RELIEF FOR INTEREST: LIMIT FOR 1977–78 (Hansard, 21 July 1977)

§ Mr. MacGregor
I beg to move Amendment No. 93, in page 14, line 5, at end insert— '(2) In paragraph 4(1) of that Schedule, after paragraph (b) there shall be inserted the following additional paragraph— or (c) is at the time the interest is paid used as the residence of a divorced or separated spouse, who has borrowed additionally on the security of his main residence to provide for the other former or separate spouse, subject to total borrowing for this purpose or as part of the original mortgage not exceeding the annual limit."'. It often seems to be my lot to have to move the last amendment on the various stages of Finance Bills. Tonight appears to be no exception.
Some of my hon. Friends have rather unkindly dubbed this the "second mortgages for second wives amendment". They might at least have added "second husbands" as well. However, the amendment is not like that. It is neither a libertarian's charter nor an incitement to use divorce to get tax relief on mortgage interest payments.
I shall explain the background to the amendment. I was browsing through various representations made to the Chancellor in relation to this year's Finance Bill when one particular proposal from the Law Society caught my eye. The Law Society was pointing out that one effect of the Finance Act 1974 in relation to relief for interest was that in some cases divorced or separated spouses seemed to be particularly disadvantaged.

§ Mr. Ridley
On a point of order, Mr. Deputy Speaker. Although I am sitting extremely close to my hon. Friend the Member for Norfolk, South (Mr. MacGregor), I am finding it very difficult to hear him because of the hubbub from the other end of the Chamber. Could 2033 you possibly secure a certain amount of peace and quiet to enable me to hear my hon. Friend's words of wisdom?

Mr. Deputy Speaker
I appreciate the hon. Gentleman's point of order. It is a little disturbing when conversation goes on too loudly in the Chamber. I appeal to hon. Members to let us get rid of this final amendment tonight.

§ Mr. MacGregor
I am most grateful, Mr. Deputy Speaker, but I hope that we shall not "get rid" of it. I hope that we shall at least make some progress on it.

Mr. Deputy Speaker
Either way—accepted or rejected.

Mr. McGregor
The subsidence of the noise has made it unnecessary for me to shout down the ear of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley).
The Law Society pointed out that, in the case of divorced or separated spouses, the use of lump sum awards in matrimonial financial proceedings was increasing. It pointed out that, as a result of this, it is often necessary, for divorced or separated husbands—or, indeed, wives—to seek to raise the sum awarded to his or her divorced or separated spouse by means of a mortgage on the former matrimonial home, which becomes his or her home after the divorce or separation. However, according to the Law Society, the problem is that if this is done the interest on such a mortgage will not qualify for income tax relief as it is not a loan for house purchase, improvement or development.
That representation caught my eye because I have been running into a number of such problems in my surgeries, and I have had one or two representations from outside my constituency in relation to some of the ways in which recent legislation on matrimonial settlements is working out. Let me give one or two brief examples. These circumstances apply particularly to people in their 40s, 50s and 60s. In one case a spouse found that as a result of the splitting of the assets of the family—in this case his only assets were matrimonial home—he was forced into a situation in which he would have had to sell the matrimonial home and neither party would have benefited.
2034 In another case, a small farming business was having to be split up in order to meet the judgment of a matrimonial settlement.
I am not questioning the judgments. I say only that it should be possible for us to seek means by which a divorced or separated spouse might be able to raise proceeds in order to meet a judgment. In these circumstances, given that very often the spouse will have very few assets other than the matrimonial home, and probably only a small income, if it is necessary for him to do that by raising an additional mortgage it would surely be desirable. To enable the spouse to do that, we should perhaps look at the provisions of the 1974 Act in order to give him tax relief on the additional mortgage. It will be clear from the amendment that I am not trying to breach any of the conditions of the 1974 Act. I am not tonight suggesting that the total borrowing limit of £25,000 should be exceeded, although I maintain that in view of the rate of inflation the limit should now be raised.
I think that I have made the point simply and clearly. If the Minister can assure me that in all the circumstances I have outlined tax relief would be forthcoming for any additional mortgage raised on the former matrimonial home, that would fly in the face of the belief expressed by the Law Society but I should rest content. I am sure also that the Law Society would be much relieved. If, on the other hand, the Law Society is right in its fears about this matter, I hope that, since the matter is being pressed late in the proceedings on the Bill, the Financial Secretary will think about the problem with a view to sorting it out at a later stage.

§ Mr. Robert Sheldon
The amendment seeks to provide arrangements for second mortgages for separated wives. It seeks to provide for interest relief on any loan that is raised for a lump sum payment to a divorced or separated spouse.
There are a number of problems associated with the amendment. The drafting of it clearly fails to take account of the many complications, but I shall not go into that aspect. I understand the purpose of the amendment, and I shall direct my remarks at that.
There is no way to ensure that the money is spent in the way in which the hon. Member for Norfolk, South (Mr. 2035 MacGregor) wishes. It is not easy to put the hon. Gentleman's intention into legislative form. Where the relief would be only on the borrowing for a home, there would be no way of undertaking that that money would be spent in that way. A control mechanism would not operate. Why should the loan qualify only if the money is borrowed against the security of the home? Why should it not operate against the security of shares or a bank loan? I am not sure whether what is intended is a minor change or whether there is a fundamental defect in the amendment. I am not clear about the hon. Gentleman's intention on that score.

§ Mr. MacGregor
Would there not be many circumstances—the two I had in mind were in point—in which there were no other assets than an owner-occupied house and it was necessary to raise money on it? The real purpose is to enable the court's judgment to be met. It must be for the courts to decide where the proceeds are put.

§ Mr. Sheldon
I understand, but in equity it is hard to see why a person who has a large house and wants to provide a home for his divorced or separated spouse should be better enabled to do so than a person with some of his money in shares or other property, or even a policy on which to raise a loan, and a house of a more modest size, on which less money would be raised.
I can, however, offer the hon. Gentleman some comfort. There are other ways of meeting some of these problems. Under the 1974 Finance Act a husband can buy a house, in addition to the one he has himself, for his ex-wife, and interest relief is allowed against the purchase of the new house. That allows two kinds of interest relief. If there is a legally enforceable income settlement, he would get tax relief on his annual payments and the wife could use the annual payment to pay the mortgage of the house on which she gets the relief.
There are other ways of ensuring this end. If the hon. Gentleman will discuss the matter with me, I think that I can show him a number of solutions without having to go into these complexities. Although I have an open mind about any 2036 changes required to meet these ends, I believe that most of the points can be met in other ways without such complex legislation.

§ Mr. MacGregor
I am glad to hear that the Minister has an open mind. I shall seek further guidance in the light of his response with a view to bringing forward a similar amendment at a later stage. In the meantime, I beg to ask leave to withdraw the amendment.