HC Deb 24 June 1965 vol 714 cc2037-54

Where a person carrying on a trade, or an enterprise in husbandry or forestry, disposes of, or of his interest in, assets and acquires other assets, or an interest in other assets, in circumstances to which section 31 of this Act applies, then if part only of the consideration obtained for the disposal is applied in acquiring assets, or an interest in assets, in Class 1 in subsection (6) of section 31 of this Act, and part is retained and applied within five years from the date of the acquisition, or an unconditional contract for the acquisition, of the new assets in carrying out additions or improvements to the new asset, which additions or improvements would qualify for allowances under Parts X or XI of the Income Tax Act, 1952, or under paragraph 16 of Schedule 4 of the Finance Act, 1963, the part so applied in carrying out those additions or improvements shall be deemed for the purposes of section 31 of this Act to be applied in acquiring an asset within the said Clause 1.—[Sir M. Redmayne.]

Brought up, and read the First time.

Sir Martin Redmayne (Rushcliffe)

I beg to move, That the Clause be read a Second time.

I hope that I can explain this Clause briefly. It is fortunate for the Opposition and unfortunate for the Government that this long Committee stage has given us the chance to make some elaborations or modifications of matters which we have previously discussed. I hope that I would not be out of order in saying that this Clause stems from the Country Landowners' Association, or in paying my tribute to the work done by that body both in direct contact with the Treasury and the Inland Revenue and also, of course, in co-operation with the Opposition, in helping to clear some of the fog which hid the meaning and effect of the Bill when it was first published and which is not very much cleared now.

In our discussions on Clause 31, on the replacement of business assets, the Government accepted the need for some elasticity in the time allowed for the replacement of one asset by another. This was left to the discretion of the Inland Revenue and the Government also agreed to look again at considerations arising from the sale or purchase of goodwill. For that we look for something on Report.

8.0 p.m.

Equally—and this is relevant to the new Clause, although in an opposite sense—it was made clear when we discussed Clause 31 that the value of the asset acquired need not precisely match the value of the asset sold, with particular reference to the case in which the asset acquired—a farm, an estate or whatever it might be—might be in some respects larger than that required by the purchaser or contain elements unnecessary to the purchaser which must, therefore, be sold off at a subsequent sale.

This is a related but, in a sense, opposite proposition in that I want to discuss the situation in which a business asset in good condition is disposed of, voluntarily or compulsorily, and the sum realised is reinvested in a similar business, perhaps of equal size, but in less good condition and which, therefore, would not itself absorb the full sum realised from the sale of the asset and would not become an asset of equal value, which is the real sense of the new Clause, until a considerable sum—that is, a part of the proceeds of the disposal—had been invested in the improvement of it to make it an asset of equivalent value.

Perhaps I can best explain the position this way. Farm A is sold in tip-top condition, with first-class modern buildings and with land well drained. With the proceeds, Farm B is bought—a good farm but perhaps in poor condition although capable of being fully a match for farm A if the balance of the proceeds is spent on it, perhaps over a period of years. This is where it is related to the other point which the Government accepted when we discussed Clause 31.

At that time the Government accepted that the Inland Revenue must have some discretion as to the time that elapses between the sale of one asset and the purchase of another. I therefore ask the Government sympathetically to consider that the purchase should not be regarded as complete in itself if it can be shown that there is need for some investment of the proceeds for the improvement of the new asset before it can be said, in the terms of Clause 31, to be a complete replacement of the asset.

The new Clause seeks to define the improvements or expenditures, following Parts X and XI of the Income Tax Act, 1952, which deal with initial and annual allowances and with expenditure on scientific research. The relevant words in Section 314(1) of that Act are: .. incurs any capital expenditure on the construction of farmhouses, farm or forestry buildings, cottages, fences or other works … If it were possible that discretion could be given or it could be written into the Bill that account should be taken of work of that type to bring the asset acquired up to the equivalent of the asset disposed of that would be of great assistance to men who find themselves in this situation.

Part XI of that Act includes a reference to scientific research, and has a par- ticular reference to sums paid to the Agricultural Research Council. That may be taking the matter wide, although it is a factor. Equally, there is a reference to Schedule 4 of the 1963 Act, which refers to protection against the overflowing of the sea or tidal rivers, although that would seem to take us even wider. However, the Financial Secretary will understand that, if this matter is to be considered at all, one must consider the various factors which might affect the improvement of a farm or estate under certain conditions so that there can be an equivalent exchange of assets.

As I say, possibly they could be defined more simply. Although I have little experience of these matters of definition, it seems that if the Government are willing for the point to be covered within the discretion of the Inland Revenue, when these general definitions would be of use in deciding what expenditures should be allowed under this provision, as amended by the new Clause or under the undertaking which I hope the Government will give. Without going further into the matter, although some of my hon. Friends may wish to comment on it, I hope that, since this is a sensible and logical elaboration on the point already accepted by the Government, they will be generous on this issue.

Sir Charles Mott-Radclyffe (Windsor)

As my right hon. Friend the Member for Rushcliffe (Sir M. Redmayne) clearly pointed out, the object of the Clause is to clarify the great deal of uncertainty which now exists about the application and interpretation of Clause 31 in the transfer of business assets.

I am neither a lawyer nor a Parliamentary draftsman, but unless I have misunderstood the position—and the Financial Secretary will put me right if I have—as the Bill is drafted Clause 31 states, in effect, that liability to tax is deferred only so long as the assets from the sale of the old property are reinvested in a corresponding asset of exactly the same price within 12 months. This may be all right in theory, but—

Mr. MacDermot

Perhaps we should be on common ground on this point. It need not be of exactly the same price. It could be a greater price and, pro tanto, one could get the benefit of the transfer.

Sir C. Mott-Radclyffe

It may be greater, of course, but it cannot be a lesser price.

Mr. MacDermot


Sir C. Mott-Radclyffe

That is the point that we are endeavouring to clear up. This presupposes that the sale and purchase of agricultural property, whether a farm or woodland commercially managed, is a penny-in-the-slot machine process. It is not a question of selling for £X,000 one week and buying for £X,000 within a year, so that the two nicely balance up.

Mr. MacDermot

Or X-plus.

Sir C. Mott-Radclyffe

As the hon. and learned Gentleman knows, the realities of life are very much less simple. Consider what happens. First, it is difficult indeed—and that is an understatement—to find a farm, above all with vacant possession, to purchase within 12 months, no matter what the would-be purchaser might be prepared to pay. Secondly, it is highly unlikely that the vendor of the old farm and the would-be purchaser of the new one would be able to find a farm of the right size, type, character and location to suit all his requirements, let alone within 12 months.

Thirdly, he may decide that he wants to buy a different type of holding. He may have got fed up with all the problems of milk production—particularly after the last Price Review—and wants to get out of milk altogether, sell his dairy herd and his farm and buy an arable farm.

Suppose he finds one he likes and wants to buy it. It may require substantial improvements or repairs. He might want to extend a grain dryer, concrete the yards, and so on. It is ridiculous to suggest that he should not be able to retain a portion of the assets he realised for the sale of the old farm so that he can carry out those improvements without having to pay tax on the difference.

Suppose that a farm is sold for £50,000 and the seller finds a farm he likes for £40,000. Unless I have misunderstood the position, the vendor and the would-be purchaser, being one and the same man, would be liable for tax on the £10,000 difference, although he might require, even in the interests of good husbandry, to spend at least £10,000, perhaps spread over a number of years, on improving the farm, a farm of a different type and which he wishes to bring up to date. This is what is worrying almost everyone in the agricultural and forestry industries.

The odds against finding an agricultural holding or a block of commercially managed woodland for exactly the same price as that received for the sale of the old holding are a million to one. It would be in the interests both of husbandry and forestry if the Capital Gains Tax were not applied to the sum realised when it is slightly larger than the sum the vendor has to pay for the new holding. I hope that the hon. and learned Gentleman will appreciate that this is a serious point which deals with the difficulties of the sale and purchase of all agricultural holdings, that he will listen to our objections and see that in this new Clause there is not only obvious common sense, but experience.

Mr. J. E. B. Hill (Norfolk, South)

I support this new Clause. Unless it is accepted, Government fiscal policy will be at variance with Government agricultural policy. We understood that the justification for Capital Gains Tax was to prevent people having fairly easy increments to their standard of living or spending power without proportionate exertion of effort, but we find that this would fall on people at difficult times of their earning career. This is characteristic in a change from one farm to another.

The Financial Secretary told us when we were discussing Clause 31 that a farmer could dispose of surplus assets arising out of the new purchase and not be caught for tax on that, but when we think of the pattern of purchase which is likely to be followed it is clear that, in most cases, in the move to the new farm there will be an indispensable requirement for further capital expenditure on new buildings and other works. If we consider the types of farms available we find that nearly all come into the market because the owner has died or someone has given up, often a non-viable holding. It is implicit in an examination of the agricultural situation by, I believe, all three political parties that there are many holdings which ought to be merged or amalgamated. Both main parties are not only urging a policy of amalgamation but speaking of grant-aiding amalgamations still further.

When two farms are amalgamated it is not simply a question of saying that they will run together and that production from both will be bigger, although then there will be only one farm. There always has to be far-reaching reconstruction to allow the amalgamated farms or pieces of land to reach their full potential. The National Agricultural Advisory Service and all expert opinion would say to a farmer—if he does not think of it himself—that he ought to overhaul the drainage arrangements, modernise the farm buildings and economise on labour to make the new production far more competitive than the old. For all these farm improvements Government grants will be available usually up to one-third of the expenditure.

8.15 p.m.

The farmer's difficulty very often, after paying the purchase money and meeting the expenses of the move and the temporary interruption to his business, is to finance the other two-thirds. Therefore, the incidence of Capital Gains Tax, if levied at that point of change, will be precisely at the point when the farmer is unusually short of capital and credit. This is an expense at a very difficult time. In the first years of the move to the new holding the farmer will have to draw in his horns as far as his own standard of living is concerned and concentrate on working up the potential of the new holding.

Mr. MacDermot

I am trying to follow the hon. Member's argument, but I confess that I am not following it in relation to amalgamation. If one is considering an amalgamation when a farm has come on to the market, say because the farmer has died, one imagines that it would be amalgamated with a neighbouring farm. The neighbouring farmer will not have sold his farm, nor, as it were, have a capital gain on which tax will be levied on the transfer under Clause 31. I am sure that I have misunderstood the hon. Member's point.

Mr. Hill

I beg the pardon of the Financial Secretary. I ought to have realised that he would naturally visualise the farmer remaining in one farm and buying another to add to it. I was thinking of the case where the farmer would have an opportunity of moving to obtain this or more new holdings and putting them together to make a new larger farm. Again, the new farm purchased may have been occupied by an old man and, in order to realise the potential, a great deal of capital would have to be spent in the early years. One of the proposals which the party opposite put forward at the election was to provide easier medium-term credit, say for 10 years, not to purchase the land but to finance essential improvements. It would be particularly unfortunate for Capital Gains Tax to be levied at that point of time.

We are not asking for remission of tax, but only for a postponement of its collection until the farmer is in a better position to pay it. It is not as though the scale of farming operations need necessarily be large to attract Capital Gains Tax, because there is no exemption limit of £5,000 as at death. There is a case in my constituency where someone occupied a small non-viable mixed farm, and was advised by the National Agricultural Advisory Service to change from uneconomic arable to intensive egg production. Undoubtedly the farm was bought for a few hundreds at the end of the war and it is perhaps now worth £X thousands. He was advised to buy a smaller area of land and equip it with specialised buildings. The form of farming production recommended would call for a great deal of capital expenditure after purchase of the land. It does not follow that this kind of work could be carried out in 12 months. A variety of factors may operate, in addition to the difficulty of deciding exactly what is needed, to postpone the new building. There may be difficulty in getting the site right or the drainage done. All of that might make a postponement for one, two or three more years before the work can be carried out.

I hope that the Treasury will realise the importance of not penalising farmers when carrying out the very operations we are trying to encourage at the moment of greatest need. If there is a fear in the Treasury mind that the construction might not be carried out and that the farmer might hold the balance of capital gains unexpended on new capital works, perhaps, if thought necessary, a way round that might be found by providing a system of drawback. If one puts up a farm building one is entitled, if the profits or the income are there, to have a repayment of Income Tax.

If the Financial Secretary has this difficulty in mind, it might well be that he can devise a system whereby, if there is a delay in erecting the buildings and the Treasury wishes to make sure of the tax, it can be collected but remitted against the execution of the buildings. The essential thing is that the farming business should not be deprived of its capital at the moment that it is most needed.

Mr. Peter Mills (Torrington)

I should like to place on record my appreciation of the valuable work that the C.L.A. has done. It has shown initiative and foresight and is to be congratulated.

I also support this proposed Clause because it could be of tremendous benefit to the West Country in which my constituency is situated. Over the last five years a large number of farmers, having sold their farms in other areas at a very high price, have come to the West Country, taken over a derelict and poor farm, and have started to build it up. Although I am a Devonian and it is said sometimes that we do not like "foreigners" to come into our part of the country, I can honestly say that these farmers have been of tremendous benefit to some of the poorer areas in the West Country. They have taken over these poorer farms and, with the extra capital that they have obtained from the sale of their better farms elsewhere, they have done a first-rate job.

Of course, this takes time. These improvements cannot be made overnight. Time and capital are needed. But these people have shown us how to do it. Some of the bigger farmers who have come into the West Country, with what I would call surplus capital from the sale of better farms, have shown what can be done with their knowledge and the extra capital available. But time is needed and they certainly do not want to be taxed in the early years when they are starting to build up and restore the poorer farms that they have taken over. This is a worthy Clause. It would enable the West Country to help these men who are injecting fresh capital and restoring these poorer farms.

Another point is that when one co-operates with the N.A.A.S. and works under the farm improvement scheme it is always necessary for the farmer to pay the whole of the improvement cost right away. He gets his grant when the work is completed. He does not want to be taxed again in the early days, in the sense of being hindered in finding the necessary capital in order to convert some of these poorer farms into viable farms. I therefore hope the Minister will consider this Clause carefully.

Mr. Paul Hawkins (Norfolk, South-West)

I am a chartered surveyor who is yearly—I should like to say "daily" but I am afraid that is not the case—selling farms, and I support this Clause.

I know of the practical difficulties involved in selling farms. Farm sales usually take place during the period May-September, and then probably no more farms become available until the next May-September period. It is very difficult to find another farm of the type one requires. One may go to one farm after another before one finds a farm which suits one's client. From bitter experience I can say how long it takes to get improvements done. The N.A.A.S. is an exceptionally good organisation, but it deals with public money and, therefore, has to be careful. We have to get out plans and estimates in triplicate, and very often it may take another two years to prepare the estimates and the plans and to carry out the work.

For these reasons, which I offer as a Member who deals frequently with the sale and purchase of land on behalf of clients, I hope that the Financial Secretary will be able to accept the Clause and find a way round these difficulties.

Mr. MacDermot

May I say sincerely that I have found this short debate very interesting. I am not a farmer, but for a number of years I have been a practising barrister on the Midland Circuit and we have some very litigious farmers on that circuit, as a result of which I have picked up a smattering of farming knowledge.

My father, who was also a barrister, used to say that the advantage of a career at the Bar was that one picked up what he called "Woolworth knowledge"—nothing worth over 6d., but it covered a very wide range. I have got a little beyond the 6d. range as a result of this and the earlier debates that we had on Clause 31.

This proposed new Clause is entitled "Disposal of assets in husbandry or forestry", but it has been framed very simply by the draftsmen so as not to appear to single out that industry for special favour, in wide and general terms which would cover any farm or trade. May I remind the Committee that the intention of Clause 31 is primarily to help the removal and expansion of industry. I said on 31st May—it seems a long time ago now—at column 1184 of the OFFICIAL REPORT that the object of the Clause was to try to afford relief in such a way as to ensure that the Capital Gains Tax does not inhibit the physical development and expansion of industry and commerce."—[OFFICIAL REPORT, 31st May, 1965; Vol. 713, c. 1184.] I did not mention agriculture in that phrase—

Mr. J. E. B. Hill

It is the biggest industry.

Mr. MacDermot

Some say that it is the biggest industry, while others like to think of it as being something different from an industry. Be that as it may, agriculture benefits singularly well compared with others from the effects of Clause 31. The reason for this is a curious one, which is that the definition of the trade of agriculture is very wide and is accepted by the courts as being wide.

During our debates I was given an example of a shopkeeper who had a pharmacy and then took on a sweetshop. I was asked, whether he would be able to benefit from Clause 31. I had to say "No, because it is a different trade," whereas when I was asked "What about the big farmer?", or, as the hon. Member for Windsor (Sir C. Mott-Radclyffe) said, if a dairy farmer is tired of dairy farming because the Government decide to concentrate on arable farming, or for some other reason, I said that he can still benefit because it is the same trade. The trade of agriculture is exceedingly wide.

I use perhaps a rather tendentious phrase in talking about the ability of "switching" within the agricultural trade which is possible under this Clause, and the result of Clause 31—I confess it is not that we particularly intended it or set about trying to produce this result—is to give very great assistance of which others may indeed be envious.

8.30 p.m.

I stress that the purpose of Clause 31 is to give a relief to those people who realise one capital asset and reinvest in another. It is to the extent that the capital gain is reinvested during that operation that there is this relief, which is not an exemption but a deferment of the liability to the Capital Gains Tax. It is, therefore, a relief limited to a particular operation, a transfer of business assets. It is not to be looked upon as a relief in itself in abstract so that, if there is an unused part of the relief, one could set about trying to find some way in which the unused part can be absorbed.

We were talking a few minutes ago about the X figure, and it is a convenient way of discussing these questions. If a man sells his business, whatever it may be, a farm or any other business, for £X and he buys a new one for £X or £X-plus, he can enjoy the benefit of Clause 31 because he transfers his capital gain into a new investment. But if his new investment is not £X but is £X-minus, then, if he can benefit from the Clause at all, he can benefit to only a limited extent. It will depend on the extent to which the difference is related to the amount of the gain. If it is £X minus Y, and Y is less than the capital gain he realised on the disposal of the assets, he will still get some partial benefit; but otherwise not. So what one is looking at is the extent to which the old asset is reinvested in the new.

Right hon. and hon. Members concerned particularly with the interests of agriculture point out that a man may sell his old farm and buy a new farm for which the actual purchase price is less but he wants to invest the balance of the money in bringing up the standard of the new farm and making it a going asset. It may be a derelict farm which has been allowed to fall below proper standards and he wants to invest his money in it, bringing it up to a proper working asset. This may take some time.

Therefore, the new Clause is framed in terms of allowing a five-year period of set-off in respect of the balance of the proceeds of the sale of the business. I say "business," but let us assume that it is limited to farms, although, as I said, the new Clause is framed in wider terms. The proposal is, as I say, to allow the balance of the proceeds of the sale of the old farm to be set off against any expenditure during the five years which would qualify for capital allowances or the special allowances under Section 214 of the Income Tax Act for agriculture.

I remind hon. Members that we have agreed in Committee, on Clause 31, not to be tied rigidly to the 12 months' period, and there is a discretion in the Revenue now to extend it. I gave an assurance to the Committee about the way in which we contemplate that the Revenue will exercise that discretion, and, perhaps, in order to avoid any confusion, I might quote my own words, which were, naturally, carefully chosen: Our intention is that the Board's discretion will be exercised in special cases, but in the normal way one would expect replacement to take place within 12 months. The Board would be prepared to exercise its discretion in a case where it was shown that it was not possible to replace the asset within the ordinary time limit by the use of ordinary foresight and prudence. If that can be established, if the person can show that, acting reasonably with ordinary foresight and prudence, he was not able to replace within the 12 months period, the Revenue would be ready to use its power to allow a longer period."—[OFFICIAL REPORT, 31st May, 1965; Vol. 713, c. 1178.] The point made is that that is all very well, but in farming the replacement of an asset includes the additional expenditure on bringing it up to standard, and this may be spread over a period of time; it cannot be done very quickly.

Perhaps I should explain generally, not limiting it to farming, but to supplement what I said earlier on Clause 31, that within the proper time limits the Board will take a broad view of what capital expenditure on the acquisition of an asset qualifies for the relief, and it will regard it as including not only the original costs of the acquisition but also any expenditure which is necessary to put the asset into going order. I think that that is a reasonable proposition and one of general application. That is why I put it generally, not only in terms of farming.

I would draw the distinction and make it clear that this is not intended to extend to the type of recurring annual expense which in the case of a trader would be allowed as a deduction in computing his income for the year in which the assets were purchased. We are talking only about capital expenditure in order to put the asset into proper-going order. On farming, all I can say is that if a farmer who is in the situation which has been described can make out his case and show that within the 12 months' period it was not possible for him, acting reasonably, and with reasonable prudence, to carry out that necessary capital expenditure in order to put the new farm which he had purchased into proper-going order, and that he needs a longer period, that application will be fairly considered on the basis of the principles I have stated. The test is in this sense: is it true capital expenditure to bring the farm up to the required standard, and is the period within which that was done a proper period with the use of reasonable prudence and foresight?

I hope I have made it clear that it is not that one needs to look upon this as an unused relief which can just be mopped up by any future capital expenditure, but if the actual operation of the transfer of the old asset to the new asset takes more than 12 months, once this is fairly established to the satisfaction of the inspector it will be accepted as being part of the transfer operation, and can include further capital expenditure beyond the original purchase price.

The example was given of a grain dryer. A farmer may have had a farm with a grain dryer and sold the farm and bought another and want to establish a grain dryer on it. One knows the time that it takes to get the necessary permits, permissions and building licences needed within a 12 month period.

Sir C. Mott-Radclyffe

Not a building licence.

Mr. MacDermot

The hon. Gentleman is correct, but the farmer still has to get the building inspector to look at it. All these things take time, but as long as they are done within a reasonable time I think people will find that the Revenue will treat the matter reasonably.

But that is as far as we think it would be right to go. For these reasons, I ask the Committee to be content to leave the matter within the field of this discretion that lies wihin the Revenue. I could not accept a Clause framed in these terms, which would allow a five-year period. Extended over the whole field of trade, it would not only be extremely difficult to supervise if as wide as that but would also have administrative complications, necessitating the reopening of tax assessments over past years. The Clause would go a great deal wider than hon. Gentlemen opposite intend.

Mr. J. E. B. Hill

Would the hon. and learned Gentleman clarify a point? He said that the Inland Revenue would consider whether or not the period put forward by the farmer was reasonable. He will appreciate that it may be very difficult for the farmer to have clear ideas about what he ought to do from an agricultural point of view at the very beginning. He may think that the new farm will support a dairy herd with modern dairy buildings, costing perhaps £5,000 to £10,000. It may not be certain that that is the right thing to do until he has been in the farm a year. He may just have a hunch about it.

At the same time, he has to decide to buy that farm and therefore I hope that, as soon as the sale has taken place and presumably there is liability to Capital Gains Tax, he should be able to give the Revenue a broad outline of his plans but not necessarily be expected to specify exact details.

This may depend upon advice from the Government. I hope that the hon. and learned Gentleman will meet the problem. Probably the farmer has to buy before he sells and is, therefore, heavily committed. I hope that the Revenue will be sympathetic and not expect to see a cut-and-dried plan within 12 months for, in many cases, it would be difficult to produce one.

Mr. James Scott-Hopkins (Cornwall, North)

I am grateful to the Financial Secretary for his approach to the Clause. I hope, however, that we can get clarification on many of the points of substance put forward. The case argued by my right hon. and hon. Friends is very strong and the way in which the hon. and learned Gentleman has gone a long way to meet it shows that he accepts the point. However, clarification is needed of exactly how far the discretion of the Revenue will be able to be exercised.

Will it apply to forestry as well as agriculture? The new Clause would apply to enterprises in forestry as well and I should imagine that there would be no difficulty in that. State trading in forestry enterprises would be covered by the same discretion that the hon. and learned Gentleman has mentioned for agriculture.

Then again, there is the case of the farmer who buys a farm which is perhaps not in a very good state. It is very difficult and most unlikely that he will be able to know exactly what is wanted, certainly in the first few months. Then there is the question of how long and how far the discretion is to be operated. I hope that, if a farmer is able to give the Revenue a broad outline of the kind of improvements necessary, it will look sympathetically at the case and exercise discretion in his favour, even though it may be that it will take, say, five years to get improvements and to know just what expenditure will be needed.

The hon. and learned Gentleman must not forget that a farmer deals with Government Departments and it takes considerable time certainly for farm improvement grants to be arranged. Presumably, these would form the bulk of the improvements we are talking about. It would be wrong if, because of delay like that, a farmer were denied the ability to use Clause 31 for whatever remains of his capital from the selling of his old property for improving the new.

The hon. and learned Gentleman referred to putting the farm into going order. This would, of course, include all the necessary repairs and the bringing of the farm buildings, the cottages and the fences up to proper standard. I imagine that that is what is meant. Will this discretion also include the sort of farm mentioned by my hon. Friend the Member for Torrington (Mr. Peter Mills)? Farmers moving to the West Country somethimes get rather out-of-date farms and modernisation is needed. This has been done in the past with the spare assets which have come from the sale of a farm. I hope that if a farmer has modernisation plans the Inland Revenue will be able to accept this as a proper and right use of the remaining assets of the sale of the original farm. If the Financial Secretary can assure us on this point, we shall be able to go a long way in accommodating him in his request to us to withdraw the new Clause.

8.45 p.m.

This is a vital matter for the farming industry. It is a pity that there is not a Minister from the Ministry of Agriculture, Fisheries and Food present. There are at least three Ministers in the Department, and I should have hoped that one would be able to sit, although mute, on the Government Front Bench to hear the strength of feeling which has been expressed on this Clause, and which will be expressed on subsequent Clauses.

The Financial Secretary has gone a long way to accepting the principle of what we are trying to do. If he can give assurances on the three points to which I have referred—forestry and agriculture, the length of time during which the Inland Revenue will exercise its discretion in respect of the outline plan for improvements and repairs, and modernisation—we shall be able to do what he has asked us to do.

Mr. MacDermot

I think that I can help to some extent. First, forestry and horticulture are clearly covered. Secondly, I do not think that it would be right for me to try to define the period further than I have done. We are here concerned essentially with something which we have agreed to entrust to the discretion of the Revenue, and it would not be right for me to try to define how it will use its discretion. It is its discretion and not mine. All I can do is to state the principles on which it is proposed that it should exercise its discretion. What the proper period is in any particular case must be decided in the light of the facts of the case. I think that it would be exceptional if it were to extend for five years. What one envisages is the work which is undertaken when the farmer moves into the new farm.

I was asked with reference to what I concede was a general phrase about putting the farm into going order whether that would include modernising. "Modernising" is also a somewhat vague term, but I know what the hon. Member for Cornwall, North (Mr. Scott-Hopkins) means. I can help him to this extent. If the programme of modernisation—I gave the example of a grain dryer, and farm buildings may be necessary for a modern dairy herd, and so on—is part of a plan on which the farmer embarks when he acquires the new farm—I agree that he may not be able to pinpoint precisely all the details of it, but if it is within the scope of a plan of capital expenditure to bring that farm up to the required standard, and it is obviously in the farmer's interest to establish this with the Revenue—the fact that it is not practicable for him to complete the programme within 12 months will be accepted by the Inland Revenue.

What we have in mind is not merely the repair and rectification of defects in the farm if it has been allowed to become derelict, but expenditure to add to the capital assets of the farm, where necessary, to bring it up to the required standard to enable it to be farmed properly.

I hope that I have not gone too far, but I also hope that I have gone far enough for hon. Members opposite.

Sir M. Redmayne

I do not hope that the Financial Secretary has not gone too far! We are, however, grateful to him. He has shown great understanding of the point. I know that what he has said will be much appreciated in the circles concerned. I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.