§ Mr. Grahamasked the Chancellor of the Exchequer whether he will make a statement about the position, under the new rules introduced by the Finance Act 1975 for the tax treatment of loans taken in connection with life annuities, of schemes of the house and income type.
§ Mr. Robert SheldonYes. The "House and Incomes" scheme operated by some life offices enable an elderly person owning his own home to increase his income by obtaining a loan from the life office on the security of his property and apply the money to the purchase of an annuity from the life office. In appropriate circumstances income can later be increased by taking an additional loan with which to buy a further annuity.
When the rules under which tax relief is allowable on interest paid were amended in the Finance Act 1974 a 2W specific provision—paragraph 24 of Schedule 1 to the Act—was incorporated to ensure that interest payable on loans up to a maximum of £25,000 under this type of scheme would qualify for tax relief.
It has now emerged that where a second or later loan is taken in connection with an arrangements of this kind which was effected after 26th March 1974 the combined effects of paragraphs 16 and 17 of Schedule 2 to the Finance Act 1975 is to impose a tax charge, based on the amount of that loan, as though there had been a surrender of rights under the original annuity contract. This result was not intended, and where it occurred it would largely defeat the purpose of paragraph 24.
The Government therefore propose to include in the next Finance Bill a short provision to rectify the position in those cases where the conditions for tax relief under paragraph 24 are satisfied. In the meantime the Inland Revenue will, by concession, refrain from raising a tax charge in any case of this kind which may arise.