§ Amendment made: In page 29, line 41, after "or", to insert "of".—[Mr. MacDermot.]
§ Amendment agreed to.
§ Mr. Chapman
I beg to move Amendment No. 111, in page 30, line 20, at the end to insert:or except for any time during which he has been unable to occupy the residence by reason of the terms and conditions of his employment".The simple effect of the Amendment, if it does the job I hope it does—and I shall be grateful for the legal advice of my hon. and learned Friend—is to exempt from Capital Gains Tax any house which is owned by someone who, for a period, is unable to occupy it because of the terms and conditions of his employment.
§ Mr. MacDermot
On a point of order. Is it possible and convenient to the Committee to discuss this Amendment together with the next Amendment which is selected, as they both raise similar questions?
§ 11.0 p.m.
§ The Deputy-Chairman
I did not indicate that when the hon. and learned Gentleman formally moved his Amendment, but we are taking with this Amendments Nos. 498 and 499.
§ Mr. Chapman
I was saying that this is a simple Amendment, and I will be brief in moving it. The main residence of a citizen of this country is to be exempt from Capital Gains Tax, but what is to happen in the case of people who, owing to their employment, are for a period not able to occupy their main residence? As I understand the Clause, they would then become liable to the tax on their house by reason of their not actually living in it for some period of time.
One example came to my notice in my own constituency, as a result of which I carried out some research into the Bill. The example involves a man and wife who are the resident foster parents in a children's home. They have had to leave their own home and take up a purely residential job in a children's home in my constituency. They have retained their main home and are letting their own residence for the time being. They wish to retain their main home because their job may not last for ever and they may wish to move back into their own home after a period of employment. Or the may like to retain the home for their retirement and to move from their present residential accommodation when the time arrives.
I notice that similar points are covered by other Amendmentes, namely, the position of people with jobs abroad who retain their home in this country ready to come back to on ceasing their employment or for occupation on retirement. I hope that hon. Gentlemen opposite will support my Amendment instead of their own, because mine is of much wider application and certainly includes their own.
Many people in such a position as I have described are anxious to retain 992 their residence for a further reason. They know that in view of the present continual rise in house prices they will do better to buy a house now and hold on to it ready for their retirement or for use when they cease employment, rather than to wait perhaps five or 10 years before they purchase a house, by which time house prices will have risen to a very high level. At present, house prices are rising by about 10 per cent. per annum. Therefore, they are inclined to buy houses and to retain them in anticipation of retirement, whereas on other grounds they might be willing to sell them now and buy something later.
My hon. and learned Friend may say that this tax will arise only if, in the interim, and before their retirement, they decide to sell their house. That is true in that the tax is paid only if they actually dispose of the property. They may wish to dispose of the property. For example, they may hold their house for a time and then decide, for personal or even business reasons, that they need to move to a different area when they leave their present residential employment. After ceasing to be foster parents in a children's home in one town, they may find a job in a different town, away from their former residence. They may need to sell that residence and buy another in the locality of their new employment. That might be a sale which is equivalent to the main residence exception in the Bill.
Alternatively, when the time for retirement comes they may decide not to retire back to their original house but to seek a house in a seaside town, such as Brighton, or some other pleasant residential area. When they are doing that swop from their original residence to their place of final retirement, it is rather hard that they should be caught by the Capital Gains Tax on what is, in fact, their original and their main residence.
I do not think that the case is at all complicated. It is a very just case. I hope that my hon. and learned Friend will express some sympathy with it and will tell us, if he cannot accept the Amendment, how he can meet the point.
§ Mr. Grimond
I wish, briefly, to support the Amendment. There are many people who, from the nature of their employment, live in what are generally 993 called lied houses, and in particular I have received representations from ministers of religion. But there are many in a similar situation.
I appreciate that perhaps this is not a point of very wide application, because the Clause is of benefit only to people who want to dispose of the house. Nevertheless, if the Amendment were accepted we should bring within the range of the exception a valuable class of people who, through no fault of their own, are unable to live in the house which they have acquired for their old age. If they had to dispose of it, perhaps through misfortune, they would be exempt from Capital Gains Tax, if the Amendment were accepted, just as if they had lived in it.
This seems to me to be a reasonable proposition. I do not think that it will have a very wide application because it will apply only to people who have a house other than the house in which, by reason of their occupation, they are bound to live; if they want to dispose of it; and if they come within the ambit of the Bill.
I should at any rate like the Financial Secretary to give some consideration to the point. If there are strong reasons against accepting the Amendment, no doubt he will tell us what they are. Most of the people from whom I have received representations are a worthy class of people, and if we can help them I, personally, shall be grateful.
§ Mr. Michael Alison (Barkston Ash)
May I refer to the Amendment standing in the names of my right hon. Friend the Member for Mitcham (Mr. R. Carr) and myself? Perhaps I should begin by congratulating the hon. Member for Birmingham, Northfield (Mr. Chapman) on his Amendment, on the manner in which he moved it and the very sensible things which he said about it. I hope that he will excuse me if I step aside from the offer which he made to us to support his Amendment and invite the Committee instead to accept the Amendment standing in the names of my right hon. Friend and myself, for the simple reason that I believe that that Amendment battens on a principle which is embodied in the Bill. This may assist us in persuading the Government to accept it.
994 It seems to me that the Bill as drafted contains both a humanitarian and a logical principle, both of which we are seeking to extend in our Amendment. The humanitarian principle is very simple: it recognises that one can still consider the house to be one's home even when one is absent from it for quite substantial periods of time.
It recognises the principle that one might describe in the hackneyed phrase "Home is the place where your heart is"—but not necessarily where your body is. It recognises this principle by specific provision for people who have to be away for quite substantial periods of time, three years in the case of the provision contained in subsection (4), on page 30. This period specifically recognises that a person can still consider a residence to be his home although he may be absent from it for that period of time.
The Clause defines a house which is to be exempt from the Capital Gains Tax as that place which is an individual's only or main residence throughout a period of ownership. It goes on to include this apparently rather striking paradox, that the only or main residence throughout a period of ownership can include a very considerable period of absence. Subsection (4) in page 30, line 30, statesIf there was a period not exceeding three years…and later at line 35
… and both before and after that period of three years … there was a time when the dwelling-house was the individual's only or main residence.I think that the Financial Secretary will be struck by an interesting point of drafting here, namely that there is no specific reference to the length of time, either before or after this stipulated period of three years during which the individual must have been in residence in the said house.
To take as an example a span of ownership of five years, broken into one year of residence in the house, three years of absence and a further year in residence. If the total is computed and absence allocated as a percentage of the period of ownership it will be found that the individual has been absent for the greater part of the time of ownership, in this case 60 per cent.
995 There is no reason why there should not be an almost unlimited period of absence in respect of the total period of ownership. A person could have been absent for 99.9 per cent. of the period of ownership and still be "resident" according to the terms of this Bill. This is of some significance. The Amendment which we seek to move makes provision for somebody who is absent for a greater period of time than those three years. It may be 5, 10 or 15 years, but it might still be that the period of time for which he was absent, in relation to the total period of ownership is less than in the case of the first example given.
Logically, there is an irresistible case for suggesting that any period of ownership in which a proportionately smaller period of residence occurs than that provided in the Bill would naturally be eligible here. This is rather theoretical and I will deal with the practical implications of it and why we think it is important.
If this Amendment is accepted it ensures that although the period of absence within the period of ownership may be greater than the three years provided in these cases, when people do want to retain ownership and title to a house and expect to come back to it, they may do so. This applies to persons in professional circumstances who leave houses to serve overseas, in particular for extensive periods. I have in mind such categories of persons as missionaries and those in the Overseas Civil Service. These represent quite substantial numbers. I think there are at least 15,000 members of the Overseas Civil Service and I can say, on fairly general authority, that the number of British missionaries abroad at this time amounts to 5,000.
The Church Missionary Society tells me that the average period of service overseas is 15 years. There may be in some societies, particularly the rather poorer ones, difficulty in bringing home missionaries more often than once in five years. Many instances will occur in which either civil servants, missionaries or someone in this category will go abroad for 8, 10 or 15 years leaving behind a mother or elderly father in a house which they wish to retain and to which they 996 wish to return after an extensive period abroad.
It seems an unfair penalty that, in order not to be forced to pay Capital Gains Tax should they one day wish to dispose of this house many years later, they should have to sell the house before they go abroad even though they may have strong affection for it and strong, deep roots in it. For this reason, we would urge the Financial Secretary to consider whether he could extend, in the written word as it were, a principle which is implicit in the wording of the Bill as it is.
If a missionary or civil servant owned the house for, say, 20 years, this being the period of ownership—of which five years was spent in residence, 10 years overseas in foreign service of some sort, and a further five years in residence—the total period of residence as a proportion of the period of ownership, that is to say, 50 per cent., would be a greater proportion than the case I cited at the beginning, of the person who was resident for a year on either side of the stipulated three years. Perhaps the Financial Secretary will take this logical point into consideration and give us the concession for those who stay abroad longer.
§ Mr. MacDermot
The Government are grateful to my hon. Friend the Member for Birmingham, Northfield (Mr. Chapman) and the right hon. Gentleman the Member for Mitcham (Mr. R. Carr) for the Amendments they have put down on this matter, because they raise questions upon which we have received many representations, representations which we have thought about carefully. We think that this is a case where the Bill does require amendment and we are very glad to have the opportunity of receiving the views of the Committee upon these matters.
My hon. Friend the Member for Northfield is proposing that people unable to occupy a house which they own by reason of the terms and conditions of their employment should, nevertheless, have the benefit of the concession. The right hon. Member for Mitcham wishes that to apply in cases where their vocation causes them to pass a substantial and consecutive portion of their life overseas.
I would stress that this concession for the owner-occupier is a very important 997 and substantial concession in the Bill. It is an example, I think, of the favouring in our tax system which we have, on both sides of the Committee, provided for the owner-occupier. It was a matter which was commented upon in another context in the Milner Holland Report. It is another example of how we have made home ownership a more attractive investment in many ways than other things. In this respect, and in connection with this concession, I would stress that what we have proposed in the Bill is much more generous than exists under the United States Capital Gains Tax law, because there the exemption only extends to the extent that the capital gain which may be realised on the disposal of a house is reinvested in another house.
The reasons for our exemption are to encourage home ownership, to avoid any feeling of resentment there might be—and I think that it would be widespread if this was subject to tax—and, also, from a social point of view, to assist greater mobility, which is an important matter from a labour point of view. The effect of it, as I say, is to make home ownership very attractive from the investment point of view. I think that there was an article in a Sunday newspaper recently which described owner-occupation as the "bluest chip" of all.
In so far as we want to use this concession to promote mobility of labour it may he questioned whether, in a sense, my hon. Friend's Amendment, goes far enough, because it is restricted to cases where it is a determined condition of employment that a person should reside elsewhere, but one can imagine cases where a person has a home in one part of the country, and might—I am thinking in terms of technologists, managerial people, and the like—have a job in another part of the country for a number of years, intending and wanting to return to his own home: and where there are strong arguments why he should be able still to benefit from the concession, even if it is not a term and condition of his employment that he shall live in a particular tied house.
As the right hon. Member for Mitcham has said, there is already a provision in the Bill to meet the case of temporary absence up to a period of three years. Naturally, in drafting that provision, we had in mind that this is 998 intended to be a concession in favour of true home ownership, and not to provide a loophole by means of which people can live in a house for a few years and then, in effect, turn it into an investment without any intention to return and live there again. For that reason, we have the apportionment provision for absence of more than three years, to apportion the time between when the person lives in the house and when he uses it for investment.
There are many people who are in a position in which they would buy a house intending it to be their home, but who, for various reasons, have to live and work elsewhere. They want to keep on the ownership of the house, intending to return to it later, either during their working life or, perhaps, on retirement. We have had representations, particularly, from the Foreign Service, from people in the Armed Forces, from people whose business would take them to serve abroad. It does not only apply to those going abroad, but to those who live temporarily in other parts of the country—executives, technologists, public servants.
We wondered what was the right way to solve the problem. One could extend the three-year period to a longer period—five years, seven years, or whatever number of years it might be. The difficulty is that, whatever the period chosen, one would find examples of deserving people who would fall outside that period. The alternative approach, and it is the one which, if the Committee agrees, we favour, is to start at the other end, and say that those who can establish that a house really is, in the true sense, their home, but who have genuine reasons concerned with their occupation and work for living elsewhere for a period, even an extended period, should still be entitled to the benefit of the concession.
We must obviously put on some restrictions to see that this concession does not become subject to abuse, and open a wide door to evasion. Clearly, one has to require that there shall be a minimum period of occupation. I do not think that we could accept an extension of this concession to cases where the ownership of the property was a pure investment, even if it was an investment intended to accumulate and safeguard funds that could later be used to buy another property.
999 I do not know what period would appeal to the Committee. It seems to me that something like a two-year or three-year minimum period of occupation would be a reasonable and essential requirement. Obviously, also, the person claiming the concession must not have another residence within the United Kingdom which would similarly qualify for exemption. It may be that other qualifications will commend themselves to hon. Members, but we feel that a solution on these lines can be worked out. We should like to give further thought to the subject in the light of hon. Members' observations, and it may be helpful that I should indicate that at the outset of our discussion.
§ Mr. Graham Page
In any reconsideration of that Clause, I wonder whether the Financial Secretary will consider this point. The provision of the Clause—the incidence of the tax—if I understand it correctly, depends on the length of the period of absence from the house. If an owner-occupier is sent overseas for a definite period of 12 months and is able to let his house for that period, and if certain legislation now passing through the House reaches the Statute Book, if the rateable value of the house does not exceed £400 in London or £200 elsewhere, the tenant taking it will be a regulated tenant. The owner-occupier will have no right to get back his occupation of those premises. This may be a serious point.
I ask the Financial Secretary to bear that in mind when reconsidering the Clause, because the owner-occupier may, unfortunately, be unable to reoccupy his premises for a period of time.
§ Mr. Robert Carr (Mitcham)
I intervene briefly, principally to thank the Financial Secretary for considering the point made by my hon. Friend the Member for Barkston Ash (Mr. Alison). I think that it is important and I am sure that the Minister for Overseas Development would agree that this is important and that we should make it as easy as possible for British people to serve overseas, particularly in the developing countries. Therefore, I think that this Clause should be reconsidered.
I ask the Financial Secretary in his reconsideration to think carefully of this 1000 point. While I realise, on the one hand, the substance of what he said about having to have a minimum period of occupation, I ask him to reflect on it carefully and, even if he does consider it necessary, to keep that period to a minimum. Let us take an example. A man leaves Britain for a period of service overseas and, shall we say, he is living in Scotland. He serves his period overseas and when he comes back to Britain he may have to find re-employment here. Not finding suitable reemployment in Scotland, he may have to take it in a completely different part of that country.
It may so happen that he bought his house in Scotland only a year before going overseas and if, on returning there, four or five years later, in order to get a proper job in Britain he has to live in the Midlands or the South, he may genuinely have to sell his house in Scotland. To exclude that man from any benefit on the ground that he has not lived in that house for three years would be a hardship. I ask the Financial Secretary to keep that in mind.
§ Sir Edward Brown (Bath)
I am glad to be able to intervene in this debate, particularly to support the Amendment. I think that by the admission of the Financial Secretary this is a very sick Clause in a very sick Bill of which we are by now all sick. The Chancellor is sick of it and the country is sick of it.
This Amendment has been moved and, as it were, technically accepted by the Financial Secretary as a shot of penicillin into an economy that is already being poisoned by Socialism. I want to remind the Financial Secretary about what has been said about civil servants not being able to speak for themselves. I want to speak for my civil servants in Bath.
Many of my constituents are perplexed by the Clause as it stands. As civil servants, they are bound by a contract in which terms as to mobility are included. This brings me to the point about which the Financial Secretary expressed some sympathy. Formerly, they were able, when they left this country, to let their houses on lease or with a gentleman's agreement which ensured that the premises would be given up when they returned. 1001 Now, we have the Protection from Eviction Act, which precludes my constituents from getting their homes back when they return.
§ The Chairman
Order. I do not in any way question the rightness of the hon. Gentleman's observations, but he must relate them to the Amendment. All he says may or may not be true, but it has nothing to do with the Amendment. We are discussing capital gains.
§ Sir En Brown
I accept your Ruling, Dr. King. It seems clear to me that some of these people will have to sell their properties and, under the Clause as drafted, chargeable capital gains will arise through no fault of theirs. Many hundreds of my constituents, civil servants on the Navy side of the Government service, will face this sort of situation.
The Chief Secretary assured us earlier that the best possible advice had been given t o the Government, but the Financial Secretary told us that he had been under a great deal of pressure from other quarters. I suspect that it came from organisations representing my constituents and people similarly placed throughout the country. Civil servants should be regarded as in a special category in this respect. I have been asked to press their claim, which I have done, and I hope that the Amendment or the Financial Secretary's offer will lead to a change of policy and a fairer Clause.
§ Mr. Chapman
I am very grateful for what my hon. and learned Friend said. I hope that he will reconsider the minimum residential qualification which he proposes to put in any new Amendment in place of mine. A qualification of that kind will be very hard on people who, while abroad, buy a house here in anticipation of their return and who, perhaps, never occupy it before their final return to the United Kingdom. In other cases, the minimum residential qualification could be very tough because, no matter what period my hon. and learned Friend fixes, there will be hard cases on the wrong side of the line.
It would be much better to say that, so long as it is the main residence and intended as such, the exception shall stand, not subject to any minimum residence period. Otherwise, we shall have untold difficulties. I am sure that my 1002 hon. and learned Friend will be sympathetic on the point, and we shall have another occasion to discuss it. I am most grateful for what he said, and I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ The Chairman
For the guidance of younger hon. Members—I saw one attempting to rise and speak—may I say that, if an hon. Member seeks leave to withdraw an Amendment, it is still possible for any other hon. Member to object.
§ Amendment made: In page 31, line 15, after "two", insert "or more".—[Mr. MacDermot.]
§ Mr. MacDermot
I beg to move Amendment No. 142, in page 31, line 16. at the end to insert "for any period".
§ The Chairman
It would be for the convenience of the Committee if the next Amendment, No. 143, was discussed at the same time, in page 31, line 19, leave out from beginning to "or" in line 21 and insert "beginning of that period".
§ Mr. MacDermot
These two Amendments are very little more than drafting matters. Under subsection (7) there is no provision for the case of a man who has one house and does not need to make any option but who later buys another house and then wishes to opt to treat the other as his principal residence. The effect of this Amendment is to keep open the option so that he can exercise a choice within two years from the time when he acquires the second house.
§ Amendment agreed to.
§ Further Amendments made: In page 31, line 27, after "above", insert "the question".
§ In page 31, line 38, leave out "nomination" and insert "notice".—[Mr. MacDermot.]
§ Mr. John Hall
I beg to move Amendment No. 232, in page 32, line 21, at the end to insert:(10) This section shall also apply in relation to a gain accruing to an individual on a disposal of, or an interest in,—
- (a) dwelling house or part of a dwelling house which is or has at any time during the period of his ownership been the only or main residence of a dependent relative of his, or
- (b) land which he has for the occupation and enjoyment of the dependent relative
1003 with that residence as its garden or grounds up to an area (inclusive of the site of the dwelling house) of one acreas it would apply if neither the individual nor the wife or husband of the individual occupied any other residence and the occupation of his dependent relative had been his occupation.In this subsection "dependent relative", means a relative of the individual or of the wife or husband of the individual who is incapacitated by old age or infirmity from maintaining himself, or the widowed mother, whether incapacitated or not, of the individual or of the wife or husband of the individual.I shall be very brief in describing this matter to the Committee. It has been agreed in principle that the owner-occupied house shall be excluded from those assets which, on disposal, shall be free of Capital Gains Tax, but it is likely that the claims of such people as overseas civil servants, Service men, missionaries, and ministers of religion—although, it would appear, not Ministers of State—should be specially considered.
We seek, by the Amendment, to extend exemption to a dwelling-house, or part of a dwelling-house, which has been bought for a dependent relative who cannot, for good reasons, live with the family, but who has to be provided for. We have been careful to determine who is a "dependent relative". The Committee will see that it isa relative of the individual or of the wife or husband of the individual who is incapacitated by old age or infirmity from maintaining himself, or the widowed mother, whether incapacitated or not, of the individual or of the wife or husband of the individual.We have tried to make quite clear what we have in mind, and it would be unfortunate if, on disposing of a house to rehouse the dependent relative elsewhere, Capital Gains Tax were imposed. That would tend to discourage the movement of old people to more suitable accommodation. I am sure that the Minister must be sympathetic to this idea and I sit down in the confident anticipation that he will give the same consideration to this Amendment as to the last.
§ Mr. MacDermot
There is a popular fallacy that Treasury Ministers are cold and hard-hearted and never moved by any emotional appeal, and that it is only cold, remorseless logic which will make them shift at all. I would only point out in answering the hon. Member that in this case we do not feel that cold, re- 1004 moreless logic is on his side, but, nevertheless, we are moved by the sympathetic and emotional considerations to support his case.
As a matter of logic there is very little to commend this suggestion, because the person whom it is intended to benefit, namely, the dependent relative, is not the one who would benefit. The greater part of the benefit would undoubtedly inure to the taxpayer who provides the home for the dependent relative, for were the dependent relative for one reason or another to move he would then be free to dispose of the house and realise a capital gain free of tax. I suppose there might be some indirect benefit to the dependent relative because of the added inducement to the taxpayer to provide a home for him in these circumstances. I remember that when we were discussing an earlier Clause on the matter of exemption or otherwise of covenants in favour of aged mothers, terrible pictures were drawn of how dependent mothers and others would be driven to National Assistance as the result of the fact that wealthy taxpayers were deprived of exemption from Surtax.
Be that as it may, I think the Committee will agree that this is a proposal which has an obvious appeal to it, that it is not unreasonable that someone who provides a home for a dependent relative should have some benefit in respect of such property, as he does in respect of a house he occupies himself. We do think we would like to look at the Clause and consider the wording of the Amendment.
I think some limitation needs to be put upon the exemption. At the moment it could apply to any number of other houses. We think that probably it is right that this concession should be extended to only one other house beyond the taxpayer's own home. We would like perhaps to write a limitation of that kind into it. I do not want to commit myself to saying there are no other limitations, but this is the only one I have in mind at the moment.
If the hon. Member would agree to withdraw the Amendment I would undertake to bring forward an Amendment on Report to give effect to the proposal.
§ Mr. John Hall
The Minister is quite right in saying that this case is not based upon logic, because it is perhaps the kind of logic which Tweedledee, I think it was, explained to Alice,if it was so, it might be; and if it were so it would be: but as it isn't, it ain't. That's logic.I thank the Financial Secretary for his reply, and upon the assurance he has given I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Question proposed, That the Clause, as amended, stand part of the Bill.
§ Mr. Geoffrey Hirst (Shipley)
I take one second to ask a question which I have have not been able to put on the Amendments we have considered. This Clause applies to a gain accruing on disposal of a dwelling-house and up to an acre of garden or other ground required for the "reasonable enjoyment" of the house. I want to ask one question. It would have arisen on an Amendment which was not called and which of course I cannot now discuss. Does a garage come within the meaning of the definition in the Clause? I do not want to take up any time elaborating the question or the argument for it. I am sure that the Financial Secretary will understand it, and I should be grateful to know what the answer to the question is.
§ 11.45 p.m.
§ Mr. MacDermot
I am not sure whether the hon. Gentleman's question is extending to a garage which is separated from the main residence. I guess that that is what he has in mind. Obviously, a garage which is within the curtilage of his own home would be included. I had better be cautious because I have no assistance in this matter. I think that as the Bill is drafted it would not be possible for a separated garage which was quite a separate property to be included. But I should like to consider the point to see whether there is a feasible way in which the provision could be extended. Obviously, there are cases where people have a garage which is 100 yards or so from the house, and if there is a simple way of including that within the Clause, it would seem reasonable to do so.
§ Question put and agreed to.
§ Clause, as amended, ordered to stand part of the Bill.