Clause 172 - Gains on policies of life insurance etc: rate of tax

Part of Finance Bill – in a Public Bill Committee at 9:15 am on 22 May 2003.

Alert me about debates like this

Photo of John Healey John Healey The Economic Secretary to the Treasury 9:15, 22 May 2003

The clause introduces schedule 35. The provisions are part of a number of changes to the tax rates applying to life insurance which will have the combined effect of saving insurers and policyholders an estimated £40 million of tax a year. Under the special taxing rules that apply to life insurance, the capital gains and income arising on the funds held by the insurer to meet its obligations to policyholders are subject to corporation tax in the hands of the company. Insurers pay the tax on income and gains as a proxy for the policyholders. In turn, the

policyholders are treated as having paid tax at the basic rate—currently 22 per cent.—on any gains arising on the benefits that they receive under the policy.

The cut in tax will benefit policyholders generally by increasing the post-investment returns, but it would be illogical and inappropriate for policyholders to continue to be treated as if tax of 22 per cent. had been paid on the gain when the insurer is paying tax only at the maximum rate of 20 per cent. The clause reduces to 20 per cent. the rate of tax that individuals and trustees are treated as having paid.