other parts of the Bill?