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Corporation Tax

Volume 114: debated on Monday 6 April 1987

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asked the Chancellor of the Exchequer what assessment he has made of the effects of his proposals relating to corporation tax on the capital gains of companies on life assurance companies; and if he will make a statement.

[pursuant to his reply, 2 April 1987, c. 560]: The Budget proposals for changes in the taxation of companies' gains will apply to life assurance companies. For disposals made by life assurance companies on or after 17 March 1987, the rate of tax will be 35 per cent.The effects of this change on such companies will vary according to the level of chargeable gains realised and the basis on which tax provisions are attributed to policyholders. The proceeds on maturity or surrender of policies often reflect provision for future tax liabilities which may arise when the life company realises assets. The extent to which such provision is made varies widely and is entirely a matter for each company. Many make a heavily discounted provision, computed on the basis that chargeable gains are unlikely to be realised for many years.Moreover, substantial deductions *— for example, for management expenses — can be set against life companies' gains and a significant proportion of such tax as life companies pay on their gains is on gains reserved for shareholders and does not affect returns on policyholders' funds.There is no reason, therefore, why the change proposed need have a substantial general impact on policyholders' returns.

asked the Chancellor of the Exchequer whether he will publish in the Official Report a table showing his forecast of the increase in revenue from corporation tax and advance corporation tax in the current year and in the next financial year; and if he will provide separate figures for (a) North sea oil and gas companies, (b) other industrial and commercial companies and (c) financial companies and institutions.

[pursuant to his reply, 30 March 1987, c. 395]: Information is in the following table. A reliable breakdown of tax receipts between industrial and commercial companies and financial institutions is not available for 1986–87 and 1987–88.

Receipts of corporation tax (CT)
(£ million)
All companies and financial institutions1 of whichNorth sea
Total CTACTCTACT Set-off2

1 Including North sea companies.

2 Liability to corporation tax arising in respect of North sea production may be satisfied by setting off ACT arising on dividends paid in previous periods in respect of both onshore and offshore activities. Dividends and ACT associated with North sea activities alone cannot be identified.

3 Provisional outturn.

4 4 Forecast.

asked the Chancellor of the Exchequer what is his estimate of the yield of an increase of 1 percentage point in the rate of corporation tax at the present rate of profitability, all other things remaining unchanged.

[pursuant to his reply, 30 March 1987, c. 395]: An increase of one percentage point in the 35 per cent. main rate of corporation tax would yield approximately £400 million in a full year at 1986–87 levels of income.

asked the Chancellor of the Exchequer what information he has about the rate of corporation tax in or equivalent company taxes in other industrial countries.

[pursuant to his reply, 30 March 1987, c. 395]: The information requested is given in the table, which covers EEC countries and major industrial OECD countries outside the EEC.

Basic rate of central government corporation tax
Rate percentage
United Kingdom35·0
OECD outside EEC
United States of America46·0


1. The rates shown apply to undistributed profits. Lower rates apply to distributed profits in Germany, Austria and Japan. No tax is charged on distributed profits in Greece.

2. There are lower rates for smaller companies in Belgium, Germany, Ireland, Luxembourg, Portugal, United Kingdom, Austria, Canada, Japan and the United States of America.

3. There are local income taxes on companies in Germany, Italy, Luxembourg, Portugal, Austria, Canada, Japan and the United States of America. These increase the tax burden on companies in these countries.