§ LIFE POLICIES, LIFE ANNUITY CONTRACTS AND CAPITAL REDEMPTION POLICIES
§ Mr. DiamondI beg to move Amendment No. 192, in page 63, line 26, leave out from beginning to 'or' in line 37, and insert:
Perhaps it would be convenient to take with it Government Amendments Nos. 193 to 196 inclusive and Government Amendments No. 198 and No. 199.
- (1) Subject to the following provisions of this Part of this Schedule, if a policy secures a capital sum which is payable only on death, or one payable either on death or on earlier disability, it is a qualifying policy if—
- (a) it satisfies the conditions appropriate to it under sub-paragraphs (2) to (4) below, and
- (b) except to the extent permitted by sub-paragraph (5) below, it does not secure any other benefits.
- (2) If the capital sum referred to in sub-paragraph (1) above is payable whenever the event in question happens, or if it happens at any time during the life of a specified person—
- (a) the premiums under the policy must be payable at yearly or shorter intervals, and either—
- (i) until the happening of the event, or, as the case may require, until the happening of the event or the earlier death of the specified person, or
- (ii) until the time referred to in sub-paragraph (i) above.
§ Mr. SpeakerIf the House approves, so be it.
§ Mr. DiamondI am grateful, Mr. Speaker.
As Amendment No. 192 is the first to Schedule 9, perhaps I may now reply to what the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) said about the number of Amendments. He was right to say that there are a large number to the Schedule. There are 50 altogether, but they are very largely repetitions and consequential Amendments to provide the same words in a number of different places.
Because I was also interested in the same point, I obtained an analysis in which the hon. Gentleman may be interested. There are 23 substantive Amendments, which is still a substantial number, 10 Amendments meet requests in Committee, and five meet direct 1713 requests by the life offices. Seven rectify defective drafting and one consists of a machinery provision which has been agreed with the Life Offices' Association and the Industrial Life Offices' Association.
I now turn to the group of Amendments, one of which is starred. It differs from its predecessor, an unstarred Amendment with the same number, in having the words "the policy" added at the end. They are added purely for drafting purposes, so that the English flows.
The effect of the group of Amendments is twofold. First, they allow policies to qualify if the capital sum secured is payable on disability as an alternative to death or maturity, and, second, they deal more adequately with joint and contingency assurances.
§ 4.15 p.m.
§ Mr. Patrick JenkinAmendment No. 194 includes the word "until" in sub-paragraph (i), which begins
until the happening of the event or the earlier expiry of the said term, …If the use of that word means that the premiums under a policy must be payable until the happening of the event but not thereafter, there seems to be a possible conflict between the sub-paragraph and other parts of the Bill. For example, if one has a mortgage protection policy for £1,000 which also involves a small residual benefit of, say, £200—that is, a constant endowment assurance benefit, one has left a sum assured of £800 dropping eventually to zero.For this, a level annual premium is paid throughout the term of the policy, but the decreasing sum reaches zero before the last premium is payable, so that there are still two premiums payable referable to the declining sum after it has reached zero. It could be said that the policy would be disqualified because the use of the phrase "until the happening" implied that if there are no premiums payable thereafter a policy does not come within the Clause.
It may well be that "until" here is to be interpreted as "at least until", and that it is quite irrelevant that, provided the premiums are payable at least until 1714 the happening of the event, any further premiums may be payable, thereafter.
That is a possible interpretation, but the alternative that I have suggested is also possible, and we owe it to those concerned to make sure that there shall be no doubt about this. I very much hope that the Chief Secretary will be able to reassure us, or, if necessary, introduce a retrospective Amendment next year.
§ Mr. DiamondI can reassure the hon. Gentleman. His point is valid, and it has been considered. I can confirm that the Amendment literally means only "at least until".
§ Amendment agreed to.
§
Further Amendments made: No. 193, in page 64, line 2, leave out from' the' to' the' in line 5 and insert:
'policy were to continue in force for a period of ten years from the making of the insurance, or, in a case falling within paragraph (a)(ii) above, until'.
§
No. 194, in line 7, leave out from' the' to' ending' in line 15 and insert:
'capital sum referred to in sub-paragraph (1) above is payable only if the event in question happens before the expiry of a specified term ending more than ten years after the making of the insurance, or only if it happens both before the expiry of such a term and during the life of a specified person—
(a) the premiums under the policy must be payable at yearly or shorter intervals, and either—
§
No. 195, in line 24, leave out from' the' to third' the' in line 26, and insert:
'policy were to continue in force for the term referred to in paragraph (a)(i) above or, as the case may require, for'.
§
No. 196, in line 28, leave out from' the' to' must' in line 30 and insert:
'capital sum referred to in sub-paragraph (1) above is payable only if the event in question happens before the expiry of a specified term ending not more than ten years after the making of the insurance, or only if it happens both before the expiry of such a term and during the life of a specified person, the policy'—[Mr. Diamond.]
§ Mr. DiamondI beg to move Amendment No. 197, in page 64, line 32, at end insert:
(5) Notwithstanding sub-paragraph (1)(b) above, if a policy secures a capital sum payable only on death, it may also secure benefits (including benefits of a capital nature) to be provided in the event of a person's disability; and no policy is to be regarded for the purposes of that provision as securing other benefits by reason only of the fact that it confers a right to participate in profits, that it carries a guaranteed surrender value, that it gives an option to receive payments by way of annuity, or that it makes provision for the waiver of premiums by reason of a person's disability, or for the effecing of a further insurance or insurances without the production of evidence of insurability.(6) In applying sub-paragraph (2) or (3) above to any policy—
- (a) no account shall be taken of any provision for the waiver of premiums by reason of a person's disability, and
- (b) if the term of the policy runs from a date earlier, but not more than three months earlier, than the making of the insurance, the insurance shall be treated as having been made on that date, and any premium paid in respect of the period before the making of the insurance, or in respect of that period and a subsequent period, as having been payable on that date.
(7) References in this paragraph to a capital sum payable on any event include references to any capital sum, or series of capital sums, payable by reason thereof; and a policy secures a capital sum payable either on death or on disability notwithstanding that the amount payable may vary with the event.The Amendment sets out to achieve four purposes. First, it states explicitly that a whole life policy may offer the "normal incidents of a policy". Second, it allows waiver of premiums on disability. Third, it allows back-dating of policies for up to three months. Fourth, it states explicitly that a capital sum payable on death includes a capital sum payable at a later date or a series of capital sums, and that the amount payable on death, disability or maturity need not be the same figure in all events.
§ Mr. SpeakerOrder. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) may, if he wishes, talk about his earlier Amendment, No. 29, in line 8, after' term', insert:
'or a series of capital sums payable on or after death and until the expiry of a specified term such specified term'.
§ Mr. Patrick JenkinThe point of the Amendment has been covered in the Government Amendment, Mr. Speaker.
1716 Does the figure of 23 substantive Amendments which the Chief Secretary gave us earlier include the four substantive Amendments he has just said were contained in the Amendment? It is not a point of great importance, but there are certainly a great many Amendments on the Notice Paper.
§ Mr. DiamondI shall look into that. It may well be that in that sense the figure is greater, but I shall check, as I do not wish to mislead the hon. Gentleman.
§ Amendment agreed to.
§
Further Amendments made: No. 198, in page 64, line 34, leave out from beginning to' is' in line 37 and insert:
(1) Subject to the following provisions of this Part of this Schedule, a policy which secures a capital sum payable either on survival for a specified term or on earlier death, or earlier death or disability, including a policy securing the sum on death only if occurring after the attainment of a specified age not exceeding sixteen.
§ No. 199, in line 42, leave out from' and' to end of line 45 and insert:
- (i) until the happening of the event in question, or
- (ii) until the happening of that event, or the earlier expiry of a specified period shorter than the term but also ending not earlier than ten years after the making of the insurance, or
- (iii) if the policy is to lapse on the death of a specified person, until one of those times or the policy's earlier lapse.—[Mr. Diamond.]
§ Mr. DiamondI beg to move Amendment No. 200, in page 65, line 5, leave out from' guarantee' to' equal' in line 7 and insert:
'that the capital sum payable on death, or on death occurring after the attainment of a specified age not exceeding sixteen, will, whenever that event may happen, be'.The Amendment makes it clear that the minimum 75 per cent. death benefit must be guaranteed throughout the term of a policy.
§ Amendment agreed to.
§ Mr. DiamondI beg to move Amendment No. 237, in line 14, leave out' sixteen years of age' and insert:
'a specified age not exceeding sixteen'.The Amendment slightly extends the special provision for industrial assurance children's policies.
§ Amendment agreed to.
1717§ Mr. DiamondI beg to move Amendment No 201, in page 65, line 16, at end insert:
'and(e) the policy must not secure the provision (except by surrender) at any time before the happening of the event in question of any benefit of a capital nature other than a payment falling within paragraph (d)(ii) above, or benefits attributable to a right to participate in profits or arising by reason of a person's disability.(2) Sub-paragraphs (6) and (7) of paragraph 1 above shall, with any necessary modifications, have effect for the purposes of this paragraph as they have effect for the purposes of that paragraph.(3) For the purposes of sub-paragraph (l)(d)(i) above, ten per cent. of the premiums payable under any policy issued in the course of an industrial insurance business as defined in section 1(2) of the Industrial Assurance Act 1923 shall be treated as attributable to the fact that they are not paid annually'.The Amendment has two purposes. First, it states that an endowment assurance policy may not provide payments of capital during its term except through surrender or bonuses, or, indeed, on the return of premiums in the case of an industrial assurance children's policy. Secondly, it provides that 10 per cent. of the premiums payable under industrial assurance policies should be disregarded in deciding whether death benefit is at least three-quarters of the total premiums.
§ Amendment agreed to.
§ Mr. Iain Macleod (Enfield, West)On a point of order. To expedite matters, may I say that, as the Chief Secretary pointed out, we are entirely content with many of the Amendments. They are largely to meet points which we made in Committee, and there are no observations which we wish to make until we reach Amendment No. 293. I wonder whether it would be possible to put the Amendments en bloc. We should be content with that if it could be done.
§ Mr. SpeakerI am most grateful to the right hon. Gentleman.
§
Further Amendments made: No. 285, in page 65, line 30, leave out from' guaranteed' to end of line 33 and insert:
'at the time the assurance is made by all other policies issued in the course of such a business to the same person and not constituting qualifying policies apart from this paragraph, do not exceed £1,000'.
§
No. 203, in page 65, line 36, leave out from' except' to' payable' and insert:
'by reason of death or surrender, no capital sum other than one falling within paragraph (d) below can become'.
§ No. 286, in page 65, line 40, after' term' insert'(i)'.
§ No. 287, in page 65, line 42, after' others', insert' except the final payment'.
§ No. 288, in page 65, line 43, after' and' insert' (ii)'.
§
No. 289, in page 65, line 45, at end add:
'and
(iii) if the first such payment is due earlier than ten years after the making of the assurance, or any other such payment except the last is due earlier than ten years after the preceding one, the sums guaranteed by the policy, together with the other sums referred to in paragraph (a) above so far as guaranteed by policies the payments under which also fall within this sub-paragraph, do not exceed £500.
(2) For the purpose of this paragraph, the sums guaranteed by a policy do not include any bonuses, or, in the case of a policy providing for a series of payments during its term, any of those payments except the first, or any sums payable on death during the term by reference to one or more of those payments except so far as that sum is referable to the first such payment'.
§ No. 205, in page 66, leave out lines 1 to 11 and insert:
§ (iii) Family income policies and mortgage protection policies
§
5.—(1) The following provisions apply to any policy which is not a qualifying policy apart from those provisions, and the benefits secured by which consist of or include the payment on or after a person's death of—
§
(2) A policy falling within sub-paragraph (l)(a) above is a qualifying policy if—
§
(3) A policy falling within sub-paragraph (1) (b) above is a qualifying policy if—
§
No. 206, in page 66, line 35, leave out' is so discharged, that premium' and insert:
'or of any part of that premium, is so discharged, the premium or part'.
§
No. 207, in page 66, line 40, leave out from' company' to end of line 4 on page 67 and insert:
' with whom the insurance is made of the whole or a part of any sum which has become payable on the maturity of, or on the surrender more than ten years after its issue of the rights conferred by, a policy—
§
No. 208, in page 67, line 9, after' policy', insert:
'the question whether the new policy is a qualifying policy shall, to the extent provided by the rules in sub-paragraph (2) below, be determined by reference to both policies.
(2) The said rules (for the purposes of which, the question whether the old policy was a qualifying policy shall be determined in accordance with this Part of this Schedule, whatever the date of the insurance in respect of which it was issued) are as follows—'.
§
No. 209, in page 67, line 11, leave out from' not' to end of line 18 and insert:
'the new policy is not a qualifying policy unless the person making the insurance in respect of which it is issued was an infant when the old policy was issued, and the old policy was one securing a capital sum payable either on a specified date falling not later than one month after his attaining twenty-five or on the anniversary of the policy immediately following his attainment of that age;'.
§
No. 210, in page 67, leave out lines 21 to 27 and insert:
' the new policy is a qualifying policy unless—
§
No. 211, in page 67, line 29, leave out from first' policy' to end of line 41 and insert:
'and would fail to be so by reason only of paragraph 1(2) or 1(3) above, or of sub-paragraph (a), (b) or (c) of paragraph 2, it is nevertheless a qualifying policy if the old policy was a qualifying policy and—
§
(3) The said circumstances are—
§
No. 212, in page 67, leave out lines 42 to 49 and insert:
9A.—(1) Subject to the provisions of this paragraph, where the terms of a policy are varied, the question whether the policy after the variation is a qualifying policy shall be determined in accordance with the rules in paragraph 9 above, with references in those rules to the new policy and the old policy construed for that purpose as references respectively to the policy after the variation
1721
and the policy before the variation, and with any other necessary modifications.
(2) In applying any of those rules by virtue of this paragraph, the question whether a policy after a variation would be a qualifying policy apart from the rule shall be determined as if any reference in paragraphs 1 to 7 of this Schedule to the making of an insurance, or to a policy's term, were a reference to the taking effect of the variation or, as the case may be, to the term of the policy as from the variation.
(3) This paragraph does not apply by reason of—
§
No. 213, in page 68, leave out line 11 and insert:
(i) any death giving rise to benefits under the policy.
§ No. 214, in page 68, line 16, leave out' interest' and insert' share'.
§
No. 215, in page 68, line 18, leave out from' the' to end of line 27 and insert:
'above events, but—
§
No. 216, in page 68, line 34, leave out from' unless' to end of line 37 and insert:
' the person making the insurance in respect of which the new policy is issued was an infant when the former policy was issued, and the former policy was one securing a capital sum payable either on a specified date falling not later than one month after his attaining twenty-five or on the anniversary of the policy immediately following his attainment of that age'.
§
No. 217, in page 68, leave out lines 41 and 42 and insert:
(5) No account shall be taken for the purposes of this paragraph of any assignment effected by way of security for a debt, or on the discharge of a debt secured by the rights or share concerned, or of any assignment between spouses living together; and references
1722
in sub-paragraph (1) above to the surrender of the rights conferred by a policy do not include references to the surrender of any right to a bonus.
§ No. 218, in page 69, line 4, leave out from' is' to fourth' the' and insert' a death'.
§ No. 219, in page 69, line 7, leave out' bonuses' and insert' capital payments'.
§ No. 220, in page 69, line 13, leave out' bonuses' and insert' capital payments'.
§
No. 221, in page 69, line 21, leave out from' is' to' as' in line 27 and insert:
' an assignment—
§ No. 222, in page 69, line 39, leave out' interest' and insert' share'.
§
No. 223, in page 69, line 40, leave out from' In' to end of line 48 and insert:
'this paragraph, "relevant capital payments" means, in relation to any policy, any sum or other benefit of a capital nature, other than one attributable to a person's disability, paid or conferred under the policy before the happening of the chargeable event, and any sum paid, or other benefit conferred, by reason of any surrender before that time of a right to a bonus under the policy; and references in this sub-paragraph and (in relation to premiums) in sub-paragraph (1) above to "the policy" include references to any related policy, that is to say, to any policy in relation to which the policy is a new policy within the meaning of paragraph 9 above, any policy in relation to which that policy is such a policy, and so on'.
§ No. 224, in page 70, line 3, leave out' interest' and insert 'share'.
§
No. 225, in page 70, line 3, at end insert:
Where the terms of a contract provide for the payment of a capital sum as an alternative, in whole or in part, to payments by way of annuity, the taking of the capital sum shall be treated for the purposes of this and the next following paragraph as a surrender in whole or in part of the rights conferred by the contract.
§
No. 226, in page 70, leave out lines 8 and 9 and insert:
(3) Sub-paragraph (5) of paragraph 10 above shall, with any necessary modification, apply for the purposes of this paragraph as it applies for the purposes of the said paragraph 10.
§ No. 227, in page 70, line 29, leave out' interest' and insert' share'.
§ No. 240, in page 70, line 34, leave out' an interest' and insert' a share'.
§ No. 228, in page 70, line 49, leave out' interest' and insert' share'.
§
No. 229, in page 71, leave out lines 1 and 2 and insert:
(2) Sub-paragraph (5) of paragraph 10 above shall apply for the purposes of this paragraph as it applies for purposes of the said paragraph 10.
§
No. 230, in page 71, line 20, leave out from first' the' to end of line 23 and insert:
'rights conferred by the policy or contract were vested in an individual as beneficial owner, or were held on trusts created by an individual (including trusts arising under section 11 of the Married Women's Property Act 1882, section 2 of the Married Women's Policies of Assurance (Scotland) Act 1880, or section 4 of the Law Reform (Husband and Wife) Act (Northern Ireland) 1964) or as security for a debt owed by an individual'.
§
No. 231, in page 71, line 30, leave out from beginning to' by' in line 32 and insert:
'said rights were in the beneficial ownership of a close company within the meaning of Part IV of the Finance Act 1965, or were held on trusts created, or as security for a debt owed'. —[Mr. Diamond.]
§ Mr. Patrick JenkinI beg to move Amendment No. 293, in page 71, line 30, to leave out from the beginning to "be" in line 39 and insert:
said rights were in the beneficial ownership of a close company within the meaning of Part IV of the Finance Act 1965, or were held on trusts created, or as security for a debt owed by such a company, then the amount of the gain shall".I should like to echo the gratitude of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) for the speed with which you, Mr. Speaker, have been able to deal with the Amendments. It has saved us a lot of time and will help us in discussing parts of the Bill on which not a single word has been said during its passage.The Amendment has not, I understand, been discussed with the interests concerned. I stand to be corrected, but I 1724 believe that that is so. We raised this matter in Committee and we received what I regarded as a very unsatisfactory answer. That is why I felt it right that we should press it again. It is to do with the Surtax charge on the gains which arise on non-qualifying policies. The House will be aware that "gains", in this case, represent any excess of the policy moneys over the aggregate premiums which have been paid.
The justification for the Surtax charge is that the gains represent sums which, in the hands of the insurance company, have borne only Income Tax at a conventional rate and, where appropriate, Capital Gains Tax. Therefore, if the policy moneys reach the insurer free of further taxation, this will be, and has been in the past, a way for the avoidance of Surtax. In the case of an individual, the charge is only to Surtax, but in the case of a close company—and the Amendment is related to close companies —there is a most extraordinary provision which the Financial Secretary tried to explain in Committee, but failed entirely to do so satisfactorily, namely, that the gain is subject not only to Surtax but to a second charge—Income Tax. I say "a second charge", and I emphasise it, because the money has already borne Income Tax in the hands of the insurance company.
§ Mr. DiamondMay we be clear which money has already borne Income Tax in the hands of the company?
§ Mr. JenkinThe money represented by the gain, which is the difference between the aggregate premium paid and the policy monies which become payable when the policy matures. That represents the accrual in the hands of the insurance company. Any interest which the premiums have earned have been subjected to Income Tax. Any capital gains from the premiums which have been invested have been subjected to Capital Gains Tax. That is why I say that this gain, in the hands of an individual or of a close company, should in fairness be subject only to Surtax and not to a second charge of Income Tax. Yet that is the effect of the Bill. My Amendment is intended to remove this anomaly.
The Financial Secretary sought to justify the anomaly by saying that it was 1725 a sort of gamble. He used the phrase, "Heads they win, tails they lose", and the gamble depended on whether the company needed the income, remembering that this is a close company, for the purposes of its business—that is, whether the money would come within a short fall assessment. He argued that if the money was not assessed because it was needed in the business, it would not be taxed in the company's hands, to which I can only say, "I jolly well hope not". But if the money is assessed on the ground that it was not needed, it should be taxed as investment income.
The Financial Secretary used significant words in Committee which gave the impression that he still did not appreciate the nature of our case. He said:
…in the close company, have a certain advantage, for whereas a chargeable gain would be made on an individual, the same policy held by a close company would be entirely exempt from tax unless the close company, a trading company, could not show that it needed the money for the purpose of its business ".—[OFFICIAL REPORT, Standing Committee A, 22nd May, 1968; c. 1296.]I emphasise that the hon. Gentleman said that the same policy held by a close company would be "entirely exempt from tax". That is not so. The money has borne tax in the hands of the insurance company and, for this reason, if the money became payable to an individual it would be subject only to Surtax. There seems to be no reason why, when it reaches the hands of a close company in circumstances in which it becomes a charge for tax, it should be charged not only to Surtax but to Income Tax.In a close company, an individual cannot enjoy benefit if it is not distributed, and that is the disadvantage, if one needs to look for a disadvantage, of a policy inuring for the benefit of a close company. If the proprietors of the close company leave the policy money in the company, it does not swell their own spending power; they are forgoing the personal advantage, I agree that if it is distributed it would be entirely in conformity with the Schedule that it should be subject to the Surtax charge. But I cannot see why it should be charged to Income Tax, because the interest on the premium moneys has suffered Income Tax in the hands of the insurance company. I believe that if this Clause goes 1726 through in the form in which it is at present it will do great injustice in these cases—there cannot be many of them, I concede that—where a non-qualifying policy will inure to the benefit of a close company.
4.30 p.m.
The Financial Secretary also went on to ask, and I suppose that he was entitled to ask, in what circumstances would a close company have the benefit of a non-qualifying policy. In a sense, he asked me to produce a case. I can retort, if there are no cases in which a close company would have the benefit of a non-qualifying policy, why include that provision in the Bill at all? I gather the Chief Secretary takes the point. He simply cannot refuse to remedy a potential injustice by claiming that it would never become an actual injustice, because there will be instances in which the paragraph would apply.
The paragraph is there, and if it is applied it will give rise to the injustice which I have described to the House, and it is Parliament's duty to prevent that injustice before it happens, and not after. It has never been the practice, when discussing potential tax anomalies, and before any fiscal injustice should be righted, that one should have, as it were, to produce a victim to display the gory wounds inflicted by the Treasury, so that the Treasury may see what is likely to be the damage done.
Suffice it to say, we have a family company; the founder takes out a single premium policy, held in trust by the company, perhaps on the grounds that, if the founder dies, there will be greater need of capital than otherwise would be the case, and to ensure that it is available to the business. Because it is a single premium non-qualifying policy it incurs the penalty of this tax, not only Surtax but also Income Tax twice. This is an appalling hazard for a company which has perfectly reasonably entered into such an arrangement. It is to treat a reasonable financial arrangement to a sort of fiscal Russian roulette, and it is Parliament's business to prevent that sort of thing from happening.
The Amendment by which we seek to prevent it would leave the potential charge to Surtax in cases where that would be appropriate—and I make no 1727 complaint about that—but it would remove the double charge to Income Tax. I get the impression that the Chief Secretary has taken the point, and I hope that although this is the Report stage, and although the Amendment has been drafted with such skill as I can command, he will, nevertheless, feel it right to accept the Amendment. The damage we seek to prevent cannot happen often, but if it does happen great injustice will be done.
§ Sir Douglas Glover (Ormskirk)I rise only to tell my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) that when he rose this afternoon I had not the faintest idea what this Amendment meant, but now I have got a glimmer of its meaning, and I am quite certain that he is right and that the Government ought to accept the Amendment.
There is a real case here for saying that the Conservative Party has reached the stage of preventive medicine whereas the Government are still acting as but chers, and, as my hon. Friend said, have to have a body with gory wounds before the Government can see that there is a patient to deal with. We say that this is a situation which can happen, that we have no need to wait till we can prove that it has happened, that it is absurd to leave this injustice in the Bill.
Our Amendment would remove it. I admit that there may be very few occasions when it would happen, but in certain circumstances it is bound to happen to a close company with this sort of policy, even though the occasions may be few. It may be rather like that mythical man, the bachelor with £100,000 a year and no dependants, the classic case which is argued across the Floor of the House on so many occasions. It may not exist, but it may, and if it does there is quite clearly an injustice which would be done to a close company, and I hope that the Chief Secretary will accept the Amendment.
§ Mr. DiamondI believe I understand exactly the point raised by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin). I apologise to the House that it has not been possible, in the circumstances in which I appear here instead of my hon. Friend, for me to read fully the wise and authoritative com- 1728 ments which he made in Committee, but I have no hesitation in saying that what he said and what I shall be saying will be identical, because although truth is many-sided, there is only one truth, and the truth of this matter is, of course, that the hon. Gentleman is mistaken, and I hope that if he will be patient I can show him, and that is why I rose to ask him a question.
There is a broad measure of agreement between us at least on the acceptance of certain principles. The hon. Gentleman agrees that what is not at issue is Surtax-ability. The hon. Gentleman agrees that if a close corporation can satisfy the Revenue that it needs not for business purposes to distribute this standard figure it would not be distributed, and to that extent the element which is income would thereby be retained. There is in issue here whether there has been double taxation, be it by Income Tax or Corporation Tax, of certain income.
The hon. Gentleman recalls very well the discussions we had when Corporation Tax was introduced, and its effects on companies, and the distinction between the company and the shareholders. The hon. Gentleman recollects well that an individual holding investments direct is in a different position from an individual holding his investments through an investment company. I am talking of an investment trust at the moment. He recollects that an investment trust is not bound to pay, first, Corporation Tax—subject to certain exceptions which I will come to, because they are the nub of the argument—not required to pay Corporation Tax on its income. It then distributes part to the shareholder who is required to pay Income Tax, by means of withholding the tax, and, where relevant, Surtax. If the investment trust in question receives its income also taxed in such a way that it is accurately described as franked, then of course Corporation Tax is not levied again on that amount of income.
What the hon. Gentleman is, therefore, saying, and what he said specifically in reply to my question, when I asked, "What income?" is referring to the whole of the income which the life company receives and by means of which it is enabled to increase the value of the policy so that the question of gain arises; 1729 and what the hon. Gentleman is, therefore, saying is that the whole of that income, which I define—I am sure we are at one in what we are talking about—as franked.
The hon. Gentleman is not accurate in that assumption, and I would not be in saying that none of it is franked, and if the argument has proceeded on the basis that it is entirely franked or entirely un-franked, both of those arguments are not wholly accurate. This is in fact a mixed bag. It is income both franked and un-franked, and the accretion to the policy is drawn from a mixed fund of income, and to the extent that there is an element of franked income within it the hon. Gentleman would be right in saying that this is unfortunate, but I cannot separate out, or provide any means of separating out, or even of apportioning, that element. I take his point.
I say that if there were an injustice I would be the first to want to remove it, but I cannot eliminate from that mixed fund such part, if any, which might be a small part, but which may nevertheless exist, as is already franked income which, in other circumstances, would not be subject, therefore, to Corporation Tax, which is, for this purpose, the same as Income Tax which, he says, is thereby being levied twice. I do not see how we can meet that point. It is a mixed fund, and the only way we can deal with the matter is as the Act provides. I therefore cannot accept the Amendment.
§ Mr. Patrick JenkinI am sure the Chief Secretary realises that that must have been a painful reply for him to make, since he was good enough to appreciate that, at any rate to an extent, which he did not attempt to quantify and neither will I, the injustice of which I complained is there.
§ The question of whether the income is franked or not—one could use a different language; if it has suffered tax or not— has been resolved in the case of the individual insurer in favour of the individual, in that no further Income Tax is charged on the gain that arises when policy moneys accrue, whereas with a close company it is decided in favour of the Revenue in that Income Tax is to be charged on the whole of it.
§ This is but one more example of the Government trying to have it both ways when dealing with close companies. They tell us, on the one hand, that close companies are no more than tax avoidance devices to allow private individuals to trade with the benefit of a corporate entity and that they should continue to be taxed as though they were individuals, but, at the same time, they always argue that close companies are subject to all the features of Corporation Tax and to all the conditions. The net result is that close companies, as we have said over and over again in the House and in Committee, are "clobbered" by the Revenue.
§ This may be a relatively unimportant example because it cannot happen very often, but it is a classic example of what happens if one chooses to conduct one's business affairs through a small family company. The Chief Secretary has given no assurance that he is prepared to meet the legitimate objection, an objection which he went a long way towards admitting had validity. In these circumstances I ask my hon. and right hon. Friends to express their displeasure in the Division Lobby.
§ Question put, That the Amendment be made:—
§ The House divided: Ayes 187, Noes 264.
1733| Division No. 267.] | AYES | [4.42 p.m. |
| Alison, Michael (Barkston Ash) | Blaker, Peter | Campbell, Gordon (Moray & Nairn) |
| Allason, James (Hemel Hempstead) | Boardman, Tom (Leicester, S.W.) | Carlisle, Mark |
| Astor, John | Bossom, Sir Clive | Channon, H. p. G. |
| Baker, W. H. K. (Banff) | Boyle, Rt. Hn. Sir Edward | Chichester-Clark, R. |
| Balniel, Lord | Braine, Bernard | Clegg, Walter |
| Beamish, Col. Sir Tufton | Brewis, John | Cooke, Robert |
| Bell, Ronald | Brinton, Sir Tatton | Cooper-Key, Sir Neill |
| Bennett, Sir Frederic (Torquay) | Bromley-Davenport,Lt.-Col.SirWalter | Costain, A. P. |
| Bennett, Or. Reginald (Cos. & Fhm) | Bruce-Gardyne, J. | Craddock, Sir Beresford (Spelthorne) |
| Berry, Hn. Anthony | Bryan, Paul | Crouch, David |
| Bitten, John | Buchanan-Smith,Alick(Angus,N&M) | Cunningham, Sir Knox |
| Biggs-Davison, John | Buck, Antony (Colchester) | Currie, G. B. H. |
| Birch, Rt. Hn. Nigel | Bullus, Sir Eric | Dalkeith, Earl of |
| Black, Sir Cyril | Burden, F. A. | Dance, James |
| Davidson,James(Aberdeenshire,W.) | Hunt, John | Percival, Ian |
| d'Avigdor-Coldsmid, Sir Henry | Iremonger, T. L. | Peyton, John |
| Deodes, Rt. Hn. W. F. (Ashford) | Jenkin, Patrick (Woodford) | Pike, Miss Mervyn |
| Dodds-Parker, Douglas | Johnson Smith, G. (E. Grinstead) | Pounder, Rafton |
| Donnelly, Desmond | Jopling, Michael | Powell, Rt. Hn. J. Enoch |
| Doughty, Charles | Joseph, Rt. Hn. Sir Keith | Price, David (Eastleigh) |
| Douglas-Home, Rt. Hn. Sir Alec | Kaberry, Sir Donald | Pym, Francis |
| Drayson, G. B. | Kimball, Marcus | Quennell, Miss J. M. |
| Elliot, Capt. Walter (Carshalton) | King, Evelyn (Dorset, S.) | Rees-Davies, W. R. |
| Elliott,R.W.(N'c'tle-upon-Tyne,N.) | Kirk, Peter | Rhys Williams, Sir Brandon |
| Emery, Peter | Kitson, Timothy | Ridsdale, Julian |
| Errlngton, Sir Eric | Knight, Mrs. Jill | Rodgers, Sir John (Sevenoaks) |
| Eyre, Reginald | Lambton, Viscount | Russell, Sir Ronald |
| Fisher, Nigel | Lancaster, Col. C. G. | Scott-Hopkins, James |
| Fletcher-Cooke, Charles | Langford-Holt, Sir John | Shaw, Michael (Sc'b'gh & Whitby) |
| Fortescue, Tim | Legge-Bourke, Sir Harry | Silvester, Frederick |
| Foster, Sir John | Lewis, Kenneth (Rutland) | Smith, John (London & W'minster) |
| Fraser,Rt.Hn.Hugh(St'fford & Stone) | Lloyd, Ian (P'tsm'th, Langstone) | Speed, Keith |
| Galbraith, Hn. T. G. | Lloyd, Rt. Hn. Selwyn (Wirral) | Stodart, Anthony |
| Gilmour, Ian (Norfolk, C.) | Longden, Gilbert | Summers, Sir Spencer |
| Gilmour, Sir John (Fife, E.) | Loveys, W. H. | Tapsell, Peter |
| Glover, Sir Douglas | Lubbock, Eric | Taylor, sir Charles (Eastbourne) |
| Godber, Rt. Hn. J. B. | McAdden, Sir Stephen | Taylor.Edward M.(G'gow,Cathcart) |
| Goodhart, Philip | MacArthur, Ian | Taylor, Frank (Moss Side) |
| Coodhew, Victor | Mackenzie,Alasdair(Ross&Crom'ty) | Teeling, Sir William |
| Gower, Raymond | Maclean, Sir Fitzroy | Thorpe, Rt. Hn. Jeremy |
| Grant, Anthony | Macleod, Rt. Hn. lain | Turton, Rt. Hn. R. H. |
| Grieve, Percy | McMaster, Stanley | Vaughan-Morgan, Rt. Hn. Sir John |
| Griffiths, Eldon (Bury St. Edmunds) | Maddan, Martin | Waddington, D. |
| Crimond, Rt. Hn. J. | Maginnis, John E. | Wainwright, Richard (Colne Valley) |
| Gurden, Harold | Marten, Neil | Walker, Peter (Worcester) |
| Hall, John (Wycombe) | Maude, Angus | Walker-Smith, Rt. Hn. Sir Derek |
| Hamilton, Losd (Farmanagh) | Maudhng, Rt. Hn. Reginald | Walters, Dennis |
| Hamilton, Michael (Salisbury) | Mawby, Ray | Ward, Dame Irene |
| Harris, Frederic (Croydon, N.W.) | Maxwell-Hyslop, R. J. | Weatherill, Bernard |
| Harrison, Brian (Maldon) | Mills, Peter (Torrington) | Wells, John (Maidstone) |
| Harrison, Col. Sir Harwood (Eye) | Mills, Stratton (Belfast, N.) | Whitelaw, Rt. Hn. William |
| Harvey, Sir Arthur Vere | Monro, Hector | Williams, Donald (Dudley) |
| Hastings, Stephen | Montgomery, Fergus | Wills, Sir Gerald (Bridgwater) |
| Hawkins, Paul | Moore, Jasper | Wilson, Geoffrey (Truro) |
| Heald. Rt. Hn. Sir Lionel | Morrison, Charles (Devizes) | Wood, Rt. Hn. Richard |
| Heath, Rt. Hn. Edward | Munro-Lucas-Tooth, Sir Hugh | Woodnutt, Mark |
| Heseltine, Michael | Nicholls, Sir Harmar | Worsley, Marcus |
| Higgins, Terence L. | Nott, John | Wylie, N. R. |
| Hiley, Joseph | Orr, Capt. L. P. S. | Younger, Hn. George |
| Hill, J. E. B. | Osborn, John (Hallam) | |
| Hirst, Geoffrey | Osborne, Sir Cyril (Louth) | TELLERS FOR THE AYES: |
| Holland, Philip | Page, Graham (Crosby) | Mr. Antbony Royle and |
| Hordern, Peter | Pearson, Sir Frank (Clitheroe) | Mr. Humphrey Atkins. |
| Howell, David (Guildford) | Peel, John | |
| NOES | ||
| Albu, Austen | Brown, R. W. (Shoreditch & F'bury) | Edwards, William (Merioneth) |
| Allaun, Frank (Salford, E.) | Buchan, Norman | Ellis, John |
| Alldritt, Walter | Buchanan, Richard (G'gow, Sp'burn) | English, Michael |
| Allen, Scholefield | Butler, Herbert (Hackney, C.) | Ennals, David |
| Anderson, Donald | Butler, Mrs. Joyce (Wood Green) | Ensor, David |
| Archer, Peter | Cant, R. B. | Evans, Albert (Islington, S.W.) |
| Armstrong, Ernest | Carmichael, Neil | Evans, loan L. (Birm'h'm, Yardley) |
| Ashley, Jack | Carter-Jones, Lewis | Fitch, Alan (Wigan) |
| Atkins, Ronald (Preston, N.) | Castle, Rt. Hn. Barbara | Fletcher, Raymond (Iikeston) |
| Atkinson, Norman (Tottenham) | Coe, Denis | Fletcher, Ted (Darlington) |
| Bacon, Rt. Hn. Alice | Coleman, Donald | Foley, Maurice |
| Bagier, Gordon A. T. | Conlan, Bernard | Foot, Michael (Ebbw Vale) |
| Barnes, Michael | Corbet, Mrs. Freda | Ford, Ben |
| Barnett, Joel | Crawshaw, Richard | Forrester, John |
| Beaney, Alan | Cronin, John | Fowler, Gerry |
| Bence, Cyril | Crosland, Rt. Hn. Anthony | Fraser, John (Norwood) |
| Benn, Rt. Hn. Anthony Wedgwood | Crossman, Rt. Hn. Richard | Freeson, Reginald |
| Bishop, E. S. | Cullen, Mrs. Alice | Gardner, Tony |
| Blackburn, F. | Dalyell, Tam | Garrett, W. E. |
| Blenkinsop, Arthur | Davles, Harold (Leek) | Ginsburg, David |
| Booth, Albert | Davies, Ifor (Gower) | Gordon Walker, Rt. Hn. P. C. |
| Boston, Terence | Delargy, Hugh | Gray, Dr. Hugh (Yarmouth) |
| Bottomley, Rt. Hn. Arthur | Dell, Edmund | Gregory, Arnold |
| Boyden, James | Dempsey, James | Grey, Charles (Durham) |
| Braddock, Mrs. E. M. | Diamond, Rt. Hn John | Griffiths, Eddie (Brightside) |
| Bradley, Tom | Dickens, James | Griffiths, Rt. Hn. dames (Llanelly) |
| Bray, Dr. Jeremy | Doig, Peter | Griffiths, Will (Exchange) |
| Brooks, Edwin | Dunnett, Jack | Gunter, Rt. Hn. R. J. |
| Brown, Rt. Hn. George (Belper) | Dunwoody, Mrs. Gwyneth (Exeter) | Hamilton, James (Bothwell) |
| Brown,Bob(N'c'tle-upon-Tyne,W.) | Dunwoody, Dr. John (F'th & C'b'e) | Hamilton, William (Fife, W.) |
| Brown, Hugh D. (G'gow, Provan) | Edwards, Robert (Bilston) | Hamling, William |
| Hannan, William | Mackie, John | Roberts, Albert (Normanton) |
| Harper, Joseph | Mackintosh, John P. | Roberts,Rt.Hn.Goronwy(Caernarvon) |
| Harrison, Walter (Wakefield) | Maclennan, Robert | Roberts, Gwilym (Bedfordshire, S.) |
| Hart, Rt. Hn. Judith | McNamara, J. Kevin | Robertson, John (Paisley) |
| Haseldine, Norman | Mahon, Peter (Preston, S.) | Robinson,Rt.Hn.Kenneth(St.P'c'as) |
| Hattersley, Roy | Mahon, Simon (Bootle) | Robinson, W. O. J. (Walth'stow, E.) |
| Hazell, Bert | Mallalieu, E. L. (Brigg) | Rodgers, William (Stockton) |
| Heffer, Eric S. | Manuel, Archie | Roebuck, Roy |
| Henig, Stanley | Marks, Kenneth | Rogers, George (Kensington, N.) |
| Herbison, Rt. Hn. Margaret | Marquand, David | Rose, Paul |
| Hobden, Dennis (Brighton, K'town) | Marsh, Rt. Hn. Richard | Rowlands, E. (Cardiff, N.) |
| Hooley, Frank | Mason, Rt. Hn. Roy | Shaw, Arnold (Ilford, S.) |
| Horner, John | Maxwell, Robert | Sheldon, Robert |
| Houghton, Rt. Hn. Douglas | Mendelson, J. J. | Shinwell, Rt. Hn. E. |
| Howarth, Harry (Wellingborough) | Mikardo, Ian | Shore, Rt. Hn. Peter (Stepney) |
| Huckfield, Leslie | Millan, Bruce | Short, Mrs. Renée (W'hampton, N.E.) |
| Hughes, Rt Hn. Cledwyn (Anglesey) | Miller, Dr. M. S. | Silkin, Rt. Hn. John (Deptford) |
| Hughes, Emrys (Ayrshire, S.) | Milne, Edward (Blyth) | Silverman, Julius |
| Hughes, Hector (Aberdeen, N.) | Mitchell, R. C. (S'th'pton, Test) | Skeffington, Arthur |
| Hughes, Roy (Newport) | Moonman, Eric | Slater, Joseph |
| Hunter, Adam | Morgan, Elystan (Cardiganshire) | Small, William |
| Hynd, John | Morris, Alfred (Wythenshawe) | Snow, Julian |
| Irvine, Sir Arthur (Edge Hill) | Morris, Charles R. (Openshaw) | Spriggs, Leslie |
| Jackson, Colin (B'h'se & Spenb'gh) | Morris, John (Aberavon) | Steele, Thomas (Dunbartonshire, W.) |
| Jackson, Peter M. (High Peak) | Moyle, Roland | Stewart, Rt. Hn. Michael |
| Jay, Rt. Hn. Douglas | Mulley, Rt. Hn. Frederick | Strauss, Rt. Hn. G. R. |
| Jeger, George (Goole) | Murray, Albert | Summerskill, Hn Dr. Shirley |
| Jeger,Mrs.Lena(H'b'n&St.P'cras,S.) | Neal, Harold | Swingler, Stephen |
| Jenkins, Hugh (Putney) | Newens, Stan | Symonds, J. B. |
| Jenkins, Rt. Hn. Roy (Stechford) | Oakes, Gordon | Taverne, Dick |
| Johnson, Carol (Lewisham, S.) | O'Malley, Brian | Thomas, Rt. Hn. George |
| Jones, Dan (Burnley) | Oram, Albert E. | Tinn, James |
| Jones,Rt.Hn.Sir Elwyn(W.Ham,S.) | Orme, Stanley | Tuck, Raphael |
| Jones, J. Idwal (Wrexham) | Oswald, Thomas | Varley, Eric G. |
| Kelley, Richard | Owen, Dr. David (Plymouth, S'tn) | Walden, Brian (All Saints) |
| Kenyon, Clifford | Owen, Will (Morpeth) | Walker, Harold (Doncaster) |
| Kerr, Dr. David (W'worth, Central) | Page, Derek (King's Lynn) | Wallace, George |
| Kerr, Russell (Feltham) | Paget, R. T. | Watkins, Tudor (Brecon & Radnor) |
| Lawson, George | Palmer, Arthur | Weitzman, David |
| Ledger, Ron | Pannell, Rt. Hn. Charles | Wellbeloved, James |
| Lee, Rt. Hn. Frederick (Newton) | Park, Trevor | Wells, William (Walsall, N.) |
| Lee, Rt. Hn. Jennie (Cannock) | Parkyn, Brian (Bedford) | Whitlock, William |
| Lee, John (Reading) | Pavitt, Laurence | Wilkins, W. A. |
| Lestor, Miss Joan | Pearson, Arthur (Pontypridd) | Willey, Rt. Hn. Frederick |
| Lewis, Arthur (W. Ham, N.) | Peart, Rt. Hn. Fred | Williams, Alan (Swansea, W.) |
| Lewis, Ron (Carlisle) | Pentland, Norman | Williams, Alan Lee (Hornchurch) |
| Lipton, Marcus | Perry, Ernest G. (Battersea, S.) | Williams, Clifford (Abertillery) |
| Lyon, Alexander W. (York) | Perry, George H. (Nottingham, S.) | Williams, Mrs. Shirley (Hitchin) |
| Lyons, Edward (Bradford, E.) | Prentice, Rt. Hn. R. E. | Williams, W. T. (Warrington) |
| Willis, Rt. Hn. George | ||
| Mabon, Dr. J. Dickson | Price, Christopher (Perry Barr) | Wilson, William (Coventry, S.) |
| McBride, Neil | Price, Thomas (Westhoughton) | Winnick, David |
| McCann, John | Price, William (Rugby) | Woodburn, Rt. Hn. A. |
| MacColl, James | Probert, Arthur | Woof, Robert |
| MacDermot, Niall | Randall, Harry | Yates, Victor |
| Macdonald, A. H. | Rankin, John | |
| McGuire, Michael | Rees, Merlyn | TELLERS FOR THE NOES; |
| McKay, Mrs. Margaret | Rhodes, Geoffrey | Mr. Harry Gourlay and |
| Mackenzie, Gregor (Rutherglen) | Richard, Ivor | Mr. J. D. Concannon. |
§ Further Amendments made: No. 232, in page 71, line 44, leave out from beginning to 'vested' and insert 'said rights were'.
§
No. 233, in page 72, leave out lines 1 to 7 and insert:
(2) Where, immediately before the happening of a chargeable event, the rights conferred by any policy or contract were vested beneficially in two or more persons, or were held on trusts created, or as security for a debt owed, by two or more persons, paragraphs (a) and (b) of sub-paragraph (1) above shall have effect in relation to each of those persons as if he had been the sole owner, settlor or debtor, but with references to the amount of the gain construed as references to the part of it proportionate to his share in the rights at the
1734
time of the event or, as the case may require, when the trusts were created.
(3) References in sub-paragraphs (1) and (2) above to the rights conferred by a policy or contract are, in the case of an assignment of a share only in any rights, references to that share.
§
No. 234, in page 72, line 40, at end insert:
For the purposes of this sub-paragraph, the number of years for which a policy of life insurance has run before the happening of a chargeable event shall be calculated, where appropriate, from the issue of the earliest related policy, meaning, any policy in relation to which the policy is a new policy within the meaning of paragraph 9 above, any policy in relation to which that policy is such a policy, and so on.
§
No. 235, in page 73, line 21, leave out from 'the' to 'the' in line 23, and insert:
'rights or share in question were held immediately before the happening of the chargeable event on trust'.
§ No. 236, in page 73, line 38, at end insert: