Allow me now to turn to amendments 52 and 53, in the name of my hon. Friend the Member for West Worcestershire (Harriett Baldwin). I recognise that she speaks from experience and in support of concerns raised by her constituents. I have listened very carefully to those points, and I welcome the opportunity to debate this issue. In providing some additional background to the annual premium limit, I hope that she will be reassured by the safeguards that we have introduced—and the reasons for introducing them—and will consider not pressing her amendments. Amendments 52 and 53 ask that the Government exclude assignments that make a policy non-qualifying where either the policy has an annual premium of £3,600 or less, or the policy is subject to capital gains tax.
Let me respond to some of the points raised by my hon. Friend. She commented that seven small businesses selling second-hand endowment policies could close as a result of the change to the tax treatment of qualifying policies. We recognise that these policies are likely to sell for less on the market where the purchaser is an individual who is a higher or additional rate taxpayer, due to the income tax charge when the policy matures. Let me reassure her that there is currently no bar to the sale of non-qualifying policies on the market and that research
from the industry shows that non-qualifying policies are currently sold in the market. We envisage that this market might actually increase as a result of fewer QPs being available for sale.
Let me reassure the House that any adverse impact of the tax changes will be limited to those purchasers who are higher or additional rate taxpayers. Where a second-hand endowment policy is bought by a corporate investor or a basic rate taxpayer, there will be no impact on the tax position of the buyer when the policy matures. As a result, the loss of QP status will not make these policies any less attractive for those investors.
My hon. Friend made a point about capital gains. Previously, the purchaser of a traded endowment policy would have been liable to tax under the capital gains tax regime. That tax treatment was based on the maturity proceeds, less what the purchaser paid to acquire and maintain the policy. Capital gains tax treatment was more favourable, in that no additional tax would be payable unless the gains exceeded the annual exempt amount. In practice, it is likely that higher or additional rate taxpayers structured their affairs so as to ensure that little or no capital gains tax would be payable by using their full annual exempt allowance for a tax year. For 2013-14, that amount is £10,900. There is an additional safeguard for basic rate taxpayers who fall into the higher tax bracket as a result of the policy maturing. If that happens, the individual will get top-slicing relief, which reduces any additional tax payable. The relief is not available if the taxpayer is already a higher or additional rate taxpayer when the policy matures.
My hon. Friend has stated that her amendments would set the same annual premium limit for traded endowment policies as that set for new policies and existing policies. The annual premium limit of £3,600 applies to each individual rather than to a single policy. The effect of amendment 52 would be to exclude a policy from the limit if it had an annual premium payable of £3,600 or less. Purchasers of traded endowment policies will already have an annual premium limit of £3,600 applying to their own policies. As a result of that amendment, they would also be able to acquire as many traded endowment policies as they could afford, so long as each of those policies had premiums payable under the threshold. That would put an individual who had taken out a qualifying policy from the outset at a disadvantage to an individual who later acquired a policy. Amendment 52 would not result in a level and fair playing field. Rather, it would inadvertently create an unfair advantage for purchasers of these traded endowment policies.
My hon. Friend understandably referred to the restrictions on assignments for consideration, which are an essential part of the policy. The aim of our measure is to help to promote fairness in the tax system by limiting the tax relief available to higher rate and additional rate taxpayers. Without this restriction, individuals in a financial position to purchase traded endowment policies would be able to acquire qualifying policies without limit, while everyone else would be subject to the £3,600 annual premium limit. That would put an individual who had taken out a qualifying policy from the outset at a disadvantage to an individual who later acquired a policy, which would be unfair and inconsistent.
My hon. Friend considers that there is an element of retrospection about applying the annual premium limit to any QPs existing before 6 April 2013. Let me reassure her that there is no element of retrospection. The sale of a traded endowment policy on or after 6 April 2013 is treated no differently from an individual varying an existing policy after that date either to change the term or to vary the annual premiums payable. In all those cases, an individual will have made a conscious decision with regard to an existing product in full knowledge of the tax consequences resulting from that decision. The Government’s position is therefore that it would be unfair, inconsistent and disproportionate to allow all pre-6 April 2013 policies to remain qualifying following assignment to maintain the secondary traded endowment market.
The Government have listened to my hon. Friend’s concerns, however. As a result of the representations made, we would like to remind her that amendment 19 proposes giving HMRC a power to deal, in regulations, with any additional circumstances for which exclusion may be appropriate. I will ask officials to meet my hon. Friend’s constituents and to work with the industry to ensure that the annual premium limit remains proportionate as it beds in. I want to reassure her that if the evidence shows that the impact of the annual premium limit would prematurely bring to an end the traded endowment market, as she fears, the Government would consider using their power in amendment 19 to address the matter in a proportionate way, following discussions with interested parties. I hope that that provides her with a degree of reassurance that the Government are listening, and I respectfully ask her not to press her amendments to a vote.
These important technical changes enjoy the broad support of the life insurance industry. They will provide a more effective and more proportionate regime for the operation of the annual premium limit on QPs, and help to ensure that tax reliefs for QPs are appropriately given. I therefore commend Government amendments 17 to 29 to the House.
Amendment 17 agreed to.
Amendments made: 18, page 206, line 32, after ‘(g)’, insert ‘or (4A)’.
Amendment 19, page 213, line 25, at end insert—
“(4A) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (2) does not apply if prescribed conditions are met in relation to the assignment.
“Prescribed” means prescribed by the regulations.
(4B) Regulations under sub-paragraph (4A) may—
(a) make different provision for different cases or circumstances, and
(b) contain incidental, supplementary, consequential, transitional, transitory or saving provision.’.
Amendment 20, page 213, line 27, after ‘(3)’, insert ‘or (4A)’.
Amendment 21, page 213, line 48, after ‘(g)’, insert ‘or (4A)’.
Amendment 22, page 214, line 33, at end insert—
“(6A) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that an individual is not required to comply with sub-paragraph (2) if prescribed conditions are met.
“Prescribed” means prescribed by the regulations.
(6B) Accordingly, if by virtue of regulations under sub-paragraph (6A) an individual is not required to comply with sub-paragraph (2), sub-paragraph (3) does not apply because that individual does not comply with sub-paragraph (2).’.
Amendment 23, page 214, line 42, leave out ‘Finance Act 2013 is passed’ and insert—
‘first regulations under paragraph (c) below come into force’.
Amendment 24, page 215, line 12, at end insert—
“(8A) Sub-paragraph (8B) applies in relation to a policy if the obligations under the policy of its issuer are at any time the obligations of another person (“the transferee”) to whom there has been a transfer of the whole or any part of a business previously carried on by the issuer.
(8B) In relation to that time, in sub-paragraph (2) the reference to the issuer of the policy is to be read as a reference to the transferee.’.
Amendment 25, page 215, line 13, after ‘sub-paragraph’ insert ‘(6A) or’.
Amendment 26, page 221, line 38, leave out from ‘regulations’ to end of line 9 on page 222 and insert ‘—
(a) requiring relevant persons—
(i) to provide prescribed information to persons who apply for the issue of qualifying policies or who are, or may be, required to make statements under paragraph B3(2) of Schedule 15;
(ii) to provide to an officer of Revenue and Customs prescribed information about qualifying policies which have been issued by them or in relation to which they are or have been a relevant transferee;
(b) making such provision (not falling within paragraph (a)) as the Commissioners think fit for securing that an officer of Revenue and Customs is able—
(i) to ascertain whether there has been or is likely to be any contravention of the requirements of the regulations or of paragraph B3(2) of Schedule 15;
(ii) to verify any information provided to an officer of Revenue and Customs as required by the regulations.’.
Amendment 27, page 222, line 10, leave out ‘(2)’ and insert ‘(1)(b)’.
Amendment 28, page 222, leave out lines 20 and 21.
Amendment 29, page 222, leave out lines 29 and 30 and insert—
‘“relevant person” means a person—
(a) who issues, or has issued, qualifying policies, or
(b) who is, or has been, a relevant transferee in relation to qualifying policies.
(6) For the purposes of this section a person (“X”) is at any time a “relevant transferee” in relation to a qualifying policy if the obligations under the policy of its issuer are at that time the obligations of X as a result of there having been a transfer to X of the whole or any part of a business previously carried on by the issuer.”’.—(Sajid Javid.)