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'.--(1) This section applies to an instrument of any of the following descriptions executed in the period beginning with 22nd March 2000 and ending with the day on which this Act is passed--
(a) an instrument transferring or vesting an estate or interest in land in such circumstances as are mentioned in section 119 (transfer of land to connected company), in a case specified in section (Stamp duty: exceptions from section 119) (excepted cases);
(b) a conveyance or transfer of an estate or interest in land, or a lease of land, to a qualifying landlord within the meaning of section 129 (transfers to registered social landlords, etc.) from a qualifying transferor within subsection (6)(c), (d), (e), (f) or (h) of that section.
(2) If the instrument is not stamped until after the day on which this Act is passed, the law in force at the time of its execution shall be deemed for stamp duty purposes to be that which would have applied if it had been executed after that day.
(3) If the Commissioners are satisfied that--
(a) the instrument was stamped on or before the day on which this Act is passed,
(b) stamp duty was chargeable in respect of it, and
(c) had it been stamped after that day no stamp duty, or less stamp duty, would have been chargeable,
they shall pay to such person as they consider appropriate an amount equal to the duty (and any interest or penalty) that would not have been payable if the law in force at the time of execution of the instrument had been that which would have applied had it been executed after that day.
(4) Any such payment must be claimed before 1st April 2001.
(5) Entitlement to a payment is subject to compliance with such conditions as the Commissioners may determine with respect to the production of the instrument, to its being stamped so as to indicate that it has been produced under this section or to other matters.
'.--(1) In Part III of the Finance Act 1986 (stamp duty), after section 72 insert--
'(1) Section 88A of the Finance Act 1989 (lower corporation tax rate on certain insurance company profits) is amended as follows.
(2) In subsection (1) for the words "lower rate income", substitute "lower rate income or gains".
(3) In subsection (3) for the words from the beginning to "following descriptions", substitute--
"(3) In this section, references to a company's lower rate income or gains for any accounting period are references to all of the chargeable gains of its basic life assurance and general annuity business for the period, and to so much of the income of that business for the period as consists in income of any of the following descriptions--".
(4) In subsections (4), (5) and (6), for the words "lower rate income", in each place where they occur, substitute "lower rate income or gains".
(5) This section has effect for the financial year 2000 and subsequent years.'.--[Mr. Jack.]
New clause 1 would make a small--some may even say technical--change to the method of taxing life assurance policies. That small change, however, represents an attempt to bring the way in which the taxation of such policies deals with capital gains tax, in terms of taxation within the policy, into line with the change in the impact of CGT on those with assets whose value increases outside life assurance policies.
I was grateful to the Financial Secretary for writing me a courteous and helpful letter on 1 June, following my first foray into this area. When I raised the subject in general terms when clause 37 was debated in Committee, he agreed to consider my arguments, and wrote me that helpful letter. I was heartened by the beginning of the final paragraph, in which he wrote:
The taxation formula known as I minus E relates to life assurance policies, and my proposed change relates to that formula. I wanted to know how much it would cost. When I asked the cost of a 1 per cent. change in each rate of tax in the so-called composite that constitutes the life assurance tax rate, the Treasury told me that no estimates were available. When I asked what the tax yield from life assurance policies had been over the past eight financial years, in the context of the I minus E formula, I was told that the information was not available.
I then tried a different tack in an attempt to elicit the truth. I asked for the individual rates that made up the composite taxation rate of life assurance returns each year. I managed to obtain that information from the Treasury, which pointed out that there was an inconsistency between the personal rate of capital gains tax and that used in terms of the I minus E formula.
I have dwelt on those parliamentary answers for a reason. It is remarkable that, when the Financial Secretary finally got around to responding to my points on clause 37, he managed to find out how much my proposal would cost. Let me send this message to the Treasury: when Opposition Back Benchers ask legitimate questions to which they, the public and the insurance industry should be able to obtain answers, they should not have to go through the expensive process of tabling numerous parliamentary questions and being told that the information requested is not available, only to find that--magically--it is available when the Financial Secretary writes a letter.
Some 25 million people, including me, have life assurance policies, which, for them, represent an important part of saving. Many, however, have seen the returns on their policies suffer as a result of changed economic circumstances. The new clause would enable the money saved through the change in capital gains tax--about which I shall say more in a moment--to go back into those policies and, in a modest way, to help increase returns on them, thus counterbalancing some of the market tendencies that have disadvantaged their holders.
The proposal would have the advantage of not discriminating against the life assurance policy as a form of saving. As I have said, changes have been made under section 26 of the Finance Act 1999, which reduced the rate of capital gains tax paid by basic rate taxpayers to 20 per cent. People with assets outside a life assurance policy get that lower rate. Under the present arrangements, those with life assurance policies do not have that advantageous change in the capital gains tax regime incorporated in the composite rate of tax attached to the earnings of life assurance policies.
Originally, when the Financial Secretary wrote to me costing out the proposal, he said that, in his estimate, the proposal would cost £30 million, but the Association of British Insurers observes that the basic rate of tax that has been proposed has dropped to 22 per cent. I should be grateful if the Economic Secretary confirmed that that change in the basic rate of tax reduces the cost of my proposal to £20 million or thereabouts. It is important that there be equitable treatment of capital gains tax within life
People value the life assurance policy because, effectively, the tax for which they would be liable had they made that investment in some other way is paid for them as the policy appreciates over time. If it is a qualifying policy--that is, one with regular payments lasting 10 years or longer--the situation of effectively receiving the money tax paid applies to both the basic rate and higher rate taxpayer. Therefore, it is a particularly, if you like, tax administrative-friendly form of saving, but I do not see why at this juncture the Government should not agree to make the small change that I propose: to bring into line the external capital gains treatment with the internal capital gains tax treatment in terms of life assurance policies.
The Association of British Insurers, which was most helpful to me in analysing the situation, rightly drew my attention to the fact that, if the change were to come in instantaneously, there might be a problem because the gains within a policy build over time. It may be that the new clause has a technical deficiency that does not necessarily reflect that particular situation. I would take advice from the Economic Secretary on that, but it is the principle that is at stake. If they do not accept my proposal now, the Government should commit themselves to firm action to regularise the position with regard to capital gains tax.