Clause 29.—(CHATTELS SOLD FOR £1,000 OR LESS.) (Hansard, 27 May 1965)

§ Mr. Ramsden
I beg to move Amendment No. 203, in page 33, line 4, to leave out "one" and to insert "five".
The Amendment seeks to raise the exemption limit on chattels from the current figure of £1,000 to £5,000. As in our previous debates, when discussing chattels we shall no doubt be thinking principally of works of art. The Government have proposed a limit of £1,000 below which transactions shall not raise a claim for Capital Gains Tax. My hon. Friends and I have sought in previous discussions to exempt chattels altogether, but that has been rejected, and the Government's case in urging the rejection of our proposal has been that chattels must be in the Bill because everything else is and it would be unfair and breach their comprehensive principle to leave chattels out. The Amendment would not in any way breach that principle.
Early on Tuesday morning in a discussion of the difficulties which would arise in the administration of the tax on chattels—problems of valuation, preventing tax evasion and so on—the Financial Secretary said: I concede that difficulties arise in this respect, but we do not consider that they are so great as to outweigh what we think would be the objections in principle to the complete exclusion of chattels from charge. I accept for the moment the Financial Secretary's argument about the difficulties of total exclusion, but I think he will accept that there have been shown to be in our previous debates difficulties about the administration of the tax. Our case is that we should do everything possible to minimise the difficulties by narrowing down so far as is reasonable the field over which the tax will operate. Surely that would be a gain to the Bill.
The Solicitor-General may say that to do so would be to make the exemptions too numerous. The Financial Secretary said on Tuesday morning: As everybody knows, very substantial capital gains are made on some chattels. If … people were to hear and read of these gains being made and find that they are exempt from all charge, it would tend to bring the 1007 whole tax into disrepute."—[OFFICIAL REPORT. 25th May, 1965; Vol. 713, c. 467.] For the purposes of this argument, although I do not agree with that sentiment, I would even accept that. I think that the Government will concede that on gains of this size arising from transactions below the £5,000 limit there will not be many of the kind that will get publicity in the papers or upset people who learn of them with a sense of their unfairness. I should have thought that the order of gain in the charge below £5,000 will in practice be very little different from that which is below the £1,000 limit.
If the Government will accept this Amendment they will help to extricate Treasury Ministers from the dilemma in which they find themselves at the moment. The jam that they seem to be in is this. On the one hand, they say, "We cannot exempt chattels altogether, or a great many people will say that what we are doing is unfair." On the other hand, they are stuck with a tax which, even on their own admission, will raise very considerable difficulties in administration. I think that those in the Committee who have attended our previous debates on this matter will admit that the case made on this side of the Committee, in particular by my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies), about the difficulties of valuation, of administration and of preventing evasion, was extremely strong and made an impression on both sides of the Committee. They will, I think, also agree that the case was not convincingly answered by the Government.
We are, therefore, asking the Government to help themselves by simplifying the administration of this tax, which they can do without breaching in any way their own principle of comprehensiveness. If it is the Government's intention to maintain this tax they will be forced by sheer experience of the difficulties that they will encounter to do something themselves on the lines of this Amendment. It will save a great deal of trouble if it can be done at once.
I could elaborate, but I will refrain from going over arguments that have been expounded already. I think the Financial Secretary accepts that they are serious. He said that there was a valuation problem. It is a big problem. There are 1008 a large number of transactions involved which will be subject to the administration of this tax—something like 2,000 a year going through the auction rooms of Christie's and Sotheby's alone, to mention but two. I hope that the Financial Secretary will think hard about this, and that he will give us this Amendment as being a reasonable and practicable concession which in the end will be to the Government's benefit.

§ The Chairman
With this Amendment we are taking Amendment No. 204, in page 33, line 8, leave out "one" and insert "five", and Amendment No. 205, in line 10, leave out "one" and insert "five", both of which raise the question of £1,000 and £5,000, an issue which we discussed on an earlier Clause.

§ Sir C. Mott-Radclyffe
I support what my right hon. Friend the Member for Harrogate (Mr. Ramsden) has said. When the Minister replies I hope that he will pay attention to this point. Throughout our earlier debates on the question of chattels he has consistently underestimated the problem of valuation. He has consistently taken the line that it is rather analogous to valuation for Estate Duty. But there is no analogy there at all. The valuation for Estate Duty follows a fairly well-known practice, when a man's assets are valued on his death. Valuation for chattels over £1,000 on sale, in relation to what they might have been worth on Budget day, is a totally different problem of enormous complexity.
With a population of 52 or 53 million there are not sufficient trained qualified valuers to undertake this task. More than 50 per cent. of all the transactions that took place at Sotheby's last year were over £1,000. How do the Government think that this will be administered in practice? Has every item which is entered into a sale in any auction to have a certificate sent in by the vendor describing how he acquired it?
Has he to say whether he acquired it by inheritance or by possession, and if so the date, and if he bought it, what he paid for it? Is every cheque drawn on a bank to be accompanied by a certificate from the person who signs the cheque saying what the cheque is drawn in respect of?
1009 Purely on the administrative side, apart from the policy aspect, it will be impractical to try to apply a Capital Gains Tax to all chattels of say more than £1,000, and the more one thinks about it, the more one is certain about it. The Amendment seeks to extend the limit from £1,000 to £5,000. That, at least, eases the burden a little.
I hope that when the Solicitor-General replies he will deal seriously with this problem, and not in a sort of abstract way on the basis that this is a simple problem of valuation, because he knows that it is not.

§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
The figure of £1,000 will be eroded in value if we have continued inflation and I think that we can adduce this as an argument for accepting the Amendment. Surtax was fixed at £2,000 before the war. That sum is now worth £6,500 in terms of present-day money. If the proposed tax had been brought in in 1951 at the £1,000 limit, it would now be worth only £720.
I n view of the ever-lowering value of money, I feel sure that the Solicitor-General will agree that inflation will do further damage to this limit, and that to raise it to £5,000 would help considerably in the future.

§ The Solicitor-General
The Amendment has been moved and supported in an eminently reasonable manner, but I am sure that the right hon. Member for Harrogate (Mr. Ramsden) will not be disappointed or surprised if I say that the Government cannot accept it.
What it is necessary to consider is what is the object of the exemption up to the figure of £1,000? The object is not to create a class of assets which shall be immune from Capital Gains Tax. That is precisely what we would do if we were to accept the Amendment.
The object is quite different. It is to exempt ordinary household goods and possessions. If we apply that test, there can be nothing objective about it. It must be simply a matter of judgment as to where we put the figure. There can never be a precise figure, whether it is £1,000, £2,000, or £5,000. What we have to ask ourselves is, what do ordinary citizens possess?
The only chattel which the ordinary household possess which is worth more 1010 than £1,000 is a motor car, and motor cars are already expressly exempted by another provision in the Bill. It is very difficult to imagine anything else in the ordinary household—leaving aside people who are very wealthy—which is worth more than £1,000.
If we are dealing with chattels, there is one other way of drawing a line, and that is to be selective, to try to distinguish between one class of chattel and another, and put pictures on one side of the line, and other articles—say sailing boats—on the other.
12 m.
That, I believe, would be a perfectly impossible line to draw. Therefore, the only line we can draw is the sort of line which is drawn in this Clause. We have to fix a particular figure. This matter has been very fully debated already and I do not think the House wants to go over it again, so we invite the Committee to say that, quite clearly, £5,000 is much too high. We should be adding a very special exception in the case of chattels to the principle of a Capital Gains Tax, and we suggest that the figure of £1,000 is eminently reasonable, so we invite the Committee to accept it.

§ Mr. Fell
May I just ask one or two questions on this? Let us take, for instance, the case of someone who has been left a fine French table of some sort. which for argument's sake is worth £10,000. In that case, the person would pay tax on £9,000. Let us then take the case of someone who is left 10 pieces of silver, each worth £1,000 or just under. Am I right in supposing that if they are sold at separate times none of those would come within the Capital Gains Tax? If that is so, it is absolute rubbish. I asked a question the other evening, and I gave as an example a set of pictures, or a set of something else, which were sold separately, and the answer, so far as I could understand it, was that they would not incur the tax if they were sold separately.
The example I have given this evening is clearer and, as I understand the position, if 10 separate pieces or works of art are sold separately they will not incur this tax. However, if there is one piece and it is sold for the same price as the 10 pieces, it will incur 30 per cent. tax. If this is true, it really must be 1011 Patent and obvious nonsense to everybody. I presume that not even this Government are really going to insist on that. and that they must find some way round this position. I think they will find that the way round it will not be by agglomerating the 10 pieces and charging the tax on all those 10 put together.
Secondly, have the Government consulted the art market of London about this?

§ Mr. Fell
They must have been told that one of the basic reasons why London is the centre of the art world today is that there is no tax, but there is a tax in France and in America. Therefore, in spite of the fact that this Government badly want the money and badly want London to remain the art market, they are going to throw the art market away to Paris by doing this. May I have an answer to my first question, which is important? I cannot believe that the Chancellor of the Exchequer, for whose common sense we all have much admiration, and his hon. Friends, will make that kind of mistake.

§ Mr. MacDermot
I hope, for the hon. Gentleman's own sake, that on Tuesday night he was sleeping comfortably in his bed when, for many hours, we discussed this and kindred problems. If he can find the time, he should read the report of that debate in HANSARD, in which he will find the answers to the questions he asked, including the fact that I had received two deputations from the London art market and that I compared the tax position of the London art market with the art markets of Paris and New York.
I pointed out in that debate the incentive to the owner of a set of articles to sell them as a set because they command a higher price. If one has 10 articles which, individually, are worth just under £1,000 then, if they are a set, they will fetch considerably more than £10,000 if sold collectively.
The hon. Gentleman now suggests that there is something terribly illogical in the fact that if one has one article worth £10,000 one pays tax if it is sold but that if one has 10 articles worth just under £1,000 each one does not pay tax if they 1012 are sold. That is the effect of any exemption, of any cut-off. Sometimes one has a tapering provision and sometimes a cut-off. Where there is a cutoff this sort of thing must happen; call it an illogicality or an anomaly.
If one fixes a level above which gains on chattels pay tax, this situation will be produced. There is no great question of principle involved in this limit. It is a matter of judgment. Our aim was to find a limit which would include what everyone would regard as normal household chattels. And, taking a generous view, we thought that £1,000 was reasonable. However, we think that £5,000 would be too high.

§ Mr. Fell
I am grateful for that explanation and I apologise for not having been here on Tuesday night. I assure the Financial Secretary that this provision is not only illogical but grossly unfair. Throughout the evening I have listened to speeches from the Government Front Bench saying that it would be wrong to exempt this, that or the other, that it would be unfair to other people and that things would not be equally taxed.
What we are discussing now is the most unfair form of taxation I have ever heard. It makes the whole thing a nonsense. One man has a table worth £10,000 and another has 10 bits of silver worth £950 each. The first man pays £300 or £400 in tax while the second man pays nothing.

§ Mr. Maxwell-Hyslop
The question I wish to ask would, I am sure, have appealed to the Solicitor-General's father. I am not sure of the number, but certainly quite a few families in the West Country have had family bibles in their possession for hundreds of years. If they are lucky they will have a Breeches bible. Because of the demand for these bibles in America, they are worth well over £1,000.
I am sure that the Solicitor-General would not wish a family which had had a Breeches bible in its possession for 400 or 500 years to have to sell it to pay the Capital Gains Tax. [Interruption.] I assure hon. Gentlemen opposite that bibles of this sort are extremely valuable. Indeed, a 1599 Geneva version, of which there are a number in the West Country, would fetch a considerable sum indeed. 1013 I cannot think why hon. Gentlemen opposite find this amusing. A family does not have to be wealthy to have a bible of great age. I hope that the Solicitor-General will, if he cannot accept the Amendment, give an assurance to introduce an Amendment on Report to exclude family bibles from the provision. A much easier course for him would be to accept the Amendment. since a Breeches bible nowadays would not fetch more than £5,000.

§ Sir Hugh Lucas-Tooth (Hendon, South)
It seems to me that the Clause as at present drafted would catch the case of an artist who was selling a picture which he himself had produced if he was able to sell it for more than £1,000, or indeed this would apply possibly to certain other objects. Surely it would be utterly wrong to charge Capital Gains 'fax when the picture had been produced by their own skill?

§ Mr. MacDermot
The position would remain exactly as it is now. An artist who produces a picture and then sells it is liable to the Income Tax on it.

§ Sir H. Lucas-Tooth
It would mean both Income Tax and Capital Gains Tax. I hope that the point will be looked at.

§ Mr. Bessell
With all the brevity I can command, I would support every word and syllable uttered by the hon. Gentleman the Member for Tiverton (Mr. Maxwell-Hyslop). The point ought to receive sympathetic consideration by the hon. and learned Gentleman the Solicitor-General.

§ Sir Richard Thompson (Croydon, South)
I should like to support the Amendment for three main reasons. The first is that which was put forward by my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe), that there are not enough valuers available in this country to carry out the necessary valuations so as to enable this provision to work. It simply is not "on". At a time of inflation it is absolute nonsense to fix a limit like £1,000, as has been done in the Clause. The hon. and learned Gentle-man the Financial Secretary may think £1,000 meaningful today, but considering the rate at which money is losing value now and at which it will continue to lose value under the policies with which we are now confronted, in a short time it 1014 will be worth next to nothing. It is clearly wrong at such a time to fix a figure of £1,000 as being appropriate to the purpose of this Clause.
We ought not to worry too much, with respect to some of my hon. Friends, about the state of the art market. It has spokesmen who speak very well for it. I am simply trying to say something for the ordinary individual who, having seen what the Government have done for the national credit and what they have done to gilt-edged, seeks to transfer some of his few remaining assets into things rather than into Government securities. These people are not trying to make illicit gains. All they are trying to do is to purchase a little independence and decency for their old age and to pass on to their childreti a little of the fruits of their own industry. Can it be wondered if people at such a time put their money into things which they believe will not lose value, as nearly everything else is losing value?
It is disgraceful that the Government should seek to establish a limit of £1,000 which, before the year is out, will seem illusory in this kind of context. The Government ought not to introduce legislation which is capable of being so utterly set at nought and evaded, and which is incapable of being fairly administered over thousands of citizens every year. This is an absolute invitation to people to get round this provision. I hope that the Government will think again about it and not introduce this utterly unreal limit, which is so wrong and unfair to people who only want to build up a bit of independence for their old age.

§ The Solicitor-General
I intervene for one moment to answer the question which was put to me by the hon. Gentlemen the Members for Tiverton (Mr. Maxwell-Hyslop), and Bodmin (Mr. Bessell), both of which are constituencies with which I myself have had a long association. They both asked me what would be the position of somebody in the West Country who owns a Breeches bible which has been in the family for many generations and which is worth more than £1,000. My answer would be that if there were a disposition of the bible the only tax which the owner would have to pay would be on the appreciation in value since Budget day. I do not think that that would be a very heavy burden.

§ Mr. Maxwell-Hyslop
I could not agree less with what the Solicitor-General said. At 4 per cent. a year depreciation of the currency, in 10 years there would be a 40 per cent. increase in the value of such a commodity. Although we know that the Government will not last long, we are going through the form of passing laws which have no terminal date. I should have thought that from amour propre the Solicitor-General would have pretended that the legislation which the Government are pretending to pass would endure for more than a few days. The only interpretation which the Committee can put on his assurance that this is purely a chimerical argument is the certainty in his own mind that the Government will fall very quickly.
If he wants to adopt the pretence that the Government will last the full term for which they were elected, there will be at least a 20 per cent. increase in the value of the bible. He should note the extent to which the American market in rare books is pushing up the price in this country. His reply was an attempt to talk his way out of the point, which will convince nobody.

§ Mr. MacDermot
I beg to move Amendment No. 147, in page 33, line 24, after "person" to insert or (b) to persons who are acting in concert or who are, in the terms of paragraph 21 of Schedule 7 to this Act, connected persons". The Amendment follows an Amendment agreed on an earlier Clause.

§ Mr. John Hall
I beg to move Amendment No. 193, in page 33, line 24, after "occasions" to insert always provided such occasions are within a twelve months period and that such assets as come within this subsection are owned at the same moment of time".

§ The Temporary Chairman (Mr. Grant-Ferris)
The Committee may discuss at the same time Amendment No. 197, line 28, to leave out from "section" to the end of line 32.

§ Mr. Hall
With a desire to help the Government to make progress with the Bill so that at least they may have it before the Summer Recess, I shall be brief. It seems to me that under subsection (4) anyone who had, for example, half a set of china and gave it away—a half-set being worth less than £1,000—and later, at any stage, some years later, was able to find another part of that set, so that the two parts would make a complete set, and gave that away to the same person—or even to another person—might find himself liable to tax.
The Amendment will guard against that possibility. It is possible to give away half a set of chairs or part of a set of prints and some years later to find in an antique shop a matching part of the set. In making that gift some years after the first gift, one might be liable to tax. The Amendment has been drafted to meet the point. I hope that the Amendment is clear to the Financial Secretary and that he will accept it.

§ The Solicitor-General
This Amendment falls into two parts. The first part, always provided such occasions are within a twelve months period the Government are unable to accept. If the 12-month rule was accepted it would produce rather a strange result. A person who owned a set of six articles exceeding £1,000 in value, with each article worth less than £1,000, would be able to get round the rule in Clause 29(4) simply by selling five of the articles within 12 months and selling the sixth after the end of the 12-month period. That would make nonsense of the rule in Clause 29(4).
The second part raises rather different considerations, in proposing that a number of articles should not be treated as part of a set unless they are owned at the same time. That does not present any great difficulty because it never was the intention of the Government that this Clause should operate to treat as one set a series of disposals of individual articles out of a set which was constantly replenished by new acquisitions. We think there is a point of substance here and would like to consider it further. If this is agreeable to the hon. Gentleman we will certainly do so before the Report stage and see if we can meet him on the second half of the Amendment.

§ Mr. John Hall
On the principle that half a loaf is better than no bread at all, I thank the Minister for his sympathetic approach to this problem and, on his assurances, I beg to ask leave to withdraw the Amendment.