§ I am also taking measures to end some serious abuses of the present tax reliefs for Life Offices and Friendly Societies.
§ First, guaranteed income bonds. These bonds have exploited the present rules relating to the annuity business of a Life Office in order to offer an exceptionally high net rate of return—currently around 11 per cent. for a basic rate taxpayer. They are causing not only an unacceptable loss of tax, but serious damage to other savings media. After full consultation with the Life Offices Association, I have decided to impose a basic rate tax charge in addition to the higher rate tax charge for which the law already provides on the profit element realised when the investor effectively "cashes" a deferred annuity. The necessary legislation will be included in my second Finance Bill. It will affect all bonds issued after today.
§ Secondly, surrender of qualifying life assurance policies. A number of artificial schemes have been devised for the partial or complete surrender of a policy's value with the effect that the policy holder is entitled to claim tax relief in respect of an amount of premiums greatly exceeding his actual net outlay on the policy 317 concerned. Once more after full consultation with the Life Offices Association, I have decided to introduce arrangements whereby in defined circumstances the amounts to be surrendered to the policy holders are reduced by the whole or a part of the tax relief which the policy holders have been entitled to claim in respect of those policies. The necessary legislation will also be included in my second Finance Bill. It will apply to surrenders of bonuses in the same way as other surrenders in respect of life policies, and will apply to all policies taken out after today.
§ Thirdly, Friendly Societies. These societies have traditionally existed to provide relatively modest cover against needs arising from, for example, sickness, old age and death, and their income has been exempted from tax accordingly. Recently, the Inland Revenue has become aware of attempts to use the Friendly Societies' exemption as a cover to build up tax-free funds on behalf of wealthy investors. I regard this as a particularly blatant form of tax avoidance.
§ After full consultation with the Friendly Societies Liaison Committee—I should emphasise that societies represented on the committee have not been involved in transactions of this kind—I have decided to introduce in the Finance Bill measures to secure that the Friendly Society tax exemptions are denied forthwith to the bodies organising these schemes and that a tax charge is made on any gain accruing after today and realised by an individual on encashment of his investment. Further details of these new measures will be contained in a Press notice which I have instructed the Inland Revenue to issue this afternoon.