§ Mr. Matthew BanksTo ask the Chancellor of the Exchequer what tax barriers there are to life insurance companies selling their products throughout Europe; and what measures he proposes to remove them.
§ Sir George YoungThe EC third life insurance directive which came into force on 1 July brings about a single European market for life assurance. Our insurers have a range of good products and a history of achieving good returns from their policyholders and they are910W therefore well placed to compete for business throughout Europe.
Insurers are taxed in the United Kingdom on the investment income and gains accruing for the benefit of their policyholders. In general, policyholders resident here have no further tax to pay when their policy benefits are paid. This is because the tax the life office pays is treated as satisfying their liability to tax at the basic rate. The tax regimes in other European countries do not all follow this approach. There, the investment income and gains accruing for policyholders are more likely to accrue free of any tax charge. Tax may therefore be payable when policy benefits are paid.
Our tax system already recognises to an extent that this is the approach in many other countries. United Kingdom insurance companies are not taxed on the investment income and gains accruing for the benefits of non-resident policyholders if the business is conducted through an overseas branch.
We shall be introducing legislation in the forthcoming Finance Bill to extend this tax treatment to most life insurance business written directly from the United Kingdom with an individual who is resident in another European state, or which is business written with an employer in another European state for the benefit of employees outside the United Kingdom. Such business will in future be taxed in the same way as branch business with a non-resident. United Kingdom branches of overseas life insurance companies will also be able to benefit from this treatment for business with residents of another European state.
The changes will apply to new contracts written in the first accounting period of an insurer beginning after today.
We are also making some consequential changes to the existing rules dealing with the investment income and gains and tax credits attributable to overseas life assurance business. New compliance and information requirements will also be introduced to ensure that only genuine non-residents will be able to take out policies falling within the special rules for overseas life assurance.
Further details are contained in an Inland Revenue press release which is being issued today.