§ The capital transfer tax was introduced in order to reduce the weight of inherited wealth and the unfair power which this gives to a minority of the population. This had been the main purpose of the estate duty. But the estate duty was avoided on a massive scale particularly by the very wealthy and this, of course, failed to bring about the redistribution of wealth which was its aim.
§ The lengthy and acrimonious debates which accompanied the introduction of 265 the capital transfer tax revealed how important these avoidance possibilities have been, since despite the fact that the new tax is levied at far more moderate rates than the old estate duty, it produced far more hostility among those whom it affected.
§ I believe that now the tax is on the statute book its fundamental fairness in comparison with the old estate duty is becoming more generally recognised and accepted. We have been anxious of course to meet legitimate grievances as well as to remedy technical defects in the legislation as far as possible, as we said we would do in the light of all that was said in the course of last year's debates. I have been particularly concerned to ensure that it does not damage productive activities which are of value to the national economy.
§ I will now mention only some of the more important changes.
§ The first, and most important, concerns the impact of the tax on businesses and farms.
§ I have decided to introduce a new relief for businesses which will go wider than the old estate duty relief for industrial buildings and plant and machinery. Where a transfer relates to a sole proprietor's or partnership business, or to a controlling unquoted shareholding in a company, the value transferred will be reduced by 30 per cent.
§ The new relief will apply to businesses generally, not restricted to the manufacturing sector; but investment concerns and dealers in land and shares will be excluded. This is a very important change, particularly for small businesses. It will substantially lighten the burden on transfer of businesses and will go a considerable way to meet the representations which have been made about the inhibiting effect of capital transfer tax on the small firms sector. I believe that it will give the proprietors of small businesses greater confidence to invest and expand their activities.
§ As a further help to the small business men, I propose to increase from £1,000 to £2,000 the annual amount which a person may give away in life tax-free after using up any other exemptions. This will produce a further lightening of the burden on lifetime gifts over and 266 above the existing concession of special lifetime rates. While the relief will be of general application, it will be particularly helpful to the small business man transferring his business over a period to his successors.
§ If we add to these changes in capital transfer tax what I have already said about the increase in profit levels for the small company rate of corporation tax, and about the provision of medium-term finance for industry, this Budget has gone a long way to meet the Government's undertaking to cater for the special needs of small businesses.
§ The new 30 per cent. relief will also apply to farmers. Here I have taken account of the work of the Interdepartmental Working Party on Capital Taxation and Agriculture, which was foreshadowed in the 1975 White Paper "Food from Our Own Resources". The 30 per cent. relief will apply to the assets, including land, which are used in farming as it does to other businesses. In respect of his land the full-time working farmer will still be able to claim instead his existing special relief. However, I am taking the opportunity to adapt the form of the present multiplier relief for full-time working farmers to that of the new business relief, that is, to a straight percentage reduction. In this special case the reduction will be 50 per cent., which will achieve broadly the same effect as the present multiplier relief. I am not proposing to reinstate relief for agricultural landlords, which was a justly criticised feature of estate duty.
§ The new relief, which will cost an estimated £15 million in the first full year, will apply to all qualifying transfers after today.
§ The present exemption on death for works of art, historic houses and other property of importance to the national heritage will, subject to certain conditions, be extended to lifetime gifts and to property held in discretionary trusts, but at the same time I propose to toughen the conditions for the relief.
§ I shall be introducing new provisions to govern the treatment of property passing under survivorship clauses in wills; and to stop from today what the Press has labelled "The General Franco device". [HON. MEMBERS: "What is 267 that?"] There seems to be some uncertainty as to what that is, so let me hasten to add that it is a device which makes it possible to escape the capital distribution charge on money paid out of discretionary trusts. The trustees simply make the distribution conditional on the beneficiary surviving some named person, usually someone who is close to death.