Miss Johnson: There are no general rules that ease the impact of tax charges that may arise in consequence of a divorce, and it is doubtful whether such rules would command universal support. However, the measure will make the treatment of policy assignment, whether on divorce or otherwise, clearer. When joint property is being divided, the measure will make it easier for parties to attribute a correct, and therefore fair, value to the life policy. That is a matter for the arrangements between the parties concerned in individual situations; it is difficult for us to generalise. I shall write to the hon. Gentleman if he has further questions.
Question put and agreed to.
Clause 81 ordered to stand part of the Bill
Life polices, life annuities and capital redemption policies
Mr. Flight: I beg to move amendment No. 43, in page 226, line 41, after `jointly', insert `or in common'.
This is the matter that my hon. Friend the Member for Torridge and West Devon (Mr. Burnett) was about to raise in respect of clause 81. As the Minister said, the changes, especially section those in proposed new section 546A, are designed to align English and Scottish law when an insurance policy
The Chairman's attention having been called to the fact that ten Members were not present, he suspended the proceedings; and other Members having come into the room and ten Members being present, the proceedings were resumed.
Mr. Flight: As I was saying, section 546A in particular is designed to align English and Scottish law when insurance policies are held by more than one person. Subsection (1)(a) of the proposed new section refers to policies held jointly or in common, but subsection (1)(b) refers only to policies held jointly. The Law Society's opinion is that some words have been missed out of paragraph (b), which should similarly say ``jointly or in common''.
Miss Johnson: The amendment would not have any effect, as existing legislation has the desired result. As the hon. Gentleman said, the measure relates to the application of the complex principles of property law to life insurance policyholders. Some whole assignments will be deemed to be assignments of a part for tax purposes. It covers assignments and insurance contracts where, economically, only part of the contract is transferred. It is not necessary to deem something to be a part assignment when it is already a part assignment in law.
The amendment deals with the transfer of an insurance contract by tenants in common when not all the tenants dispose of their interest in law. This is an assignment of a precise part of the contract by each tenant to reduce his own interest in the contract. It does not therefore need to be deemed to be a part assignment for tax purposes. The amendment is unnecessary and I urge the Committee to reject it.
Mr. Burnett rose
The Chairman: This will be a speech, not an intervention, I believe.
Mr. Burnett: It will, Dr. Clark, but the Committee will be relieved to hear that it will be a fairly short one.
I hope that I can remember my co-ownership rules from years past. If I remember correctly, in terms of legal ownershipequitable or beneficial ownership, as mentioned in the clauseonly joint tenants or tenants in common are relevant. It is plainly defective not to allow for that, so I join my hon. Friendas he kindly called methe Member for Arundel and South Downs in supporting this important amendment. Without it, there will be confusion and unfairness when the transferee holds as a tenant in common.
Question put, That the amendment be made:
The Committee divided: Ayes 5, Noes 12.
Division No. 2]
Burnett, Mr. John
Flight, Mr. Howard
Jack, Mr. Michael
Letwin, Mr. Oliver
Luff, Mr. Peter
Allen, Mr. Graham
Banks, Mr. Tony
Barnes, Mr. Harry
Bennett, Mr. Andrew F.
Dobbin, Mr. Jim
Donohoe, Mr. Brian H.
Johnson, Miss Melanie
Kilfoyle, Mr. Peter
Michael, Mr. Alun
Roy, Mr. Frank
Timms, Mr. Stephen
Question accordingly negatived.
Schedule 27 agreed to.
Clause 82 ordered to stand part of the Bill.
Deduction of tax: payments between companies etc
Mr. Flight: I beg to move amendment No. 44, in page 56, line 14, at beginning insert
`If the Board reasonably believes that neither of the conditions set out in section 349B is satisfied then'.
The Chairman: With this it will be convenient to take Government amendment No. 50.
Mr. Flight: The clause is the fruit of much consultation by the Revenue, and it is generally welcomed by the accounting industry. However, there is a slight concern that taxpayers who, in accordance with the Revenue's guidelines, conscientiously check the status of their payees, could be liable for their payees' tax if it subsequently transpires that, contrary to all appearances, the pay is not within the charge to corporation tax. The payer can never know for sure that the pay is within the charge to UK tax. Only the Revenue will know that.
The clause is allegedly a deregulatory clause to remove the requirement to withholding tax on certain payments between companies where the requirements of new section 349A are satisfied, but new section 349C gives the Revenue an arbitrary power to overrule that and instruct a company to resume paying withholding tax. That surely cannot be right, and there should be a requirement for reasonableness by the Revenue. That is what amendment No.44 is designed to achieve, and I believe that it is also the objective of the undoubtedly more perfectly drafted Government amendment.
Miss Melanie Johnson: I can confirm that the Government amendment is intended to achieve the same objective as amendment No. 44. Were things different, we might have introduced this amendment on Report, but as there are drafting problems in the Opposition amendment, it seemed sensible to do so now.
Amendment No. 44 was intended to spell out that the Board should give directions only where it reasonably believed that the conditions for making the payment gross were not satisfied. We agree that the Board's power should be limited in that way. We believe that it was implicit in the wording, but we accepted that it was desirable to make it explicit. Some aspects of the drafting of amendment No. 44 would have frustrated the purpose of new section 349C, so we tabled an alternative form of wording that achieves the desired result. I hope that the Committee can accept our amendment.
Mr. Flight: I am more than happy to substitute amendment No. 50 for amendment No. 44. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: No. 50, in page 56, line 20, at end insert
`( ) Such a direction shall not be given unless the Board have reasonable grounds for believing as respects each payment to which the direction relates that it is likely that neither of the conditions specified in section 349B will be satisfied in relation to the payment at the time the payment is made.'. [Miss Melanie Johnson.]
Mr. Flight: I beg to move amendment No. 45, in page 56, line 25, leave out `Where' and insert
`This section applies where
(a) an application has not been made under section 349E, or
(b) an application has been made under section 349E and the Board have
refused to give notice that they are satisfied as required in subsection (1) of
(c) an application has been made under section 349E and within 30 days of
that application being received by the Board a payment of the nature
mentioned in subsection (2)(a) is made.
(2) Where this section applies and'.
The Chairman: With this it will be convenient to take amendment No. 46, in page 56, line 41, at end insert
`349E. (1) The Board may, on the application of a company in the situation mentioned in section 349D (2)(a), notify that company that the Board are satisfied that the conditions in section 349B are satisfied.
(2) Any application under subsection (1) above shall be made in writing and shall contain such particulars as are relevant and known to the company making the application and the Board may, within 30 days of the receipt of the application or of any further particulars previously required under this subsection, by notice require the applicant to furnish further particulars for the purpose of enabling the Board to make their decision; and if any such notice is not complied with within 30 days or such longer period as the Board may allow, the Board need not proceed further on the application.
(3) The Board shall notify the applicant of their decision within 30 days of receiving the application or, if they give a notice under subsection (2) above, within 30 days of the notice being complied with.
(4) If the Board notify the applicant that they are not satisfied as mentioned in subsection (1) above or do not notify their decision to the applicant within the time required by subsection (3) above, the applicant may within 30 days of the notification or of that time require the Board to transmit the application, together with any notice given and further particulars furnished under subsection (2) above, to the Special Commissioners; and in that event any notification by the Special Commissioners shall have effect for the purposes of subsection (1) above as if it were a notification by the Board.
(5) If any particulars furnished under this section do not fully and accurately disclose all facts and considerations material for the decision of the Board or the Special Commissioners, any resulting notification that the Board or Commissioners are satisfied as mentioned in subsection (1) shall be void.'.
Mr. Flight: These amendments try to correct the main points of concern about the new section that have been widely raised by lawyers and accountants. If a company in good faith pays without withholding tax, in other words it pays gross, and it subsequently transpires that that was incorrect, the Inland Revenue can recover the tax from it and in a sense it will lose out twice.
The provision effectively requires companies to police the tax affairs of people to whom they pay interest, annuities and royalties and to take the risk that they have not been provided with adequate and truthful information. Surely the Government should issue guidelines about what companies can rely on in deciding whether to withhold. They should provide a safer harbour than the clause provides.
The amendment would cure the defect by incorporating a fast-track clearance procedure, which would protect public revenue and withhold protection from a company that put in an application and immediately paid interest gross, to prevent applications for clearance from being used to further tax avoidance. The wording is modelled on an existing successful clearance procedurecapital gains tax rulings on corporate reorganisations under section 138 of the Capital Gains Tax Act 1979. The Law Society and the Chartered Institute of Taxation strongly support the need for a clearance procedure.