Life Assurance (Hansard, 24 July 1989)

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer in what respects investment-linked life assurance policies are taxed differently from endowment-linked mortgage policies; and what would be the saving to the revenue from treating the latter on the same basis as authorised unit trusts.

§ Mr. Norman Lamont
For the life office, in no respects. For the policy holder, no distinction is drawn between investment-linked policies, as such, and endowment 543W policies associated with mortgages. For any sort of policy, the tax treatment will depend on the terms of the policy (in particular, whether it is a "qualifying" policy); the circumstances in which policy benefits are paid out; and the overall tax position of the policy holder. Most endowment policies associated with mortgages are not investment-linked and therefore cannot be treated on the same basis as unit trusts: no estimate can accordingly be made of the revenue effect of doing so.

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer what is his estimate for 1989–90 of the figures quoted in paragraphs 6.9 and 5.16 of the recent consultation paper on the taxation of life assurance.

§ Mr. Norman Lamont
There is no paragraph 5.16 in the consultative document to which the hon. Member refers. Information required to update the estimates to 1989–90 in paragraph 6.9 is not available.

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer what is the aggregate value of single premium life assurance policies; what is his estimate of the amount of tax collected per £1,000 of single premium over the life of a single premium life assurance policy in terms of constant prices; and what is his estimate of the gain to the revenue per £1,000 of premium from a tax regime meeting the criteria set out in paragraph 3.3 of the consultative document on the taxation of life assurance issued by the Inland Revenue in June.

§ Mr. Norman Lamont
No estimate is available for the total value of single premium policies. None can be made for the lifetime tax yield per £1,000 of premiums paid on such policies whether under the current tax regime or under any alternative regime. This would vary widely depending on the future performance of each policy, on future tax rates, on the overall tax position of the life offices and policy holders concerned, and on the length of time for which each policy holder chose to retain his policy.

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer what is the estimated revenue yield in the current financial year from fully implementing each of the options listed in paragraph 7.9 of the recent consultation paper on the taxation of life assurance; and if he will publish in theOfficial Report the charge falling on the policy holders and shareholders in the case of investment-linked and other life assurance, distinguishing where appropriate between qualifying and non-qualifying policies, current charges, exit charges and capital gains.

§ Mr. Norman Lamont
The options to which the hon. Member refers set out in broad outline possible alternative approaches to the reform of life assurance. The extra yield, if any, to be expected from implementation of these options would depend on the precise measures assumed to be adopted. My right hon. Friend the Chancellor of the Exchequer announced in the Budget the Governments' proposals for implementation along the lines of "Option C" in the consultative document: estimates of the initial effect of these proposals on tax yield, and indications of their possible long-run effects, were published in the "Financial Statement and Budget Report" (HC 235).

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer what is the estimated revenue yield in the544W current financial year from taxing pension schemes on the basis of the first and last of the principles set out in paragraph 7.3 of the recent consultation paper of the taxation of life assurance.

§ Mr. Norman Lamont
The first principle in paragraph 7.3 of the consultative document "The Taxation of Life Assurance" is that income earned for policy holders should be taxed as it arises and that capital gains should be taxed, at the latest, as they are reflected in benefits paid out. To apply this principle to funded occupational pension schemes would require that tax relief on the investment income of the funds should be withdrawn. It would be for decision whether pensioners would be allowed a tax credit to set against the tax due on the pensions paid to them to reflect the tax which had been borne by the fund on its investment income. The net revenue cost or yield would depend upon the precise proposal, on the nature of any transitional provisions and on the behavioural responses of investors and institutions. Any estimate of revenue would almost certainly involve disproportionate cost.
The last principle is that tax effectively borne by policy holders and that actually reaching the Exchequer should as far as possible be in line. For occupational pension schemes, this already applies.

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer what is the estimated share and estimated value of the pension and annuity business referred to in paragraph 6.23 of the recent consultation paper on the taxation of life assurance; and what is the amount of the disparity referred to in paragraph 6.25.

§ Mr. Norman Lamont
On the basis of a sample of companies for 1986, pension and general annuity business liabilities at the end of that year amounted to about half of total life assurance liabilities, amounting to some £110 billion, of offices authorised to do life assurance business in the United Kingdom.
The disparity referred to in paragraph 6.25 of the consultative document "The Taxation of Life Assurance" will be eliminated once relevant measures in the current Finance Bill come into full force from 1 January 1990.