ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change has no implications for the amount of tax due, who pays it or when. It affects (in principle and in practice) only administrative matters.
Change 84: Limits to relief for payments to trade unions and police organisations and payments for benefit of family members: sections 457, 458 and 459
This change revises and simplifies the limits to relief for the life insurance related parts of payments to trade unions and police organisations under section 266(7) of ICTA and for payments to secure annuities etc under section 273 of ICTA.
The limits to relief are in section 274 of ICTA. They are in two parts.
Section 274(1) provides an overall limit of the greater of £1,500 and one-sixth of total income to the aggregate amount of premiums and other sums qualifying for relief under section 266. This rule did not impact on claims under section 266(7) and its linkage to other reliefs under section 266 (which are not being rewritten) is a needless complication. Accordingly, this part of the limit has been dropped. It did not apply to payments under section 273.
Section 274(2) and (3) provides a combined limit to relief under sections 266 and 273 in respect of any premiums or other sums that secure benefits other than capital sums payable on death. This is also complex, in that it combines premiums under section 266(1) with other payments under section 266(7) and section 273. Also, in expressing the limit as it applies to payments under section 266(7) in terms of tax at the basic rate, it is inconsistent with the fact that the relief operates as a deduction in calculating net income. Furthermore, relief under section 273 operates differently, as a tax reduction. It is much more natural to have independent limits applying to each provision.
The amounts of relief actually given under section 266(7) are small. While the existing limit to relief applies only to the part of any payment providing certain benefits, it is proposed to apply the limit to the whole of the qualifying payment. Although introducing a limit of £100 (corresponding to a qualifying payment of £200) is adverse in principle it is understood that no existing claims will be affected. And the fact that the relief will operate as a deduction in calculating net income rather than being limited to basic rate is taxpayer-favourable.
For relief under section 273 (ignoring the fact that other payments may have already used up some of the limit), the limit is £100 at basic rate. In strictness, the limit applies only to part of some payments under section 273, so again this aspect of the change is adverse in theory, but most or all payments under section 273 are solely to provide annuities to which the limit does apply. And in practice the limit has always been applied to all payments within that provision.
Each of the three provisions has been rewritten with an independent limit of £100. The exclusion of war insurance premiums from counting towards the limits (section 274(4)) is obsolete and has not been included.