§ Mr. Hordernasked the Chancellor of the Exchequer if he will make a statement on the tax treatment of capital and income bonds; and whether he will make a statement.
§ Mr. RidleyI have had this matter under review for some time now.
The device commonly described as a "capital and income bond" is essentially an arrangement by which, in effect, profits arising on investments in non-qualifying single premium life assurance policies are shifted artificially to a qualifying policy, so that the proceeds on maturity may be taken tax-free. If these profits remained in the non-qualifying policies, income tax on the gains would be chargeable at the higher and additional rates.
In recent months it has become clear that there has been serious, and growing, exploitation of this device. In order to safeguard the Exchequer from a potentially substantial loss of tax, the Government intend to propose legislation, in the form of a new clause in Committee of the current Finance Bill, to apply with effect from midnight tonight. The effect of the proposed measures will be to deny qualifying status to any policy taken out after today which is connected with another policy, or policies, if any of the policies will provide unrealistic benefits. As regards qualifying policies taken out on or before today, their status will be unaffected by this legislation unless, after today, further capital is in any way injected into the bond.