CLAUSE 10.—(Limitation of Income Tax Relief in Respect of Insurance Premiums.) (Hansard, 16 June 1915)

§ Mr. POLLOCK
I would like the Financial Secretary to give us some explanation of the basis on which he has now chosen the 7 per cent. in paragraph (a). I think originally it was to have been 5 per cent. I am not quite certain myself that 7 per cent. is really high enough, because I think that with the very high Death Duties which prevail at the present time in the case of men who have reached the age of fifty it will be found that 7 per cent. is not enough. I merely want to ask the hon. Gentleman if he will kindly give an explanation of the basis on which he has selected the 7 per cent., and whether he can give the Committee any materials to show that an injustice will not be inflicted in a number of cases. Of course, the system which this Clause strikes at is a new system which has grown up, or has been at any rate largely developed, in consequence of the very high Death Duties, and there is a close relationship between what we may call endowment insurance and Death Duties. I should be very grateful if he would give us some indication to show the class of insurance which would be struck at and that which would not be struck at by the Clause as it stands.

§ Mr. HORNE
If this Clause passes in its present form I think there is a chance of some injustice being done to some insurance. Where the policy provides that the premium is to be paid during the term of a man's life it may be that, under this Clause, he will obtain a remission of Income Tax in consequence, but in some cases, owing to a man's industrial position, it has become convenient for him to pay his premium a very limited number of years. In those cases, of course, a larger premium is paid, because a limited number only is paid, and in that case he would not get so much relief. I venture to suggest that some means might be found by which a man should be allowed to obtain a remission on the premium if it was calculated what that premium would be during the whole period of the life of the policy holder, even though the premiums actually paid are only for a certain period of that time. It would not be a difficult thing to do. I believe the companies would be prepared to issue a certificate to show what the premiums would be if paid during the whole life. Of course, the point would be evaded by the insurer going to the company and asking for an alteration of the terms on which he has effected the insurance, and, instead of having a limited number of years of payment, to extend the number of payments, increasing in amount in accordance with the increased number of years to be paid. I suggest some way may be found by which the two methods might be brought into harmony.

§ Sir T. WHITTAKER
The difficulty which the Inland Revenue has to guard against is the development of a kind of policy which is not really a bonâ fide insurance, but is a device for evading the Income Tax, and the simplest way of meeting that seems to me to limit the amount of premium upon which the tax should be allowed. Originally the premium was put at 5 per cent. Representatives of the life offices approached the Inland Revenue and suggested that a limit of 7 per cent. would be fair and reasonable. Seven per cent. really brings in what is known as the fifteen year endowment, and it was represented that it is not an unusual thing for a man of forty-five or fifty years of age to be in a position to take out a substantial insurance, but not to wish to pay his premium beyond sixty or sixty-five years of age, when his power to earn might be considerably 751 diminished, and, therefore, he takes out a fifteen year endowment policy, and that is roughly a 7 per cent. premium. At the age of fifty the premium for an ordinary whole life insurance would be less. This allowance would be made on the £7, and you would get the allowance on that sum, even if the premium were more, With regard to the limited payment insurances where a very considerable premium is paid for a short term of years, if you permitted the allowance on that you would really let in the very difficulty with which the Inland Revenue desires to cope. It is easy for insurance offices to devise a scheme under which heavy premiums shall be paid for a few years, and then they can arrange for the surrender of those policies which need never be completed. But the insurer would get the allowance on his Income Tax on that heavy premium, and that becomes really a means of evading the Income Tax. That ought not to be permitted in these times. With reference to the 7 per cent., this concession has been made in response to the representations of the life assurance offices through the Inland Revenue, and I think it has fairly met the case.