§ I have been reviewing the tax exemptions enjoyed by friendly societies in the light of recent developments, in particular the spate of single premium business. Income Tax exemption was given to friendly societies in very different conditions in the last century because those who banded together in these societies were below the taxable level. It was never meant for the well-to-do investor or those who can put down a relatively large lump sum.
§ I do not consider that the right way to encourage savings—however important these are, is to allow the unrestricted formation of new organisations which call themselves friendly societies for no other purpose than to get tax exemption 1436 for their clients. I propose, therefore, that societies registered after today shall not be entitled to any tax exemption for life or endowment assurance or general annuity business. There will be exceptions for new branches of established societies and for new collecting societies.
§ Established societies—that is, societies registered before 1958, when single premium type business started on a small scale—those societies will continue to enjoy exemption for their traditional types of business. The main limitation I propose for such societies is that no tax exemption shall be allowed in respect of future life or endowment assurance business unless the term of the contract is at least ten years and payment of premiums is spread evenly, at annual or shorter intervals, over the whole, or substantially the whole, term.
§ Societies registered between the beginning of 1958 and today whose business is of the traditional type will continue to get exemption for it; otherwise there will be no exemption for them for future life or endowment or general annuity business.
§ The limitations I have described will apply to contracts entered into after today; existing contracts will be unaffected.
§ The friendly society movement have made representations to me to extend their present powers. I agree with them, and I propose that, in addition to the lump sum up to £500 or annuity up to £104 which may be assured on a tax-exempt basis under the present law, the societies shall be empowered to assure further amounts up to £2,000 lump sum or £208 annuity. This additional business will not qualify for tax exemption. I shall be moving a procedure Resolution.