HC Deb 22 June 1916 vol 83 cc390-4

Motion made, and Question proposed,

5. That the relief given under Section fifty-four of the Income Tax Act, 1853, as amended by any subsequent enactment, shall not as respect insurances, or contracts for deferred annuities made after the twenty-second day of June, nineteen hundred and sixteen, be given except in respect of premiums or payments for—

  1. (1) an insurance limited to the payment of a capital sum on death; or
  2. (2) an insurance limited to the payment of a capital sum on death and the payment of a sum on reaching a certain age, so long as—
    1. (a) the age is not less than sixty years; and
    2. (b) there is an interval of at least twenty years between the date of the contract of insurance and the date on which the sum becomes payable, and
    3. (c) the sum payable on attaining the required age is not greater than the sum payable on death;
  3. (3) contracts for deferred annuities where—
    1. (a) the contract is limited to the payment of an annuity commencing at an age not less than sixty years; and
    2. (b) there is an interval of at least twenty years between the date of the contract and the date on which the annuity commences;
and that the relief under that Section by way of repayment of tax, and the deductions from income allowed for the purposes of Super-tax under Sub-section (2) of Section sixty-six of the Finance (1909–10) Act, 1910, shall be accordingly limited.


This Resolution relates to insurance premiums and the relief, which is now a statutory right, with regard to those premiums. As a consequence of the high rate of Income Tax there are signs, perhaps more than signs, of the birth and growth of a practice to defeat the revenue by what I must describe as a method of insurance which is not really intended to be insurance at all. As the Committee knows, up to a certain limit all sums invested in insurance premiums are free from Income Tax. Certain insurance companies have taken advantage of this freedom from tax in order to advertise new schemes of deferred annuities. They are not really insurance schemes in any sense whatever. The payments made for these deferred annuities are free from tax, and consequently, with a tax of 5s. in the £, the inducement to save money through deferred annuities, and thereby to escape Income Tax, is very great. We have not the smallest desire to interfere with the practice of persons saving money through deferred annuities, but we do not think that the relief from Income Tax ought to be granted to saving of that kind, when it is not granted to any any other kind of saving. We feel that this House ought to protect itself against schemes of this kind, which are universally recognised and advertised as schemes, not for insurance, but as schemes for avoiding the Income Tax. I hold in my hand an example of the kind of thing I have mentioned. It is headed, "Income Tax Saved," and continues: A method which enables you to save every penny of Income Tax and without recourse to life insurance, and at the same time secures an investment at 7½ per cent. free from depreciation, offers the test security known to finance, is well worthy of your attention and investigation. The worst of this advertisement is that it is all true. It is possible, without any insurance, and quite practicable to obtain in perfectly reputable offices and with absolute security 7½ per cent. on your investment at the expense of the Income Tax. I do not think that the State ought to encourage or to allow a practice of this kind. As I have said, we do not propose to interfere with bonâ-fide investments of this kind which have been made in the past. We think that in the future there should be a strict limit upon the right to obtain deduction of Income Tax in respect of premiums on annuities of this kind, and this Resolution upon which a Clause will be founded I now beg leave to move.


I desire to ask whether this Resolution applies to what is known as endowment policies. From the terms of the Resolution I should think that the Income Tax allowance which is given on endowment policies now of fifteen years, will be withheld. I think that would be a very great hardship. So far as deferred annuities are concerned, I quite agree that some protection ought to be given to the Income Tax, but a very large number of insurance companies do a very legitimate business in endowments of ten years, twelve and a half years, fifteen years, twenty years, twenty-five years, and thirty years. If the Income Tax allowance is removed in the case of endowment policies under twenty years it will be a very severe charge, and one to which I think exception will be taken. I think the Chancellor is justified in safeguarding the Income Tax on the point he mentions.


This is rather a difficult matter. Undoubtedly advantage has been taken, and is being taken, of the allowance which is made in respect of Income Tax on life assurance policies to devise schemes and methods which are really not life insurance at all, but are simply devices for obtaining from the Government a big return on an investment. Now that the Income Tax is at the level that it is, the inducement to do that is very considerable indeed. I could give the House instances where so-called insurances are being effected, say, for a term of ten years or so, and there is only one premium paid throughout the whole thing, and a very heavy allowance is got each year from the Government, when not a single penny is being paid. It really is an abuse of a very valuable concession, and I believe that we have reached this point that unless this kind of thing can be effectually stopped, there is a real danger of losing altogether the allowance which is made, and it will become essential in order to protect the revenue. One of the difficulties is that, although it may be true that only a few offices are doing this kind of thing, yet if they do it others will be driven in self protection to do it also, and it is extremely undesirable that it should be so. The Resolution, as I understand it, is rather a wide and far-reaching one, and when we get into Committee on the Clause itself it will be possible to discuss it a little more closely and under the rules under which we work here it can be reduced, but it cannot be extended. I quite agree that there are a number of fifteen-year endowments taken out by persons at fifty to fifty-five years of age that ought to come within the scope, and I suggest that that ought to be done when we get into the Committee stage. The passing of this Resolution will not prevent discussion of that phase of the matter, and there is also another question on the limit of age. Women take out endowments a little earlier, but these are matters of detail. The proposal is one which has got to be made, and I am satisfied that something of the kind is required. There is one thing I should like clearly to understand, and that is that the Commission which is to be set up at the first favourable opportunity to deal with the whole Income Tax question, will deal with this matter. When we get into Committee on the Clause I may have other suggestions and remarks to make, but in general I think that something should be done.


I am sure that the object which the Chancellor has in mind here is one which will meet with the approval of the Committee. I rise to ask him to consider before he finally decides on the form of the Clause, whether it is necessary that the double check which he is placing here should be continued. As I heard the Resolution it appears to me that two conditions have to be complied with. One is that the terms of the endowment are not less than twenty years, and the other that it should not be at an earlier age than sixty. I should like to point out the case of comparatively young men, of poor lives, whose only life insurance available is an endowment scheme payable at fifty-five years of age. I know personally of cases of legitimate life insurance in that form, the only form open to the insured person because of the poorness of the life. I hope the right hon. Gentleman will consider that case.


I am glad that the right hon. Gentleman is taking steps to bring a flagrant abuse of this kind to an end. There is one small point I wish to mention. It is not an uncommon thing for insurance companies in the case of endowment policies for fifteen years, to give the policy holder the option at the end to renew. I think the position with regard to that case under this Resolution should be made quite clear.

Resolution agreed to.