§ Mr. BurnsTo ask the Chancellor of the Exchequer what changes are proposed to the tax rules for life assurance companies.
§ Mr. DorrellA few life assurance companies are contesting the long-standing interpretation of the law which allows the Inland Revenue to tax the investment return accruing for the benefit of policy holders when the company makes a trading loss. Income and capital gains taxed in this way are reflected in benefits which are received, by most policy holders, without any further tax charge.
If the challenge were successful, the Exchequer cost in the current year would be around £450 million because tax liabilities for a number of past years have not been finalised. The ongoing Exchequer cost would be up to £100 million a year.
Recent reforms of the taxation of life assurance have been designed to remove distortions and differential distributions of the tax burden between companies. The Government believe that the interpretation put forward by the life assurance companies concerned would lead to an uneven incidence of taxation between companies and in the benefits going to policy holders; and awaiting the outcome of the companies' challenge would result in considerable uncertainty, possibly over a period of years.
The Chancellor therefore proposes to bring forward in the forthcoming Finance Bill legislation which will have retrospective effect to confirm the existing long-standing basis of taxing proprietary life assurance companies. It is the Government's intention to introduce a new clause in Committee together with any necessary Ways and Means resolution.