§ Mrs. LiddellI beg to move amendment No. 11, in page 64, line 22, leave out 'In'.
§ Mrs. LiddellThe amendments take us into the wonderful mysteries of the taxation of life assurance companies. I shall not go into too much detail on this subject, because I do not want hon. Members to get too excited before the holidays. I shall try to give a brief explanation of the purpose of the amendments.
Hon. Members will perhaps detect that the amendments have something to do with foreign income dividends. When we dealt with clause 36, we discussed at length the abolition of FIDs in 1999. The amendments have nothing to do with abolition: they are about the treatment of FIDs received by a life assurance company after 1 July 1997.
Schedule 3 makes a number of detailed changes to the tax treatment of dividends received by life companies, one of which involves the calculations that are made to determine what part of a life company's income is charged at special rates, what part is charged at policyholders' rates and what part at normal corporation 193 tax rates. The Bill, as drafted, made a minor but necessary change to the way in which ordinary dividends are treated in that calculation, and the treatment of FIDs should have been changed in the same way. However, it was not, because an oversight that occurred when reference to FIDs was inserted in the 1994 Finance Bill was regrettably repeated this year. The amendment makes the necessary change. Failure to do so could cost a few million pounds a year, depending on the extent to which FIDs are paid in the future.
A related change made by the amendment is to remove some disadvantages that life companies have perceived. They affect the so-called notional case one test, of which the right hon. Member for Fylde (Mr. Jack) gave an eloquent description to the Committee considering the 1996 Finance Bill. The test involves a comparison of profits calculated in two different ways. FIDs have hitherto appeared on one side of the comparison but not on the other. There might have been good reasons for that at the time, but, with the treatment of FIDs and ordinary dividends in the hands of life companies and other dealers in shares becoming more similar, there is less reason to distinguish between them.
I may add that, in proposing this change, we have taken account of representations made by the Association of British Insurers.
Amendment agreed to.
Amendment made: No. 12, in page 64, line 23, leave out from 'companies)' end of line 28 and insert
'shall be amended as follows.(1A) In subsection (2B) (relevant income from life assurance business to be sum of items in paragraphs (a) and (b)) for paragraph (b) (relevant franked investment income) there shall be substituted—(b) the franked investment income of, and foreign income dividends arising to, the company which are referable to its basic life assurance and general annuity business.(1B) In subsection (8) (interpretation) the definition of "relevant franked investment income" shall cease to have effect.'.—[Mrs. Liddell.]
Mr. Deputy SpeakerThese amendments have already been debated. We are now voting on them.
Amendments made: No. 13, in page 69, line 36, leave out 'and'.
No. 14, in page 69, line 43, at end insert
'and(c) in paragraph (c) (which provides for Case I profits to be reduced by the shareholders' share of foreign income dividends in respect of such investments) for "in respect of investments held in connection with the company's life assurance business" there shall be substituted "which are referable to the company's basic life assurance and general annuity business".'.—[Mrs. Liddell.]