- (c) any amount paid in respect of a premium or consideration given under an annuity contract (referred to in section 226 of this Act and in this section as a qualifying premium) for the time being approved by the Commissioners of Inland Revenue provided that if the qualifying premium exceeds the amount chargeable to tax in the year of assessment the excess shall be carried forward and shall be treated for the purpose of this section as the amount of the qualifying premium paid in the next or subsequent year or years of assessment as may be necessary.—[Mr. Dixon.]
§ Brought up, and read the First time.
§ Mr. Piers Dixon (Truro)
I beg to move, That the Clause be read a Second time.
The purpose of the Clause is to put all self-employed people on the same basis as employed people for pension purposes. There are many professional men, doctors, dentists, surgeons, solicitors and others who choose to assemble their accounts on a cash basis and not on an earnings basis, and so they should be entitled to do.
When they come to retire they immediately run into difficulties. It often takes months and even years for their patients' and their clients' fees to be paid. Until 1968, these post-cessation receipts were treated as capital and were not taxed. But since 1968 they have been treated as earned income and my hon. Friends and I do not dispute the justness of that.
Meanwhile, professional people still have to look after their old age and the classic method whereby a professional man has established a pension for himself has been to buy an annuity and to pay premiums for that annuity contract. As long as the professional man is still in practice, he may set these premiums and his other expenses against his earnings. 1194 But as soon as he retires he can set only a few expenses against what are in effect delayed earnings and the most important impediment from which he suffers is that he can no longer set these premiums against these earnings.
This is precisely the unfairness which the Clause is designed to remove. It is not a Clause entirely without limitation. The two-thirds rule which applies to the employed would continue to apply in this instance.
There is one final injustice which the Clause is designed to mitigate. Where the net relevant earnings in the case of a man still in practice are not sufficient to cover the premiums of an annuity contract, he should be allowed to carry the surplus forward into future years. If that should be allowed for people still in practice, in exactly the same way it should be allowed for those who are retired.
The Clause is designed to encourage and to give heart to those of our citizens who are self-reliant, precisely those members of the community whom we in the Conservative Party are anxious to encourage. I would remind my hon. Friend the Financial Secretary that he and some of his hon. Friends suggested a provision in 1968 couched in extremely similar terms.
§ 7.15 p.m.
§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
I was intrigued to be reminded by my hon. Friend the Member for Truro (Mr. Dixon) that in 1968 we had suggested a Clause similar to this. But I remind him that that was the first year in which the outstandings became taxed. My hon. Friend will be delighted to learn that events have not stood still since then and that when a professional man receives outstanding fees after his retirement, the Revenue is prepared to allow qualifying premiums against those outstanding earnings.
I listened carefully to what my hon. Friend said and it did not seem to me that he was asking for any more than that. This is a relief which is available and in the circumstances I need not weary the House with a long explanation. If I have missed the point of what my hon. Friend was saying, or there is some matter which he would like me to look 1195 at, perhaps he will write to me and I will endeavour to clear it up. But as he put the case he seemed to be asking for something which the Revenue was already prepared to allow, and in the circumstances I feel that he will not want to press his Clause.
§ Mr. Peter Rees (Dover)
Would my hon. Friend say whether the Revenue would concede expenses incurred in collecting any outstandings? Outstandings are taxed under Case 6 on Schedule D and therefore not treated in quite the same way as if collected in during the continuance of the profession. Would expenditure which would be deductible under Case 1 or Case 2 of Schedule D be allowed to the retired professional man against his outstandings?
§ Mr. Jenkin
That does not arise on the Clause, but my impression is that in ordinary circumstances normal expenses of this sort would be allowed, as the rules under Case 6 are sometimes described as analogous to the rules under Case 1. Dredging back from my memory, I have in mind the Epping Forest case which seemed to establish certain principles in this regard and I am told that these expenses would normally be allowed. However, I am rather shooting off the top of my head and it does not arise on this Clause. If I am wrong, I will write to my hon. and learned Friend.
§ Mr. Dixon
In view of what my hon Friend the Financial Secretary has said in reply to me and my hon. and learned Friend the Member for Dover (Mr. Peter Rees), saying that his view of the law is somewhat more generous than I had understood it to be, and as I do not want to burden the House by prolonging the discussion, I beg to ask leave to withdraw the Clause.
§ Motion and Clause, by leave, withdrawn.