§ Mr. BurnsTo ask the Chancellor of the Exchequer if he will make a statement about the consequences for the taxation of insurance activities of the coming into force of the European Community's third life insurance directive—92/96/EEC—and third non-life insurance directive—92/49/EEC.
§ Mr. DorrellThe third life and non-life insurance directives come into force on 1 July 1994. They are an338W important part of measures being taken to create a single market in financial services throughout the European Union. One effect of the directives is that insurance companies whose head office is in another member state of the European Union will not be subject to regulation and supervision by the Department of Trade and Industry under the Insurance Companies Act 1982. This will have the effect of taking these companies outside the tax rules which apply to insurance companies because those tax rules are based on provisions of the Insurance Companies Act which will no longer apply to them.
As a result, we shall be introducing legislation in the next Finance Bill to change the definition of insurance company to ensure that all companies operating in the United Kingdom remain within the special tax rules for insurance companies. We shall also be amending provisions which give relief from tax where there is a transfer of insurance business sanctioned by a court in the United Kingdom so that they also apply where there is a transfer of United Kingdom insurance business sanctioned by the regulatory authorities in another member state.
We will also introduce measures to prevent a loss of tax where there is a transfer of insurance business to a transferee who does not carry on that business in the United Kingdom so as to be within the charge to tax.
Subject to their approval by Parliament, these measures will take effect from 1 July 1994, the date on which the third insurance directives come into force.
I also wish to make it clear that, contrary to some reports, the coming into force of the third life assurance directive will of itself have no effect on the taxation of gains from life assurance policies. At my request, the Inland Revenue is currently conducting a review of life assurance taxation in the light of single market developments and this includes the taxation of policy holders. The Government will decide in due course in the light of that review whether changes to the taxation of gains from life assurance policies are necessary. Meanwhile, the existing rules on policyholder taxation remain in force, and the Inland Revenue will continue to certify policies as "qualifying policies" where they meet the conditions laid down in the legislation.