HC Deb 08 July 1965 vol 715 cc1927-43
The Minister without Portfolio (Sir Eric Fletcher)

I beg to move Amendment 94, Schedule 7, in page 75, line 45, at the end to insert: (3) A person who is dissatisfied with the refusal of the inspector to give a direction under this paragraph may appeal to the Commissioners having jurisdiction on an appeal against an assessment to tax in respect of a gain accruing on the disposal. It will be appreciated that under paragraph 3 of Schedule 7 it is open to the inspector of taxes not to charge to Capital Gains Tax any distribution in respect of shares, but, instead of so doing, to deduct the amount of the distribution from the acquisition value of those shares, provided that he is satisfied that the amount of the distribution is small as compared with the value of the shares. In other words, the paragraph imports a tolerance which makes it unnecessary to make any formal Capital Gains Tax charge in respect of trivial capital distributions.

Representations have been made to the Revenue that the individual ought to have a right of appeal against the inspectors' decision, if the inspector decides that the amount of the capital distribution is not small and insists on assessing it to Capital Gains Tax. We think it reasonable that this right of appeal should be given, and the Amendment secures that object.

Amendment agreed to.

Further Amendment made: Schedule 7, in page 77, line 38, at end insert: (2) If in consequence of a conversion on their redemption date of securities of one of the descriptions in Schedule (Capital gains: Government securities issued at a discount) to this Act any securities of that description and a new holding of Government securities are, under paragraph 4(2) of this Schedule as applied by this paragraph, to be treated as the same asset acquired as the converted securities were acquired, and the adjusted purchase price (as defined in section 26(2A) of this Act) of the converted securities is less than one hundred pounds then, in computing under Schedule 6 to this Act the gain accruing on the acquisition and disposal of the new holding, or any part of the new holding, there shall be added to the amount of the expenditure which is allowable as a deduction the amount of the gain which would have been exempted from being a chargeable gain by virtue of the said section 26(2A) if the converted securities, or as the case may be the corresponding part of them, had been disposed of at the time of their redemption for a consideration equal to their nominal value.—[Sir Eric Fletcher.]

Sir Eric Fletcher

I beg to move Amendment No. 96, Schedule 7, in page 80, line 5, to leave out from "passed" to the end of line 9.

Paragraph 9 of the Schedule contains what is really a purely machinery provision designed to ensure that Capital Gains Tax can be assessed centrally on the trustees of any Lloyd's special reserve fund instead of being assessed separately on the underwriters who have interests in assets of that fund. In this respect we followed the provisions of Section 16 of the Finance Act, 1962, but representations have been made to us that we do not secure the ideal result by following the exact language of that Act. The deletion of these words on page 80 has been agreed with Lloyd's underwriters and, in fact, is made at their request.

I commend the Amendment to the House.

Amendment agreed to.

8.45 p.m.

Mr. Peter Walker

I beg to move Amendment No. 339, Schedule 7, in page 80, line 18, to leave out from the beginning to "neither" in line 22.

The Amendment seeks to remove capital redemption policies from the Capital Gains Tax. On 31st May, at an early hour in the morning, we moved a similar Amendment in order to ascertain what the Government's view was on this matter. We did this because we felt that they could not possibly be serious in including such policies, and we were startled when in his reply the Solicitor-General said: In our view there is a very clear distinction between an ordinary life policy and the kind of policy with which we are now concerned. We are dealing with a simple form of capital investment. Whatever may be said about insurance generally we submit it is right that capital redemption policies should be subject to Capital Gains Tax …."—[OFFICIAL REPORT, 31st May, 1965; Vol. 713, c. 1432.] I hope that the fact that the Solicitor-General is not with us at the moment and that the Minister without Portfolio is with us is an indication that not only has there been a change of Minister but that there has been a change of mind on this subject. In Committee I gave notice that we were surprised by the Solicitor-General's reply and that we should return to the matter on Report.

Capital redemption policies are of some importance to the economy. I submit that there is no justification whatever for taxing this form of policy. A capital redemption policy is nothing more than a system of regular contributions, accumulated with interest, which bear full taxation in the hands of the life office, and to subject the proceeds to tax on charged gains is a complete form of double taxation.

I gather that perhaps the Government's only fear is that capital redemption policies would be used by Surtax payers wishing to accumulate money free of Surtax. I can assure the House that, in practice, capital redemption policies are never used by Surtax payers to accumulate money free of Surtax, because if they wished to use this method of avoiding Surtax they would be much better advised to take out a life policy or an endowment policy of a normal nature, whereby they would not only avoid Surtax upon the investment by the life company but would also enjoy the benefits of the various tax deductions on life policies. For the Surtax payer the capital redemption policy would be far less attractive than the conventional life policy, and the Government have decided as a matter of Government policy to exempt the proceeds of life policies from Capital Gains Tax. On the Surtax argument, therefore, there is no justification whatever for including capital redemption policies in the Bill.

I warn the House that from every advice that I can receive from those life offices which engage in the issue of this type of policy, it seems that if the Government insist on continuing to include these policies as being subject to Capital Gains Tax, the result will be that life offices will stop issuing this type of policy. Obviously, it would be directly against the interests of anybody to repay a loan by means of a capital redemption policy. The offices would probably have to advise their existing holders of such policies to liquidate the arrangements and to arrange a mortgage. This would be a less attractive basis from the point of view of both the client and the insurance company.

The practice of life offices is to issue these policies to companies, and the majority of them are issued to smaller and medium-sized companies, companies normally of a range too small to obtain their capital by means of public subscriptions. They normally obtain a capital redemption policy for sums which vary, starting with quite substantial sums of £50,000 or so and sometimes ranging up to £1 million. This means of financing has proved a very convenient instrument in the capital market of this country, and it would have an adverse effect on medium and smaller-sized growth industries if the Government, for no valid reason at all, decided that this form of policy were to be taxed in future. They would be penalising a class of business by, I believe, having a wrong understanding of what the function of the policies is.

I hope that the Minister without Portfolio will be able to accept the Amendment and thus avoid what would be a ridiculous form of double taxation upon a means of providing an important rôle for our capital market.

Sir Eric Fletcher

The hon. Member for Worcester (Mr. Peter Walker) was right in what he said in his opening sentence. We had a very short debate on this subject in the early hours of the morning of 1st June when my hon. and learned Friend the Solicitor-General resisted an almost identical Amendment moved by the hon. Member, and the hon. Member indicated that he would return to the matter on Report.

In fairness to the rather lengthier argument which the hon. Gentleman has adduced today, I must try to amplify the reasons given by my hon. and learned Friend for resisting the Amendment on the previous occasion. Although I have listened very carefully to what has been said today, and although in the interim representations have been made by the life offices concerned to the Treasury on this subject, I am afraid that I must disappoint the hon. Member and tell him at the outset that the Government do not feel able to accept the Amendment. There are reasons which I think will satisfy the House that it would be inappropriate and inconsistent with our general thesis to do otherwise. Nor is it true to say that in our opinion the unfortunate consequences that the hon. Gentleman foresees will result from our resistance to the Amendment.

In the first place, capital redemption policies are totally different from life assurance policies. The reasons which have quite legitimately justified the Government in treating life assurance policies quite differently from other forms of assets and exempting them from liability to Capital Gains Tax were stated originally when my right hon. Friend the Chancellor of the Exchequer introduced the Budget on 6th April, but they have been repeated over and over again. Life assurance policies are a form of investment which has long been recognised and established, and it would be quite inappropriate for such policies to be subject to Capital Gains Tax. The only other similar exemption that arises is in respect of the special treatment given to unit trusts and investment trusts. These exemptions are all designed to help the small man.

The hon. Gentleman has said that capital redemption policies are not, in fact, used for tax avoidance purposes. I do not know to what extent they are used, but there is no doubt that they could be quite extensively used for such purposes because a capital redemption policy is, in effect, a provision of income to enable capital to be repaid at a later date. Therefore, it is a transference of income over a period of years into a form of capital, and it would be a standing temptation to high Surtax payers to resort to capital redemption policies for that purpose. They would get an advantage compared with the person who, instead of taking out a capital redemption policy, made an investment which attracted—

Mr. Peter Walker

Before the hon. Gentleman proceeds, would he explain why any Surtax payer would take out a capital redemption policy rather than an ordinary life policy, which does exactly the same thing; the dividends accumulate to the policy holder, who obtains the proceeds completely tax-free and, in addition, obtains Income Tax benefits?

Sir Eric Fletcher

One reason is that he might not want to take out a life policy. He might prefer a limited form of capital redemption policy. The fact remains that it is open to that form of exploitation, and for all I know it does exist. That being so, it would be quite indefensible to differentiate between a capital redemption policy taken out by an individual and a capital redemption policy taken out by a company. In fact, capital redemption business has been diminishing in recent years and in so far as the hon. Gentleman says that it is undertaken in respect of companies, to introduce an exemption would run counter to the whole philosophy of the Bill, which draws a distinction between tax on companies and tax on individuals. I do not think that I need labour further the reason why my right hon. Friend feels that it would be quite impossible for us to accept the Amendment.

Mr. Peter Walker

I am most disappointed with the Minister's reply. He has not made a case against the Amendment. When making a comparison with life assurance policies he said that we all knew the reasons why the Chancellor had decided not to tax the proceeds of such policies. We know those reasons and they are identical to the reasons why the Government should exempt this type of policy—the basic reason being life funds are taxed in any case. Likewise, the accumulated income that takes place on a capital redemption policy is first of all taxed, and the life company must pay the tax before it is paid on the capital redemption policy.

I assure the Minister that by persisting in the view he has expressed he will stop an important form of financing the small and medium-sized company. He is absolutely wrong in principle and, because of that, I must ask my hon. Friends to divide the House.

Question put, That the words proposed to be left out stand part of the Bill:—

The House divided: Ayes 278, Noes 274.

Division No. 246.] AYES [8.58 p.m.
Abse, Leo Fraser, Rt. Hn. Tom (Hamilton) Manuel, Archie
Albu, Austen Freeson, Reginald Mapp, Charles
Allaun, Frank (Salford, E.) Galpern, Sir Myer Marsh, Richard
Alldritt, Walter Garrett, W. E. Mason, Roy
Atkinson, Norman George, Lady Megan Lloyd Mayhew, Christopher
Bacon, Miss Alice Ginsburg, David Mellish, Robert
Bagier, Gordon A. T. Gregory, Arnold Mendelson, J. J.
Barnett, Joel Grey, Charles Mikardo, Ian
Baxter, William Griffiths, David (Rother Valley) Millan, Bruce
Bellenger, Rt. Hn. F. J. Griffiths, Rt. Hn. James (Llanelly) Miller, Dr. M. S.
Bence, Cyril Griffiths, Will (M'chester, Exchange) Milne, Edward (Blyth)
Benn, Rt. Hn. Anthony Wedgwood Gunter, Rt. Hn. R. J. Molloy, William
Bennett, J. (Glasgow, Bridgeton) Hale, Leslie Monslow, Walter
Binns, John Hamilton, James (Bothwell) Morris, Alfred (Wythenshawe)
Bishop, E. S. Hamilton, William (West Fife) Morris, Charles (Openshaw)
Blackburn, F. Hamling, William (Woolwich, W.) Morris, John (Aberavon)
Blenkinsop, Arthur Hannan, William Mulley, Rt. Hn. Frederick (Sheffield Pk)
Boardman, H. Harper, Joseph Murray, Albert
Boston, T. G. Harrison, Walter (Wakefield) Neal, Harold
Bowden, Rt. Hn. H. W. (Leics S. W.) Hart, Mrs. Judith Newens, Stan
Boyden, James Hattersley, Roy Noel-Baker, Francis (Swindon)
Braddock, Mrs. E. M. Hazell, Bert Noel-Baker, Rt. Hn. Philip (Derby, S.)
Bradley, Tom Healey, Rt. Hn. Denis Norwood, Christopher
Bray, Dr. Jeremy Heffer, Eric S. Oakes, Gordon
Broughton, Dr. A. D. D. Henderson, Rt. Hn. Arthur Ogden Eric
Brown, Rt. Hn. George (Belper) Herbison, Rt. Hn. Margaret O'Malley, Brian
Brown, Hugh D. (Glasgow, Provan) Hobden, Denis (Brighton, K'town) Oram, Albert E. (E. Ham, S.)
Brown, R. W. (Shoreditch & Fbury) Holman, Percy Orbach, Maurice
Buchan, Norman (Renfrewshire, W.) Howarth, Harry (Wellingborough) Orme, Stanley
Buchanan, Richard Howarth, Robert L. (Bolton, E.) Oswald, Thomas
Butler, Herbert (Hackney, C.) Howell, Denis (Small Heath) Owen, Will
Butler, Mrs. Joyce (Wood Green) Howie, W. Page, Derek (King's Lynn)
Callaghan, Rt. Hn. James Hughes, Emrys (S. Ayrshire) Paget, R. T.
Carmichael, Neil Hughes, Hector (Aberdeen, N.) Palmer, Arthur
Chapman, Donald Hunter, Adam (Dunfermline) Pannell, Rt. Hn. Charles
Coleman, Donald Hunter, A. E. (Fetham) Pargiter, G. A.
Conlan, Bernard Hynd, H. (Accrington) Park, Trevor (Derbyshire, S. E.)
Corbet, Mrs. Freda Irvine, A. J. (Edge Hill) Parker, John
Craddock, George (Bradford, S.) Irving, Sydney (Dartford) Parkin, B. T.
Crawshaw, Richard Jackson, Colin Pavitt, Laurence
Cronin, John Jay, Rt. Hn. Douglas Pearson, Arthur (Pontypridd)
Crosland, Rt. Hn. Anthony Jeger, George (Goole) Pentland, Norman
Crossman, Rt. Hn. R. H. S. Jeger, Mrs. Lena (H'b'n & st. P'cras, S.) Perry, Ernest G.
Cullen, Mrs. Alice Jenkins, Hugh (Putney) Popplewell, Ernest
Dalyell, Tam Johnson, Carol (Lewisham, S.) Prentice, R. E.
Darling, George Johnson, James (K'ston-on-Hull, W.) Price, J. T. (Westhoughton)
Davies, Ifor (Gower) Jones, Dan (Burnley) Probert, Arthur
Davies, S. O. (Merthyr) Jones, Rt. Hn. Sir Elwyn (W. Ham, S.) Pursey, Cmdr. Harry
de Freitas, Sir Geoffrey Jones, J. Idwal (Wrexham) Randall, Harry
Delargy, Hugh Jones, T. W. (Merioneth) Rankin, John
Dell, Edmund Kelley, Richard Redhead, Edward
Dempsey, James Kenyon, Clifford Rees, Merlyn
Diamond, Rt. Hn. John Kerr, Mrs. Anne (R'ter & Chatham) Reynolds, G. W.
Dodds, Norman Kerr, Dr. David (W'worth, Central) Rhodes, Geoffrey
Doig, Peter Lawson, George Richard, Ivor
Driberg, Tom Leadbitter, Ted Roberts, Albert (Normanton)
Duffy, Dr. A. E. P. Ledger, Ron Roberts, Goronwy (Caernarvon)
Dunn, James A. Lee, Rt. Hn. Frederick (Newton) Robertson, John (Paisley)
Dunnett, Jack Lever, Harold (Cheetham) Robinson, Rt. Hn. K. (St. Pancras, N.)
Edelman, Maurice Lever, L. M. (Ardwick) Rodgers, William (Stockton)
Edwards, Rt. Hn. Ness (Caerphilly) Lewis, Arthur (West Ham, N.) Rogers, George (Kensington, N.)
Edwards, Robert (Bilston) Lewis, Ron (Carlisle) Rose, Paul B.
English, Michael Lipton, Marcus Ross, Rt. Hn. William
Ennals, David Loughlin, Charles Rowland, Christopher
Ensor, David Mabon, Dr. J. Dickson Sheldon, Robert
Evans, Albert (Islington, S. W.) McBride, Neil Shinwell, Rt. Hn. E.
Evans, Ioan (Birmingham, Yardley) McCann, J. Shore, Peter (Stepney)
Fernyhough, E. MacColl, James Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)
Finch, Harold (Bedwellty) MacDermot, Niall Short, Mrs. Renée (W'hampton, N. E.)
Fletcher, Sir Eric (Islington, E.) McGuire, Michael Silkin, John (Deptford)
Fletcher, Ted (Darlington) McInnes, James Silkin, S. C. (Camberwell, Dulwich)
Fletcher, Raymond (Ilkeston) McKay, Mrs. Margaret Silverman, Julius (Aston)
Floud, Bernard Mackenzie, Gregor (Rutherglen) Silverman, Sydney (Nelson)
Foley, Maurice McLeavy, Frank Skeffington, Arthur
Foot, Sir Dingle (Ipswich) Mahon, Peter (Preston, S.) Slater, Mrs. Harriet (Stoke, N.)
Foot, Michael (Ebbw Vale) Marion, Simon (Bootle) Slater, Joseph (Sedgefield)
Ford, Ben Mallalieu, J. P. W. (Huddersfield, E.) Small, William
Snow, Julian Tinn, James Williams, Alan (Swansea, W.)
Soskice, Rt. Hn. Sir Frank Tomney, Frank Williams, Clifford (Abertillery)
Steele, Thomas (Dunbartonshire, W.) Tuck, Raphael Williams, Mrs. Shirley (Hitchin)
Stewart, Rt. Hn. Michael Urwin, T. W. Williams, W. T. (Warrington)
Stonehouse, John Varley, Eric G. Willis, George (Edinburgh, E.)
Stones, William Wainwright, Edwin Wilson, Rt. Hn. Harold (Huyton)
Strauss, Rt. Hn. G. R. (Vauxhall) Walden, Brian (All Saints) Wilson, William (Coventry, S.)
Stross, Sir Barnett (Stoke-on-Trent, C.) Walker, Harold (Doncaster) Winterbottom, R. E.
Summerskill, Hn. Dr. Shirley Wallace, George Woodburn, Rt. Hn. A.
Swain, Thomas Warbey, William Woof, Robert
Swingler, Stephen Watkins, Tudor Wyatt, Woodrow
Symonds, J. B. Weitzman, David Yates, Victor (Ladywood)
Taverne, Dick Wells, William (Walsall, N.) Zilliacus, K.
Taylor, Bernard (Mansfield) Whitlock, William
Thomas, George (Cardiff, W.) Wigg, Rt. Hn. George TELLERS FOR THE AYES:
Thomas, Iorwerth (Rhondda, W.) Wilkins, W. A. Mr. Gourlay and Mr. Fitch.
Thornton, Ernest Willey, Rt. Hn. Frederick
Agnew, Commander Sir Peter Dalkeith, Earl of Howard, Hn. G. R. (St. Ives)
Alison, Michael (Barkston Ash) Dance, James Hunt, John (Bromley)
Allan, Robert (Paddington, S.) Davies, Dr. Wyndham (Perry Barr) Hutchison, Michael Clark
Allason, James (Hemel Hempstead) d'Avigdor-Goldsmid, Sir Henry Iremonger, T. L.
Anstruther-Gray, Rt. Hn. Sir W. Dean, Paul Irvine, Bryant Godman (Rye)
Astor, John Digby, Simon Wingfield Jenkin, Patrick (Woodford)
Atkins, Humphrey Dodds-Parker, Douglas Jennings, J. C.
Awdry, Daniel Doughty, Charles Johnson Smith, G. (East Grinstead)
Baker, W. H. K. Drayson, G. B. Johnston, Russell (Inverness)
Balniel, Lord du Cann, Rt. Hn. Edward Jones, Arthur (Northants, S.)
Barber, Rt. Hn. Anthony Eden, Sir John Jopling, Michael
Barlow, Sir John Elliot, Capt. Walter (Carshalton) Joseph, Rt. Hn. Sir Keith
Batsford, Brian Elliott, R. W. (N'ctle-upon-Tyne, N.) Kaberry, Sir Donald
Bell, Ronald Emery, Peter Kerby, Capt. Henry
Bennett, Sir Frederic (Torquay) Errington, Sir Eric Kerr, Sir Hamilton (Cambridge)
Berkeley, Humphry Eyre, Reginald Kershaw, Anthony
Berry, Hn. Anthony Farr, John Kilfedder, James A.
Biffen, John Fell, Anthony Kimball, Marcus
Biggs-Davison, John Fisher, Nigel King, Evelyn (Dorset, S.)
Birch, Rt. Hn. Nigel Fletcher-Cooke, Charles (Darwen) Kirk, Peter
Black, Sir Cyril Fletcher-Cooke, Sir John (S'pton) Kitson, Timothy
Blaker, Peter Foster, Sir John Lagden, Godfrey
Bossom, Hn. Clive Fraser, Ian (Plymouth, Sutton) Lancaster, Col, C. G.
Box, Donald Galbraith, Hn. T. G. D. Langford-Holt, Sir John
Boyd-Carpenter, Rt. Hn. J. Gammans, Lady Legge-Bourke, Sir Harry
Boyle, Rt. Hn. Sir Edward Gardner, Edward Lewis, Kenneth (Rutland)
Braine, Bernard Gibson-Watt, David Litchfield, Capt. John
Brewis, John Giles, Rear-Admiral Morgan Lloyd, Ian (P'tsm'th, Langstone)
Brinton, Sir Tatton Gilmour, Ian (Norfolk, Central) Lloyd, Rt. Hn. Selwyn (Wirral)
Bromley-Davenport, Lt.-Col. Sir Walter Gilmour, Sir John (East Fife) Longden, Gilbert
Brooke, Rt. Hn. Henry Glover, Sir Douglas Loveys, Walter H.
Brown, Sir Edward (Bath) Glyn, Sir Richard Lubbock, Eric
Bruce-Gardyne, J. Godber, Rt. Hn. J. B. Lucas, Sir Jocelyn
Bryan, Paul Goodhart, Philip McAdden, Sir Stephen
Buchanan-Smith, Alick Goodhew, Victor MacArthur, Ian
Buck, Antony Gower, Raymond Mackenzie, Alasdair (Ross & Crom'ty)
Bullus, Sir Eric Grant, Anthony Mackie, George Y. (C'ness & S'land)
Burden, F. A. Grant-Ferris, R. McLaren, Martin
Gresham Cooke, R. Maclean, Sir Fitzroy
Butcher, Sir Herbert Grieve, Percy Macleod, Rt. Hn. Iain
Buxton, Ronald Griffiths, Eldon (Bury St. Edmunds) McMaster, Stanley
Campbell, Gordon Griffiths, Peter (Smethwick) McNair-Wilson, Patrick
Carlisle, Mark Grimond, Rt. Hn. J. Maginnis, John E.
Carr, Rt. Hn. Robert Gurden, Harold Marples, Rt. Hn. Ernest
Cary, Sir Robert Hall, John (Wycombe) Marten, Neil
Channon, H. P. G. Hall-Davis, A. G. F. Mathew, Robert
Chataway, Christopher Hamilton, Marquess of (Fermanagh) Maude, Angus
Chichester-Clark, R. Hamilton, M. (Salisbury) Maudling, Rt. Hn. Reginald
Clark, Henry (Antrim, N.) Harris, Frederic (Croydon, N. W.) Mawby, Ray
Clark, William (Nottingham, S.) Harris, Reader (Heston) Maxwell-Hyslop, R. J.
Cole, Norman Harvey, John (Walthamstow, E.) Maydon, Lt.-Cmdr. S. L. C.
Cooke, Robert Harvie Anderson, Miss Meyer, Sir Anthony
Cooper, A. E. Hastings, Stephen Mills, Peter (Torrington)
Cooper-Key, Sir Neill Hawkins, Paul Mills, Stratton (Belfast, N.)
Cordle, John Heald, Rt. Hn. Sir Lionel Miscampbell, Norman
Corfield, F. V. Heath, Rt. Hn. Edward Mitchell, David
Costain, A. P. Hendry, Forbes Monro, Hector
Courtney, Cdr. Anthony Higgins, Terence L. More, Jasper
Craddock, Sir Beresford (Spelthorne) Hill, J. E. B. (S. Norfolk) Morrison, Charles (Devizes)
Crawley, Aidan Hirst, Geoffrey Mott-Radclyffe, Sir Charles
Crosthwaite-Eyre, Col. Sir Oliver Hobson, Rt. Hn. Sir John Munro-Lucas-Tooth, Sir Hugh
Crowder, F. P. Hopkins, Alan Murton, Oscar
Cunningham, Sir Knox Hordern, Peter Neave, Airey
Curran, Charles Hornby, Richard Nicholson, Sir Godfrey
Currie, G. B. H. Hornsby-Smith, Rt. Hn. Dame P. Noble, Rt. Hn. Michael
Nugent, Rt. Hn. Sir Richard Roots, William van Straubenzee, W. R.
Onslow, Cranley Royle, Anthony Vaughan-Morgan, Rt. Hn. Sir John
Orr, Capt. L. P. S. St. John-Stevas, Norman Vickers, Dame Joan
Orr-Ewing, Sir Ian Scott-Hopkins, James Walder, David (High Peak)
Osborn, John (Hallam) Sharples, Richard Walker, Peter (Worcester)
Osborne, Sir Cyril (Louth) Shepherd, William Walker-Smith, Rt. Hn. Sir Derek
Page, John (Harrow, W.) Sinclair, Sir George Wall, Patrick
Page, R. Graham (Crosby) Smyth, Rt. Hn. Brig. Sir John Walters, Dennis
Pearson, Sir Frank (Clitheroe) Soames, Rt. Hn. Christopher Ward, Dame Irene
Peel, John Spearman, Sir Alexander Weatherill, Bernard
Percival, Ian Speir, Sir Rupert Webster, David
Peyton, John Stainton, Keith Wells, John (Maidstone)
Pickthorn, Rt. Hn. Sir Kenneth Stanley, Hn. Richard Whitelaw, William
Pike, Miss Mervyn Stodart, Anthony Williams, Sir Rolf Dudley (Exeter)
Pitt, Dame Edith Studholme, Sir Henry Wills, Sir Gerald (Bridgwater)
Pounder, Rafton Talbot, John E. Wilson, Geoffrey (Truro)
Powell, Rt. Hn. J. Enoch Taylor, Sir Charles (Eastbourne) Wise, A. R.
Price, David (Eastleigh) Taylor, Edward M. (G'gow, Cathcart) Wolrige-Gordon, Patrick
Prior, J. M. L. Teeling, Sir William Wood, Rt. Hn. Richard
Quennell, Miss J. M. Temple, John M. Woodhouse, Hn. Christopher
Ramsden, Rt. Hn. James Thatcher, Mrs. Margaret Woodnutt, Mark
Rawlinson, Rt. Hn. Sir Peter Thomas, Sir Leslie (Canterbury) Wylie, N. R.
Rees-Davies, w. R. Thompson, Sir Richard (Croydon, S.) Yates, William (The Wrekin)
Renton, Rt. Hn. Sir David Thorpe, Jeremy Younger, Hn. George
Ridley, Hn. Nicholas Tiley, Arthur (Bradford, W.)
Ridsdale, Julian Tilney, John (Wavertree) TELLERS FOR THE NOES:
Roberts, Sir Peter (Heeley) Turton, Rt. Hn. R. H. Mr. Pym and Mr. Dudley Smith.
Rodgers, Sir John (Sevenoaks) Tweedsmuir, Lady

Amendments made: Schedule 7, page 81, line 8, leave out from "debt" to "from" in line 9 and insert: acquired by the person making the disposal".

Schedule 7, page 81, line 12, leave out "and".—[Sir Eric Fletcher.]

Mr. Deputy-Speaker (Sir Samuel Storey)

The next Amendment is Amendment No. 231, in page 81, line 32, Schedule 7, at end insert: or by his assignee under any disposition not being a disposition for a consideration in money or money's worth other than consideration consisting of another interest under the settlement and provided that for the avoidance of doubt no chargeable gain shall arise in consequence of either:—

  1. (i) a variation of the trust of a Settlement or a resettlement pursuant to any power or provision contained in the settlement: or
  2. (ii) any variation of the trusts of any Settlement approved by an order of the Court pursuant to the Variation of Trusts Act 1958".
With this Amendment can be discussed Amendment No. 278, in page 81, line 40, Schedule 7, at end insert: But in computing gains accruing to him on the disposal of his interest the total net chargeable gain accruing to the trustee subsequent to such acquisition shall be treated as if it were expenditure incurred by that person allowable under paragraph 4 of Schedule 6 to this Act.

Mr. Peter Walker

Amendment No. 231 was put on the Notice Paper to deal with an anomaly which exists if a person is entitled to property subject to a life interest and comes into that property on the death of the tenant. No Capital Gains Tax is payable, but if that person's interest is settled by him under the trusts of a marriage settlement—instead of being his absolute property—Capital Gains Tax is payable on the death of the same life tenant.

There is also a point of clarification which was required and which we feel this Amendment will deal with. The Minister without Portfolio has kindly contacted me to say that there are certain drafting faults in this Amendment but the Government wish to accept its spirit. I wonder if I may have leave to withdraw the Amendment in order that the Minister without Portfolio may put forward a manuscript Amendment and explain it to the House.

Mr. Deputy-Speaker

There is no need to withdraw the Amendment for it has not been moved.

Sir Eric Fletcher

I have heard what the hon. Member for Worcester has said. He is quite right, except in one respect. I am not sure that this is actually an anomaly. There is a point of some substance and, with your permission, Mr. Deputy-Speaker, I shall move a manuscript Amendment which, for the sake of convenience, I call Amendment No. 231A. I hope that will make it unnecessary for the hon. Member to move or proceed with his Amendment No. 231. For the convenience of the House, I shall read the manuscript Amendment.

I beg to move, as a manuscript Amendment, in page 81, line 32, Schedule 7, to leave out, "his legatee", and to insert: any other person except one who acquired, or derives his title from one who acquired, the interest for a consideration in money or moneys' worth, other than consideration consisting of another interest under the settlement. 9.15 p.m.

With your leave, Mr. Deputy-Speaker, I would like to say a few short words in explanation of the Amendment. In substance it deals with the same point as is raised by the first part of Amendment No. 231. As the hon. Member for Worcester (Mr. Peter Walker) indicated, we are dealing here with interests under a settlement. Both my Amendment and that of the hon. Member for Worcester are designed to ensure that if interests under a settlement are disposed of by gift, the life, or other interests of such disposal, should not give rise to a claim for Capital Gains Tax. The reason is that to do so would introduce an element of double taxation, because the capital funds from which the life interests are derived are themselves subject, at periodic intervals, to Capital Gains Tax.

This applies in the case of gifts of life interests. The position is different in the case of sales of life interests. There the position is that in the case of a company which makes it a business to collect reversionary interests under the settlement, they carry on a trade and are subject to Income Tax or Corporation Tax, as the case may be in the ordinary way. If, on the other hand, there is an instance of a speculative purchase of reversionary interests, we think it is appropriate that Capital Gains Tax should be charged there. That is not provided for in this Amendment.

I ought to add that the Amendment of the hon. Gentleman the Member for Worcester contains a proviso, said to be for the absence of doubt, and relates to the kind of case in which there is a variation of trust to the settlement pursuant to an order of the court under the 1958 Act. My own view, and I am advised by those who have considered the matter, is that first of all there is no doubt that there are reasons which would make it undesirable to make an express proviso for the avoidance of doubt in this particular case because it might lead to the creation of doubts in various other cases. Therefore, we do not think it is necessary or desirable to have that proviso.

Mr. Peter Walker

I would like to express my appreciation to the Minister without Portfolio, firstly for moving this Amendment, which basically meets the point we intended to make in Amendment No. 231, and secondly for his assurance on a question of doubt concerning variations of the trusts of any settlement approved by order of the court, pursuant to the Variation of Trusts Act 1958. I gather there is some considerable doubt on this particular point, and I hope that the words of the Minister without Portfolio will serve to remove that doubt. Since his advisers think that the doubts are unfounded I would certainly urge my hon. Friends to support the Amendment.

Amendment agreed to.

Sir Eric Fletcher

I do not desire to move Amendment No. 314, Schedule 7, in page 81, line 40, at end insert: deemed to be effected by him under section 24 (3) of this Act). (3) So far as, in computing under Schedule 6 to this Act the gain accruing on the disposal of a defeasible interest which was created by or arose under a settlement and which was acquired by the person making the disposal otherwise than for consideration in money or money's worth, it is necessary to ascertain the market value of that interest at any time, the possibility of defeasance shall be disregarded, but this sub-paragraph shall not operate to create or increase a loss", because, in view of the acceptance just now of the manuscript Amendment, it would not be appropriate.

In its stead, I desire, with your permission, Mr. Speaker, to move a manuscript Amendment which, for the sake of convenience, I will call Amendment No. 314A.

Mr. Speaker

Very well.

Sir Eric Fletcher

I beg to move, as a manuscript Amendment, Schedule 7, in page 81, line 40, to insert: deemed to be effected by him under section 24(3) of this Act". I have circulated with the previous manuscript Amendment a note containing those words. This is a purely consequential proposal, and I hope that it is acceptable.

Amendment agreed to.

Further Amendments made: Schedule 7, in page 83, line 30, to leave out "his" and insert "an".

Schedule 7, page 85, leave out lines 19 to 21 and insert: grossing up at the marginal rate of tax, that is to say taking capital gains tax on a chargeable gain at the amount which would not have been chargeable but for that chargeable gain".

Schedule 7, page 85, line 34, leave out sub-paragraph (5).—[Sir Eric Fletcher.]

Sir Eric Fletcher

I beg to move Amendment No. 276, Schedule 7, in page 86, line 32, at the beginning to insert: Except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements".

Mr. Speaker

We can discuss, at the same time, Amendment No. 275, Schedule 7, page 86, line 32, leave out subparagraph (4).

Sir Eric Fletcher

The curious thing about Amendment No. 276 is that it stands in the names of my right hon. Friend the Chancellor of the Exchequer and the hon. Member for Crosby (Mr. Graham Page), which leads me to hope that it will be acceptable to the House.

Mr. Graham Page

My name was on the Notice Paper first.

Sir Eric Fletcher

I was not proposing to deny the hon. Member for Crosby any share of the credit for having initiated this Amendment. I was merely expressing the hope that in the interests of time, and in view of the consensus of opinion between us, the House would not think it discourteous if I did not spend too long in explaining the Amendment.

Broadly, the purpose of the Amendment is this. It will be observed towards the end of the Schedule that for Capital Gains Tax purposes partners are treated as connected persons. Where there are transactions between connected persons, it is the market value that has to be taken into account for purposes of assessing Capital Gains Tax and not any value that may appear in any transaction between them.

A number of bodies, including the Law Society, have pointed out that in certain forms of partnership transactions, with which the hon. Member for Crosby will be as familiar as I am, somewhat special, quite bona fide arrangements are made between outgoing and incoming partners. In those cases, it is not appropriate to talk about market value, and justice and common sense are both served if provision is made that the ordinary rules about transactions between connected persons are subject to the exception that in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements, the ordinary law with regard to transactions between other connected persons does not apply.

Amendment No. 275, in the name of the hon. Member for Crosby, would eliminate subsection (4). That is not acceptable. It is important that to preserve the structure of the liability to Capital Gains Tax as between connected persons, partners should still be treated as connected persons. There may be cases in which it would be right and proper that they should be, and we think that this exception would meet all the reasonable objections that have been taken to the drafting of this part of the Schedule.

Mr. Graham Page

Amendment No. 275 was, of course, an alternative to Amendment No. 276, and I would not wish to press it. I am grateful to the Minister without Portfolio for introducing the Amendment. It is, perhaps, ironical that this is an exception to the connected persons when I find at the head of the Amendment the strange connection between myself and the Chancellor of the Exchequer. This is certainly the exception to connected persons and I never thought that I should find myself running in double harness with the Chancellor of the Exchequer from the other side of the House.

However, I am indeed grateful. Considerable hardship would in many cases have been caused had this exception not been made to the general rule of the Schedule as to connected persons.

Mr. Lubbock

Having listened to the Minister without Portfolio, I am entirely convinced that the Amendment is a sensible one. I want, however, to place on record that simply because there happens to be agreement between the Chancellor of the Exchequer and the hon. Member for Crosby (Mr. Graham Page) on any subject, it does not necessarily follow that it is acceptable to the House of Commons.

Mr. Graham Page

Nonsense. The hon. Member could have put his name to the Amendment as well.

Amendment agreed to.