§ Mr. Matthew BanksTo ask the Chancellor of the Exchequer if he will make a statement about the taxation of unit-linked life insurance policies in the light of the High Court judgement in the case of Fuji v Aetna.
§ Sir George YoungMy hon. Friend the Parliamentary Under-Secretary of State for Corporate Affairs has today made a statement about the regulatory implications of this judgment.
The uncertainty of the judgment has created about the tax position is also of concern to the Government, because of the volume of policyholders' money invested in policies which may be affected. In our view it is clearly in the interests of those policyholders that uncertainty should, so far as possible, be removed. It is also right that the tax treatment of policies already sold should follow the common understanding, at the time of their sale, that they were indeed insurance contracts. This understanding was shared by the insurers, their policyholders, and the Inland Revenue. We shall, if necessary, propose legislation to this effect.
754WWe shall not be able to decide on the details of the legislation that may be required until the outcome of the appeal is known, but our broad intention would be to provide that where a contract which was not, as a matter of law, a contract of insurance has been entered into by a life insurance company of a friendly society on the basis that it was a contract of life insurance, with the consequence that it formed part of the long-term business of the insurer, then the contract would be treated, for all tax purposes, as though it were a contract of life insurance. We would propose to introduce provisions having analogous effect in relation to the reinsurance of such policies, and in relation to policies written outside the United Kingdom. We shall also consider, in the light of the final decision in the case, whether it is appropriate to propose similar legislation in relation to capital redemption contracts.
The proposed legislation would apply to policies written at any time in the past, in relation to both past and future direct tax liabilities, except that tax liabilities which have already become final on a different basis will not be disturbed. In addition, where an assessment to income tax or capital gains tax that relates to a particular contract has been made on a taxpayer on the basis that the contract was not one of insurance, and become final, the proposed legislation will not apply to any other assessment to either of those taxes made on the same taxpayer, or on their personal representatives, in relation to the same contract. I should also emphasise that the effect of the legislation would simply be to re-characterise the contracts in question as contracts of life insurance, and would not otherwise affect their status for tax purposes. In general, the proposed legislation would not affect contracts to be written in the future, but we will consider the matter in the light of the final judgement in the Fuji case.