Schedule 7 - Insurance companies etc

Finance Bill – in a Public Bill Committee at 9:30 am on 13th May 2004.

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Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury 9:30 am, 13th May 2004

I beg to move amendment No. 86, in

schedule 7, page 281, line 42, after first '14' insert

', 17, 22, 31 or 38'.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

With this it will be convenient to discuss Government amendments Nos. 87 and 88.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

First, let me say what a pleasure it is to serve under your chairmanship, Sir John. I look forward to your guidance.

Amendments Nos. 86 and 87 extend the scope of a relieving provision that we have included in the Bill. Last year, we introduced a package of anti-avoidance rules to prevent life insurance companies from exploiting the system when transferring their business to another company, usually in the same group. One of those rules was designed to prevent companies from leaving assets representing untaxed profits behind and then extracting them in a tax-free way when they ceased to be an insurance company. However, the provision went too far, and it has been pointed out that it could inhibit the restructuring of life companies for good commercial reasons if companies leave behind assets to meet liabilities to policyholders whom they are also leaving behind.

The Bill therefore allows liabilities to be set off against assets, and it describes the type of liabilities that count for that purpose. However, it now turns out that other liabilities may also be left behind.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

On a point of order, Sir John. I mean no discourtesy to the Financial Secretary, and I hope that she will forgive me, but I can only just hear what she is saying, and I am certain that people further away cannot hear her. It is important that we are clear about what she is trying to tell us, and I would be most grateful if she could raise the volume just a little.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I will be delighted to speak at greater volume.

It now turns out that other liabilities may also be left behind. Amendment No. 86 therefore adds additional liabilities to the list.

Amendment No. 87 ensures that another related provision in the Bill works properly. The provision was designed to prevent companies from exploiting the relaxation of the retained assets rule, but it could work harshly where a company's genuine attempts to

estimate its liabilities to policyholders turned out to be overcautious. As long as the retained assets that are not needed to pay claims also end up with policyholders, no additional charge to tax will arise.

Amendment No. 88 makes some minor technical changes. It adds a few more examples of life assurance tax provisions where it has become desirable to clarify what is meant by something being referable to a particular category of life assurance business. The amendment makes it clear that referability is based on the rules in section 432A of the Income and Corporation Taxes Act 1988. Those are also the rules for the provisions that were originally included in paragraph 9 of schedule 7. The additional provisions were, however, accidentally left out. I therefore commend the amendments to the Committee.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I, too, welcome you to the Chair, Sir John. We are pleased that the Government have introduced the amendments to deal with some relatively minor outstanding issues that needed to be dealt with. The industry is broadly content with the arrangements in clause 47 and schedule 7, and there is nothing to criticise.

Amendment agreed to.

Amendments made: No. 87, in

schedule 7, page 282, line 32, at end insert—

'(7) Where an amount is shown as post-transfer reduction liabilities in the transferor's accounts for any accounting period beginning after the transfer, this section applies as if the amount of the retained liabilities at the end of that accounting period (and the beginning of the next) were increased by the amount so shown.

(8) In subsection (7) above ''post-transfer reduction liabilities'' means liabilities of the transferor to make payments to relevant persons which, in accordance with the terms of the insurance business transfer scheme, have arisen in consequence of a reduction in the amount of the retained liabilities at any time after the transfer.

(9) In subsection (8) above ''relevant persons'' means—

(a) if the transferor's life assurance business immediately before the transfer was mutual business, persons who were policy holders or annuitants, or members of the transferor, at that time, and

(b) in any other case, persons who were policy holders or annuitants at that time.''.'.

No. 88, in

schedule 7, page 285, line 13, at end insert—

'(1A) In the following provisions of the Finance Act 1989 (c.26) (which relate to the policy holders' share of profits)—

(a) section 88(3A)(a),

(b) the words within quotation marks in the portion of section 88(3B) preceding paragraph (a),

(c) the portion of section 89(1B) preceding paragraph (a), and

(d) section 89(2)(b),

after ''referable'' insert ''(in accordance with section 432A of the Taxes Act 1988)''; and, in consequence of the amendment made by paragraph (b), in section 88(3B), for ''referable to that business'' substitute ''so referable''.'.—[Ruth Kelly.]

Schedule 7, as amended, agreed to.