Mr Major’s Written Question on Secondhand Bonds – 24 June 1982

Below is the text of Mr Major’s Parliamentary written question on Secondhand Bonds, published on 24th June 1982.

Mr. Major Asked the Chancellor of the Exchequer if he is satisfied with the present tax treatment of secondhand bonds; and whether he will make a statement.

Mr. Ridley Advantage has been taken of existing tax provisions to avoid income tax on the profits on certain life policies and life annuity contracts.

Sections 393 to 402 of the Taxes Act – the “chargeable events” legislation – provide for income tax to be charged on the profits arising on these policies and contracts. By virtue of section 394(4), where a life policy has been assigned for money or money’s worth, any profits subsequently arising are taken out of the charge to income tax and become subject to a commonly much lower or nil charge to capital gains tax. Section 396(2) makes similar provision in relation to assignments of life annuity contracts.

There has been a serious and, in recent weeks, growing exploitation of these provisions by means of the device known as secondhand bonds under which individuals have been purchasing such policies and contracts from intermediaries thereby avoiding income tax on any ultimate profits on the investment.

The Government have therefore decided to introduce legislation in next year’s Finance Bill to amend sections 394(4) and 396(2) with effect from midnight on Friday 25 June 1982. An assignment thereafter for money or money’s worth of any policy or contract – including existing policies and contracts – will no longer remove any subsequent profit arising from the charge to income tax.