Scottish Life International's Plea to the Chancellor
Wednesday, 31 January 2007
Scottish Life International has written to the Chancellor of the Exchequer with suggestions as to matters which should be dealt with in the forthcoming Budget.
David Kneeshaw, Chief Executive SLI, drew on the work of Adam Smith, the 18th century economist, much admired by Gordon Brown. Smith advocated four maxims of taxation.
Smith's first maxim holds that the subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities.
When an individual surrenders a life assurance policy, the whole of any gain is included in income for age allowance purposes in the year of encashment - this despite the fact that the investment gain has accrued over many years. This often leads to the loss of age allowance and can result in marginal tax rates in excess of 30% for pensioners with an income of less than £25,000.
Smith's second maxim holds that the tax which each individual is bound to pay ought to be certain and not arbitrary.
Recent legal cases have considered the thorny question of tax residence. These "disputes" might never have arisen if the UK had a statutory definition of residence based on a specified number of days of physical presence. Such a definition would enable individuals to "know where they stand" and save a considerable amount of resource for both HM Revenue & Customs and potentially affected individuals.
Maxim three states: Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributors to pay it.
The ever-increasing complexity of tax legislation means that more (rather than less) time is needed to calculate the liabilities flowing from sophisticated transactions. Proposals to shorten the filing date should be abandoned.
The fourth maxim holds that:
"Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State."
A "good" tax should have minimal compliance costs. The current inheritance tax regulations imposing a reporting requirement for transfers less than 3.5% of the nil rate band are ripe for reform. They impose an administrative burden but yield no tax.
Smith would not have countenanced an inheritance tax exemption for transfers to political parties. This exemption should be ended.
SLI recommend these modest changes as positive steps to simplifying the tax system.
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For further information please contact:
Scottish Life International
Gerry Brown
Technical Manager
Tel: 0131 456 6024
gerry.brown@sli.co.im
Notes to Editors:
Scottish Life International was launched in 1996 and is now part of the Royal London Group. The company has grown rapidly in size and now has funds under management in excess of £709m / $1.3bn from investors in the UK and around the world (as at 30 September 2006). Scottish Life International is based in the Isle of Man, where it is supervised by the Isle of Man Government Insurance and Pensions Authority.
Scottish Life International is a member of the Association of International Life Offices (AILO) and is a sponsor of IFA Promotion (IFAP), supporting the need for independent financial advice.
Holders of policies issued by Scottish Life International Insurance Company Limited, based in the Isle of Man, will not be protected by the UK Financial Services Compensation Scheme if the company becomes unable to meet its liabilities to them. Policyholders will however be protected by the Isle of Man Life Assurance (Compensation of Policyholders) Regulations 1991.
The Royal London Group
• Founded in 1861, initially as a friendly society, Royal London became a mutual life insurance company in 1908.
• Royal London is the UK's largest mutual life assurance company, with funds under management of £29.5bn / $55.2bn, as at 30 September 2006.
Issued by Scottish Life International Investment Group Limited, a Royal London company which is authorised and regulated by the Financial Services Authority. Registered in Scotland number 166387. Registered office: 19 St Andrew Square, Edinburgh EH2 1YE.