Other measures announced

National Minimum Wage to rise in October

The National Minimum Wage rates will increase in October 2007.
The main rate for adult workers will rise from £5.35 an hour to £5.52 an hour.
The development rate for 18-21 year olds will rise by 15p, from £4.45 to £4.60.
The rate for 16-17 year olds will rise by 10p, from £3.30 to £3.40.

Life insurance policies and commission arrangements

Legislation will be introduced in Finance Bill 2007 to clarify that, where a policy or contract is held for less than a specified period, the amount of premium allowed in calculating gains on these large, short-term, policies and contracts is restricted to the true cost to the policyholder, taking into account the benefit to the policyholder of any commission rebate.

The treatment will confirm that:

for policies and contracts made on or after 21 March 2007 (and some existing policies and contracts)
where the premiums paid exceed £100,000 in any given tax year
and the policy or contract is surrendered, matures or is assigned for money or money’s worth before the end of the third tax year after that in which the premium threshold is crossed

the amount of premium to be taken into account is reduced by the amount of any commission passed on to the policyholder or a connected person, or by waived commission which is reinvested.

Alternative finance arrangements

Legislation will be introduced in Finance Bill 2007 to provide new rules on the taxation of certain types of investment bonds, known as “sukuk”, which satisfy the Shari’a law prohibition on paying or receiving interest. These products replicate the economic effect of debt securities on which interest is payable, and the measure will ensure that they are taxed on a par with equivalent conventional securities.

The measure will also make a small change to previous legislation on alternative finance, to put the tax treatment of profit share agency arrangements beyond doubt.

The changes will apply to arrangements entered into on or after 6 April 2007 for income tax purposes and 1 April 2007 for corporation tax purposes. For companies, they will also apply to profits or losses arising on or after 1 April 2007 from existing investment bonds within the statutory definition. For income tax payers, they will apply to amounts received or paid on or after 6 April 2007 in relation to arrangements entered into before that date.

The new rules will provide that where the arrangements meet certain conditions, amounts paid by the issuer to the holders of such bonds will be deductible under the tax rules on loan relationships in the hands of the issuer, and taxable as if they were interest where the holder is subject to income tax, or under the loan relationships rules where the holder is subject to corporation tax. A gain on disposal of a bond by a person other than a company will be taxable under capital gains tax rules, except where the bond will be treated under the new rules as a qualifying corporate bond, and will come within the loan relationships rules in the case of a company. Bonds that are convertible into, or exchangeable for, shares will be taxed in the same way as conventional convertible or exchangeable securities.

The legislation will also make it clear that in alternative finance arrangements involving a profit share agency, the agent is treated, for all tax purposes, as entitled to the profits.

Recognition of stock exchanges and definition of “listed” for tax purposes

The listing of shares on a recognised stock exchange is a requirement for receipt of a number of tax reliefs, for example shares held in an ISA must meet this condition. Equally, a number of tax reliefs are available only where the shares are not listed on a recognised stock exchange.

This measure will allow the Commissioners of HMRC to designate as a recognised stock exchange any UK investment exchange that is designated an Recognised Investment Exchange by the FSA. The power to designate overseas exchanges will not be changed by this measure.