HC Deb 10 July 1972 vol 840 cc1359-65

(1) Where an estate, in respect of which duty is payable on the death of a person dying on or after 6th April 1972 includes a minerals interest in land, the value of such interest shall not be taken into account in estimating the principal value of the estate, or the estate rate.

(2) Duty in relation to such interest shall be payable, in accordance with subsection (3) of this section, as though it constituted a separate estate, at a special rate of 30 per cent., or at the estate rate if lower.

(3) Duty at the rate specified in subsection (2) of this section shall be payable on the net monies, after deducting all necessary out goings since the death of the deceased, which may from time to time be received by way of mineral royalties, or on the proceeds of sale of the interest or a part thereof, during the period which may elapse until the interest, on the death of some other person, again becomes liable to duty, and the owners or trustees of such interest shall account for and pay duty with interest at the rate of three per cent. per annum from the date when such monies or such proceeds are received.

Provided that the eventual total of the duty payable under this subsection shall not exceed the duty which would have been payable but for this sub-paragraph.

(4) For the purposes of section 29 of the Finance Act 1970, in ascertaining the amount of mineral royalties there shall first be deducted from the gross sums received the amount of any estate duty which by virtue of subsection (3) of this section is payable out of the mineral royalties receivable in respect of the minerals interest, only the remainder being recognised as within the scope of the said section.

(5) For the purpose of this section— minerals" means all minerals and substances which are ordinarily worked for removal by underground or surface working, but excluding water, peat, top-soil and vegetation; and mineral royalties" means so much of any rents, tolls, royalties and other periodical payments in the nature of rent payable under a mineral lease or agreement as relate to the winning and working of minerals.—[Mr. Peter Rees.]

Brought up, and read the First time.

Mr. Peter Rees

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

The Clause is designed to remedy the situation created by renewed interest in the exploration for minerals. As my hon. Friend the Financial Secretary will be replying to the debate I merely draw attention to tin in Cornwall, fluor spar in the Pennines and copper in North Wales. It must be in the national interest to exploit these minerals. Indeed, this was recognised by the introduction of the Minerals Exploitation Act, the Second Reading of which was so ably moved by my right hon. Friend the Member for Bournemouth, West (Sir J. Eden), and there was a notable contribution from the hon. Member for Swansea, West (Mr Alan Williams).

It was calculated during the debate that the import of non-ferrous minerals last year amounted to about £600 million. If we were able to work up our own non-ferrous metals we would save imports to the tune of £100 million a year.

12.30 a.m.

In this context it is obviously crucial that the tax system should do nothing to discourage the granting of mineral leases. In the old days there were many long leases granted for the exploitation of coal, but coal was normally worked over a very long period and small royalties were paid so that the incidence of tax and estate duty was bearable. But now when minerals are discovered they are worked at a very intense rate over two or three years so that very considerable royalties are often paid to the land owner. On the death of an owner that double burden of income tax and surtax and estate duty may produce a net rate of as much as 23s. in the £.

That situation was recognised by the previous Administration in the 1970 Finance Act, by Section 29 of which royalties from the exploitation of mineral rights were taxed on an entirely new basis—half to income tax and surtax and half to capital gains tax. I therefore commend the Clause as an extension of the thinking behind the 1970 Finance Act, and I pay my tribute to Members of the Opposition who no doubt supported that Measure.

The scope of the Clause is that mineral rights should be valued as estate on their own, separate from the principal estate of the deceased, and duty should be charged at 30 per cent.—a quite arbitrary figure, I admit—or at the rate applicable to the rest of the estate on the assumption that it may be less. But the crucial point is that the duty would be payable when the royalties became payable or when the land owner sold the mineral rights for a capital sum and the sale proceeds were received. The duty is to be charged upon the royalties or the sale proceeds, but at a rate in total not exceeding 30 per cent. or the estate rate on the rest of the estate. Until the royalties have discharged the estate duty liability there is to be no further income tax or surtax payable on them.

It may be objected by my hon. Friend that this proposal is administratively untidy, and I know that this is an argument which very much commends itself to the Estate Duty Office. But there are respectable precedents for administrative untidiness. There is the special treatment of timber and the special treatment of works of art of national importance.

I commend the Clause as being in the public interest, as not discouraging the grant of mineral leases, and also as a matter of equity between executors and the Estate Duty Office as to the basic duty on the payment or on the receipt of cash for the assets of sale on the payment of royalties, and not by reference to some speculative figure in anticipation of royalties which may never be paid.

Mr. Dalyell

It is a pity that the debate on the Clause did not arise at a more civilised hour, because it deals with a very interesting subject. I should have thought that there was a very strong argument for following the American pattern which is developing, whereby on every new Treasury clause or Senate amendment on this kind of subject there is an environmental impact assessment. The Americans are working this quite well, and we might do the same. It is very silly to talk in terms of financial changes without measuring the environmental impact.

Mr. More

I do not feel able to follow the hon. Member for West Lothian (Mr. Dalyell) into the environmental implications of new Clause 37 but I support what my hon. and learned Friend the Member for Dover (Mr. Peter Rees) said. First, mineral working has assumed a new form with sometimes very much more rapid extraction than anything thought possible only a few years ago. Secondly, a curious fact which applies to deep mining increasingly contemplated for such ores as copper, tin and lead is that most of such mining ceased in this country at about the time when estate duty was introduced. We are facing a new fiscal problem.

I also commend new Clause 37 as a practical solution. There is something unreal in making a valuation of the minerals or a lease, particularly when the minerals are not being fully worked. The great point in favour of the new Clause is that it provides a practical code, and my hon. Friend the Financial Secretary might even confess that in many cases it might be beneficial to the Revenue because it offers, despite the sinister heading to the new Clause—"Separate estate", which always frightens the Estate Duty Office—a fiscal code which is based on a realistic appraisal of what is actually produced for the successor. That, as has been shown in the case of forestry, is a practical and sensible way of resolving what is in a sense a hypothetical case not known at the date of the death in question.

Mr. T. H. H. Skeet (Bedford)

I support new Clause 37 and I declare my interest in hard stone and other minerals. The whole of the Minerals Exploration Act, 1971, would be pointless if it were frustrated largely because of the prevalent taxation system. The granting of mining leases has become unattractive because of the fiscal disadvantages. Successors to an estate prefer to retain their flexibility to use the mineral resources to their own advantage. They might find it more encouraging if something were done in the fiscal system to render it more satisfactory.

The mineral lease, if it is to be granted over a number of years—say, 10 to 15—cannot be sold because the mineral operator has the advantage of it and has the terms he requires. In such cases it is very difficult for an assessment to be made of the value of the minerals lying under the ground—and for another reason, that until drilling begins the value of the minerals cannot be accurately ascertained.

Whilst it has been difficult to acquire voluntarily mineral rights, it has been found extremely difficult to acquire them by process in the courts. The Mines (Working Facilities and Support) Act, 1966, has proved to have many drawbacks; it has been applicable to only a few minerals, the conditions attached to it have been stringent and the machinery cumbersome and slow. The machinery of notation under the Town and Country Planning Act has also proved unsuitable. I compliment right hon. Members opposite on the provision in the Finance Act, 1970, which dealt with the incomes side but it should now be extended to estate duty. We still have rethinking to do on this issue.

There are several ways in which it can be done. I should like to see the payment of capital tax out of royalties and on royalties as and when they emerge. It would be far too great a burden to be placed on the lessor if the result is that the mine will be worked for 40 or 50 years but a lump sum is required well in advance. A suitable precedent for this may be derived from Section 40 of the 1968 Finance Act, where it is made possible for the mining lease levy—under that much-maligned Land Commission Act—whereby betterment levy was payable in a lump sum, or alternatively it could be done out of the future royalties as they arose. That is one way. Another way is by the abatement, viz., 45 per cent., in respect of agricultural land which has now been extended in this Bill to production herds of livestock and through Bolton to the fixed assets of manufacturing companies. This principle could be extended to minerals.

Perhaps the most applicable way is that suggested by the Clause where a flat rate duty of 30 per cent. is imposed. Will the Minister bear in mind that in the mosaic of legislation brought forward partly to stimulate the extraction of non-ferrous metals it would be pointless trying to spend about £50 million if it is rendered checkmate by the fiscal system which makes it impossible for mineral operators to bring minerals to the surface. I hope, if my hon. Friend is not prepared to accept the Amendment, that he will say that in his review he will do something to solve the problem thrown up by history.

Mr. Nott

I should declare a constituency interest in this subject in the sense that I have in my constituency one of the only two working tin mines in the country. The other is just over the boundary. I am completely surrounded by mineral working land and I own some land which I believe has minerals beneath it so I declare a personal interest too.

My hon. and learned Friend the Member for Dover (Mr. Peter Rees) has raised a wide question on mining generally and we will take the points he made fully into account. The Government recognise that the pattern of mineral extraction has been changing recently. In the past, when mineral workings were less extensive and estates tended to be larger, such workings were often confined to part of a single estate and this meant that the problems over estate duty loomed much smaller. Nowadays mineral developments are becoming larger, particularly in my part of the country. They are booming in a way in which they have not been booming for a long time and at the same time estates tend to be smaller.

In many cases minerals belonging to one estate can be worked only over an area larger than the estate. I recognise the point about the disincentive element in the signing of new leases. It is true that this can exist in certain cases. The fact that the return from a mining lease is uncertain in amount and timing is a matter which should be taken into account in the valuation for estate duty purposes. If the lease were sold to the operating company immediately after the death in an arm's length transaction the Inland Revenue would accept the selling price as the proper valuation. If my hon. Friends would like to give specific examples, on a confidential basis or in some other way, of when there has been a deterrent or where the Estate Duty Office may have placed an unrealistic value upon a mining lease, we will look at them carefully. It is, however, my understanding that the larger mining companies tend more and more to enter into options to explore rather than into leases.

12.45 a.m.

The proposals made in the new Clause are fairly fundamental in nature concerning the basis of the assessment of estate duty. I am sure my hon. Friends will realise that they would involve a substantial departure from the principles under which estate duty is presently levied. As I told my hon. Friends on an earner new Clause, we are reluctant to see a further extension of the categories of property which enjoy a special privileged form of estate duty taxation in the context of the wider review now being carried out under the Green Paper. This is the same point as I made on the earlier Clause concerning the 45 per cent. relief on agricultural land.

I can, however, assure my hon. Friends that the points they have made tonight have been noted by the Government and will be taken into account when the Green Paper is discussed further; but we would not at present find it appropriate to accept the Clause.

Mr. Peter Rees

I must confess that I am a little discouraged by my hon. Friend's reply, because at the end of the day his arguments amount to the fact that our proposal was administratively untidy. He did not actually say that it would open the door or that a coach and horses would be driven through the Bill, but it is the well-worn metaphor of untidiness that finally sways him.

Of course, it is often possible to sell the land or rights to a mineral operating company, which is probably often the only purchaser in the field. But because it is the only purchaser it inevitably pays a depressed price. In commercial terms, therefore, that is not a practical solution.

I am a little discouraged by my hon. Friend's approach but I take heart from his suggestion that he may look at the matter again when reviewing the whole subject of estate duty. On that basis, I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

Mr. Barber

As my right hon. Friend the Minister of Agriculture, Fisheries and Food is to reply to tonight's Adjournment debate, I beg to move, That further consideration of the Bill, as amended, be now adjourned.

Question put and agreed to.

Bill, as amended in the Committee and in the Standing Committee, to be further considered this day.

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