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Tax Exemption

Volume 113: debated on Monday 30 March 1987

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asked the Chancellor of the Exchequer whether he will publish in the Official Report his estimate of the saving to the Exchequer in 1987–88 of ending the exemption for life assurance, pension and other funds of (a) income tax and (b) capital gains tax.

[pursuant to his reply, 25 March 1987, c. 213]: The available information is as follows. These figures represent the estimated direct revenue effects of the reliefs on tax liabilities in 1987–88, taking the level of contributions that arise given the existence of the reliefs. The figures cannot therefore be interpreted as indicating the tax yield which might result from a change in the tax rules, as no account has been taken of changes in levels and methods of provision for retirement that might occur following such changes.

Estimated direct revenue cost 1987–88 (£ million)
Life assurance premium relief510
Retirement annuity premium relief410
Employees' contributions to occupational pension schemes allowed as a deduction for income tax purposes1350
Employers' contributions to occupational pension schemes not treated as taxable benefits in kind in the hands of the employees2,300
Relief on investment income of occupational pension funds (assuming relief at the basic rate)4,000


Costs of reliefs for pension contributions and investment income of pension funds cannot be aggregated as this would involve a degree of multiple taxation. No offsetting reductions are made to allow for tax liability arising on pensions paid out.

The above figures all represent income tax costs. I regret that no estimate is available of the cost of exempting capital gains derived by occupational pension schemes or by life offices as part of their pension business.