Clause 32 (Hansard, 4 July 1968)

§ Mr. Taverne

I beg to move Amendment No. 131, in page 27, leave out lines 14 to 19 and insert: (2) A payment of a premium on a policy of assurance on the life of the deceased, or a gift of money or money's worth applied, directly or indirectly, in payment of such a premium, shall not for the purposes of subsection (1) above be regarded as part of the normal expenditure of the deceased if, when the insurance was made, or at any earlier or later time, an annuity was purchased on the life of the deceased, unless it is shown to the satisfaction of the Board or, on an appeal under section 10 of the Finance Act 1948, of the court entertaining the appeal, that the purchase of the annuity and the making or any variation of the insurance, or of any prior insurance for which the first-mentioned insurance was directly or indirectly substituted, were not associated operations. The Amendment widens the terms of subsection (2), which is designed to ensure that premiums paid on a policy of assurance in cases where there was a back-to-back arrangement cannot be exempt as normal income gifts. In the common back-to-back arrangement, as the House will be aware, someone whose life may be uninsurable in the ordinary course insures his life and at the same time buys an annuity out of which the premiums are paid. The purchase of the annuity enables the insurance company to undertake the insurance. The annuity is income and has had to be taken into account in applying the normal and reasonable test in the past; and, without special provisions, it would be taken into account for the new tests in subsection (1). In these cases the premiums are in effect being paid out of the capital which the deceased used to buy his annuity.

1747 Hence subsection (2). This tackles the problem by dealing with the case where, as an associated operation, the deceased effected a policy of assurance on his life and bought an annuity and was denied exemption for premiums which he paid on the policy. There is an easy way round this provision. An existing back-to-back arrangement could, in effect, be continued in such a way that the premiums qualified for exemption as normal income gifts. This could be done by substituting for the policy originally taken out by the husband a new one which is taken out on his life by the wife and

5	(7) Subject to the following subsections, this section shall not apply to property passing on the death as comprised in a gift of, or of rights under, a policy of assurance on the life of the deceased issued in respect of an insurance made before 20th March 1968.
(8) If the aggregate value of all policies related to the death which were issued in respect of an insurance made before 20th March 1968 exceeds £25,000 the relief given by subsection (7) above shall apply only to a fraction of the said property, and that fraction shall be £25,000 divided by the said aggregate value:
10	Provided that the rate at which estate duty is to be charged in respect of that fraction of any property shall not be less than the rate at which it would have been charged if the relief given by subsection (7) was not restricted by this subsection.
(9) The relief given by subsection (7) above in respect of a policy which had matured or been surrendered before 20th March 1968 shall not be reduced under subsection (8) above, and the value of all such matured or surrendered policies shall be left out of account under the said subsection (8).
15	(10) If the terms of a policy are varied after 19th March 1968 in such a way that the value of the policy is greater than it would have been if no variation had been made—
	(a) the relief given by subsection (7) above shall apply only to such part of any gift as can justly be attributed to the value the policy would have had if not varied, and
20	(b) the policy shall be brought into subsection (8) above at that value, and the fraction in that subsection shall be applied to the said part of the gift.
25	(11) Where by virtue of subsection (8) or subsection (10) above, or of both of those subsections, the relief given by subsection (7) above applies only to a part of any gift, the part of the gift to which the relief does not apply shall in accordance with sub-section (1) above be property in which the deceased had an interest and shall be aggregated under section 4 of the Finance Act 1894 accordingly.
(12) The provisions of this section shall apply to a contract for a deferred annuity becoming payable on the death of the deceased as if it were a policy of assurance of the life of the deceased.
30	(13) For the purposes of this section—
35	(a) the value of a policy is the amount or value, as at the death, of the sums payable or other benefits arising under the policy, whether or not the policy continues on foot until the death, except that the value of a policy which has been surrendered at a time before the death is the value at that time of the consideration for the surrender;
(b) a policy is related to the death if it is a policy on the life of the deceased, if property comprised in a gift of, or of rights under the policy passes on the death, and if that property would, if this section had not been enacted, have been property in which the deceased never had an interest.