RELIEF FOR GAINS LESS THAN £9,500

HC Deb 13 July 1978 vol 953 cc1761-78

Preliminary

1. In this Schedule references to any subsections not otherwise identified are references to subsections of section 36 of this Act.

Husband and wife

2.—(1) For any year of assessment during which a married woman is living with her husband subsections (1) to (4) shall apply to them as if the amounts of £1,000, £5,000 and £600 were divided between them—

1. (a) in proportion to their respective taxable amounts for that year (disregarding for this purpose paragraphs (a) and (b) of subsection (4)); or
2. (b) where the aggregate of those amounts does not exceed £1,000 and allowable losses accruing to either of them in a previous year are carried forward from that year, in such other proportion as they may agree.

(2) Sub-paragraph (1) above shall also apply for any year of assessment during a part of which (being a part beginning with 6th April) a married woman is living with her husband but—

1. (a) her taxable amount for that year shall not include chargeable gains or allowable losses accruing to her in the remainder of the year; and
2. (b) subsections (1) to (4) shall apply to her (without the modification in sub-paragraph (1) above) for the remainder of the year as if it were a separate year of assessment.

3.—(1) for any year of assessment during which or during a part of which (being a part beginning with 6th April) the individual is a married man whose wife is living with him and in relation to whom paragraph 3(1) of Schedule 10 to the Finance Act 1965 applies subsection (7) shall apply as if—

1. (a) the chargeable gains accruing to him in the year included those accruing to her in the year or the part of the year; and
2. (b) all the disposals of assets made by her in the year or the part of the year were made by him.

(2) Subsection (7) shall not apply for any year of assessment during which or during a part of which (being a part beginning with 6th April)—

1. (a) the individual is a married man whose wife is living with him but in relation to whom the said paragraph 3(1) does not apply; or
2. (b) the individual is a married woman living with her husband.

Personal Representatives

4. For the year of assessment in which an individual dies and for the two next following years of assessment, subsections (1) to (4) and (7) shall apply to his personal representatives as they apply to an individual.

Trustees

5.—(1) For any year of assessment during the whole or part of which settled property is held on trusts which secure that, during the lifetime of a mentally disabled person or a person in receipt of attendance allowance, any of the property which is applied, and any income arising from the property, is applied only or mainly for the benefit of that person, subsections (1) to (4) and (7) shall apply to the trustees of the settlement as they apply to an individual.

(2) In this paragraph "mentally disabled person" means a person who by reason of mental disorder within the meaning of the Mental Health Act 1959 is incapable of administering his property or managing his affairs and "attendance allowance" means an allowance under section 35 of the Social Security Act 1975 or the Social Security (Northern Ireland) Act 1975.

6.—(1) For any year of assessment during the whole or part of which any property is settled property, not being a year of assessment for which paragraph 5(1) above applies, subsections (1) to (4) and (7) shall apply to the trustees of a settlement as they apply to an individual but with the following modifications.

(2) In subsections (1), (4) and (7) for "£1,000" there shall be substituted "£500".

(3) For subsections (2) and (3) there shall be substituted— (2) If an individual's taxable amount for a year of assessment exceeds £500 the amount of capital gains tax to which he is chargeable for that year shall not exceed one-half of the excess.

(4) In subsection (7) for "£5,000" there shall be substituted "£2,500".

(5) This paragraph applies where the settlement was made before 7th June 1978.'.

Amendment (b), leave out paragraphs 2 and 3.

Amendment (f), in paragraph 6(1), after "applies" insert or in which an interest in possesion exists".

Amendment (a), in paragraph 6(1) leave out from "individual" to end of paragraph.

Amendment (c), in paragraph 6(5) leave out where the settlement was made before 7th June 1978 and insert whenever the settlement was made".

Amendment (e), after paragraph 6(5) insert '(6) Interest in possession means an interest in possession to which an individual is beneficially entitled'.

Amendment (d), after paragraph 6(5) insert '7. For any year of assessment during the whole or part of which settled property is held in trust so that an individual has an interest in possession in which he is beneficially entitled, subsections (1) to (4) and (7) shall apply to the trustees of the settlement as they apply to an individual'.

4.45 p.m.

Mr. Denzil Davies

Amendment no. 19 and the other Government amendments which are being taken with it implement undertakings given by the Government in Committee relating to the lower rate of charge for capital gains tax.

First, they extend the reliefs in clause 36 from capital gains tax in certain cases to the trustees of a settlement for a mentally disabled person or for a person in receipt of attendance allowance. Secondly, they provide an exemption for all other trusts where the settlement was made before 7th June 1978. The exemption applies from 1977–78 where the net gains of the year do not exced £500, and there is a marginal relief which limits the tax bill to one-half of the excess of those gains over £500. The relief thus runs out where the gains reach £1,250.

Those two provisions meet my right hon. Friend the Chief Secretary's undertaking in Committee to produce an interim measure, pending the outcome of consultations between the Inland Revenue and interested bodies including the Opposition and the Liberals' advisers, on the possible form of a long-term solution.

Thirdly, the amendments extend the full reliefs in clause 36 to personal representatives for gains accruing to them in the year of death and in the two following years of assessment.

I hope that with this explanation the House will be clear as to the nature of the amendments.

Mr. Anthony Nelson (Chichester)

To the extent that the schedule tabled by the Government meets the undertaking and commitment given by them in Committee, we welcome this extension of partial capital gains tax relief. We welcome the extension of relief to personal representatives, and the two-year period seems to me to be entirely reasonable.

We have tabled a number of amendments to the Government's schedule. Those in the name of my hon. and learned Friend the Member for Beaconsfield (Mr. Bell) seem to explore the position of man and wife in terms of the relief with which they will be provided in the new schedule. We spoke in Committee about the extent to which husband and wife should be entitled separately to claim the full relief, as individuals, provided in the clause, and my hon. and learned Friend's amendments seek to some extent to do that on this occasion.

Amendment (a) to the schedule, tabled in my name, seeks to extend the relief provided to trustees of a settlement with settled property so that all trusts can benefit, as in paragraph 5(1) of the new schedule.

The Government clearly accepted—certainly the Chief Secretary did in Committee—the case for extending the relief provided to individuals under the clause to trusts generally but felt unable, partly because of drafting difficulties of ensuring that multiple relief was not provided to trusts so that the opportunities for avoidance were extended, to extend this to trusts which could not be clearly defined as being in the interests of severely disabled or mentally disabled people. This seems to me to be an unduly difficult distinction which the Government have drawn. If there is a case for extending the full relief provided in the clause to certain categories of trusts, however well deserving those individual trusts might be, there at least seems to be a case in tax and morality for extending that relief to trusts generally.

Even after the passage of this schedule, the clause as it stands will discriminate against trusts which in many cases have been set up for minors, widows and those generally unable to manage their own affairs. It may well be that the reality of the situation is that the loss of revenue by this tax on what are effectively inflationary gains is the reason for the Government feeling unable to extend this relief rather than the difficulties of distinguishing between certain categories of trusts. The indication that about 75 per cent. of capital gains tax revenue might not be forthcoming, if the extension were provided to trusts generally, is perhaps an indicatin of the real reason for the Government feeling unable to extend this relief.

Mr. Nigel Lawson (Blaby)

The 75 per cent. figure is, of course, the figure that was given by the Chief Secretary. It was 75 per cent. of the total capital gains tax arising from trusts. What the Chief Secretary never told the Committee—I think my hon. Friend would agree that it might be useful if the House were now told—is what proportion of total capital gains tax revenue is paid by trusts at the present time. In other words, we know that it is 75 per cent. on the Chief Secretary's figure, but 75 per cent. of what?

Mr. Nelson

I agree with my hon. Friend. This would be a most interesting breakdown to have. It was not provided in Committee, although I believe that on that occasion my hon. Friend pressed the point on the Chief Secretary, who did not give any elucidation.

Many trusts, regardless of their objectives and the status of the beneficiaries, may be forced to realise gains in a way that many individuals are not. For example, they may be forced to increase the yield of their portfolio or to sell shares which have been held over a long period of time. Disposals might be required for a trust to be in accordance with the Trustee Investments Act, transfers on attainment of a given age might be a condition of the trust or there might be deemed disposals. In all these cases, trusts might be forced to realise gains. But as, in the vast majority of cases—we are talking about a considerable number of trusts nationally—such realisation will result in a substantial tax liability, there seems to be an increased case in equity for this relief to be extended.

After all, differentiation in treatment might not have been so substantial before this relief was extended in the clause, but now that individuals are entitled to obtain a very valuable relief, up to about £9,500-worth of gains per annum, the exclusion entirely of certain trusts seems to be wholly unreasonable. Therefore, the extension of relief in clause 35 makes the relative position of trusts considerably worse.

I reiterate what is a powerful argument for extending this relief generally, which is that over a period of time the prejudicial treatment of trusts which are not able to claim the full relief provided in the clause can amount to a considerable difference between their treatment in respect of capital gains and an individual's treatment. The example which I quoted in Committee was that over a period of seven years it is quite possible that a trust which realised gains of about £9,000, and over that time had losses brought forward of about £1,300 might find itself paying a capital gains tax liability of more than £2,300. Yet an individual, with exactly the same set of circumstances and assets, would pay a tax liability of only £150. In many cases, it is a pure accident that an individual happens to own the assets absolutely, or else they happen to have been provided for him in trust because of disability or whatever else. It seems wholly unreasonable that with the same set of circumstances the individual will have to pay only £150 capital gains tax whereas the trust will have to pay more than £2,300.

I believe that the arguments were to some extent accepted by the Government and that they were prepared to introduce the full relief for the two categories of trusts—those providing for people on attendance allowance and those for the mentally disabled. I put it to the Minister—I hope that he will be able to clarify this—that even here there are some difficulties of definition. I take the point that he is anxious to ensure that trusts which provide for the most disabled members of our community should be entitled to this relief. But with regard, for example, to those in receipt of attendance allowance there are many cases in which individuals who are severely disabled might not qualify for attendance allowance, but who most certainly should in any cause of equity be entitled to the relief provided in the clause.

I understand that a case is currently being pursued whereby certain individuals who have to be linked up to a kidney machine for two days a week are possibly not entitled to an attendance allowance. For these people, who in many cases are clearly severely disabled and for whom trusts may be provided, it seems unreasonable that the relief provided to individuals in the clause should not be extended to the trusts which provide for them.

To some extent this was accepted by the Chief Secretary in Committee, because he said that there was no reason why one should not seek to help such trusts, especially where they covered small amounts of capital and provided income for widows, spinsters, pensioners and other categories. I hope that this debate will provide the Minister with an opportunity of reconsidering the matter.

There are two other matters which I should like to raise. First, the Minister said that, although he would bring forward a partial relief—that of the £500 exemption and a reduced rate thereafter, tapering out at around £1,250-worth of capital gains for trusts generally which were set up before 7th June—he would consider, in consultation with ourselves, our advisers and other interested groups, the possibility of extending or providing this relief generally later on. Although this was readily taken up by certain of our advisers, and a reply was received from the Minister, this suggestion does not appear to have been backed up by a very helpful attitude.

In the Bill, the Minister has not felt able to extend the relief and, indeed, has not given a very positive indication that he will enter into consultations with interested groups to ensure that this relief is extended by the time any future Bill is brought forward. It is obviously unlikely that this Government will bring such a Bill forward in the time left to them, but one would like to feel that the Government have the right intentions in this respect.

The only reason that the Government proffered for not providing the full relief to all trusts was, in the words of the Chief Secretary: The reason why I suggest £500—it is, of course, a lower level—is that there would be an element of double allowance in those cases where there is a life interest in possession and the individual entitled to that interest also makes gains qualifying for relief under Clause 35."—[Official Report, Standing Committee A, 7th June 1978; c. 862.] 5.0 p.m.

It seems to me that the Minister has gone to a half-way house in that he has provided an element of relief and, therefore, to some extent accepted the equity of the Opposition's case. In view of the costs of setting up trusts, it seems unlikely that many individuals will avoid their capital gains tax liability by setting up a profusion of trusts, and, therefore, there is no reason why the relief should not be extended to them all.

Above all, we now have the nonsense of a position in which there are three categories of capital gains tax payer. There are individuals who will be entitled to the full relief provided in clause 35. There are certain types of trust or settlement set up for severely disabled or mentally handicapped people which will also be entitled to that full relief. There are other trusts generally which provide for a relief of some £500, and there are trusts set up after 7th June which will get no such relief, as, indeed, companies will not. Therefore, it seems to me that, from having a position which persisted until a few months ago whereby everyone who realised capital gains was treated on the same basis, we shall have after the passing of the Bill a position in which there will be three different categories of capital gains tax payer.

Pressing again the principle of simplicity, it seems to be desirable that the Government should consider the possibility, as we suggest in amendment (a), of extending this relief to all trusts generally.

Amendment (c) seeks to ensure that the partial relief provided to all trusts in the new schedule does not apply only to those set up before the date of the announcement of this relief on 7th June but should extend to them whenever they were set up. It seems to me to be unduly arbitrary that such relief should be provided only to trusts which existed at that date, and it is hardly likely that a great profusion of trusts would be set up thereafter to claim what in any event is only a very marginal relief compared with that applying to an individual—petering out at £1,250 compared with £9,500 in the case of an individual.

I am sure that I do not need to repeat all the arguments which were advanced in Committee. Therefore, on the basis of what I have said, I hope that the Minister will feel able on reconsideration to accept amendment (a) and amendment (c).

Mr. Tony Newton (Braintree)

I wish to support amendment (a) and, in particular, what my hon. Friend the Member for Chichester (Mr. Nelson) said about the problem of disabled people. It seems to me that what the Government are proposing here—and I understand the Minister to be saying that these are essentially transitional provisions pending further consultation about the long-term solution—reveals the problems which are likely to arise when the Government attach excessive importance to not allowing any additional benefit to people of whom they do not really approve and, therefore, try to draw difficult distinctions between approved people and disapproved people for the purposes of taxation.

That is clearly revealed by the Government's proposals in that they have accepted—I think rightly—that it would be unfair if trusts set up for the benefit of disabled people in broad terms were not to get reasonable tax advantages under these proposals. But the Government have not been prepared to allow those advantages to trusts generally. So we have paragraph 5(2) attempting to define disabled people for the purposes of this provision.

Broadly speaking, it is probably all right in terms of the mentally disabled, because there is a reasonably clear-cut and fairly broad definition which can be drawn from the Mental Health Act 1959 and which is incorporated in this provision. It is when we come to the physically disabled that we see the possible absurdities and certainly the possible anomalies in what the Government propose. The only physically disabled people who will benefit from the concession in the new schedule are those who are in receipt of attendance allowance.

There are not a large number of hon. Members in the Chamber at the moment, but I should guess that there is not an hon. Member present who has not had correspondence with constituents, with the Attendance Allowance Board and with Ministers which has not revealed just how restrictive are the criteria for the attendance allowance. A person has to require constant attendance by day and by night. Alternatively, for the lower rate of the allowance, he must require constant attendance throughout the day or throughout the night. A person has to be very severely disabled before he can qualify for the attendance allowance.

In no way can very large numbers of people who are by any commonsense or normal definition severely disabled—often lacking limbs, for example—qualify for the attendance allowance. It should be made clear to the House that a very large number of disabled people who probably everyone in the House would accept on a commonsense basis should be able to benefit from trusts under these proposals will not be able to do so because of the narrow definition which has been adopted.

There may, for example, be children getting compensation payments as a result of the recent announcement about vaccine damage. If the money were put into trust for them, they would not qualify for the tax advantages here. Admittedly it would depend on the extent of the vaccine damage, but it is possible that they would not necessarily qualify under these provisions.

It is perhaps less likely, but it may be that some of the thalidomide children would not qualify as being severely disabled enough for attendance allowance, depending on the extent of the injuries. They, too, would not qualify for any benefits to a trust set up on their behalf under this provision.

We know that the Attendance Allowance Board is in process of trying to withdraw the attendance allowance from numbers of kidney patients. There is a case before the national insurance commissioner, whose decision is about to be announced, which I hope will overthrow the efforts of the Attendance Allowance Board, and if the commissioner does not overthrow them I hope that this House will. At the moment, however, the board is trying to withdraw attendance allowance from numbers of kidney patients because they dialyse only two days a week instead of three. If the Attendance Allowance Board is upheld and if Parliament does not upset the national insurance commissioner in that event, those kidney patients will not qualify in relation to a trust under this provision.

It seems to me, therefore, that there is a real risk of injustice and serious anomaly from the proposals as they stand and that the Minister ought to solve the problem by accepting the amendment to allow all trusts to qualify pending some further work, if that is what the right hon. Gentleman wishes to do, to identify the disabled on a broader basis. However, what would be very unfair and full of potential anomaly would be to allow the new schedule to pass into law as it stands at the moment.

Mr. Lawson

It is worth recalling the origins of this very long, complex new schedule.

It began with the Inland Revenue's consultative document on capital gains tax last October, which dealt with the totally unwarranted severity of capital gains tax at a time of inflation. There was a great deal of discussion about indexation and tabling and, at the end of the day, the Revenue came to the conclusion that all this was far too complicated for it. So, as a sop and because it was administratively convenient obviously to take a lot of people who were making only paper gains out of the gains tax net, it was decided to introduce a relief. So the relief was introduced in a rather inadequate way to meet the point. Nevertheless, it was a relief that we welcomed. Any relief is better than none. But the relief did not extend to trusts, and this was obviously grossly unfair on those who, for whatever reason, had their capital in trust and not held absolutely or directly.

This was not contested when we put forward the argument in Committee. As a result, in order to meet it, the Government have produced this extremely complicated new schedule. I am afraid, as my hon. Friends have already pointed out, that the Government still have not got it right.

There is something very curious about the Government, once having accepted that people who have capital held in trust need to be given relief in the same way as individuals are, should then say that they will give that relief only to some kinds of trust. They seem to think that individuals whose capital is held in trust in some circumstances are particularly worthy. That is not the point at issue. The point at issue is the unfairness between those who hold capital in trust and those who hold it absolutely. That is where the unfairness comes in.

The only way of meeting that is to give relief to all those whose capital is held in trust and not draw an arbitrary distinction between them. They should all get the same relief.

As my hon. Friend the Member for Braintree (Mr. Newton) has pointed out, for the physically disabled the line is drawn between those worthy of full relief and those less worthy who get only partial relief on the totally arbitrary and unsustainable basis of those who get the attendance allowance and those who do not. That is purely for administrative convenience.

The only sensible thing for us to do would be to press amendment (a). Should that by any chance fail there is also the point of amendment (c). What the Government have done here is totally unsustainable. They have said they accept the arguments about unfairness to trusts and therefore they will give relief to trusts, but only to those already in existence at the time that we debated this matter upstairs in Committee. New trusts formed subsequently will not be eligible for any relief whatsover. That is the meaning of the last line of this lengthy schedule.

The point at issue here—I hope that the Minister of State will pay attention to the argument that I am patiently deploying despite interruptions from the Public Galleries—is that since it has been conceded that there is an unfairness to those who hold capital in trust, the relief should be given to all those trusts, even those trusts not get set up.

The Government are clearly under the impression that if they were to do this a whole lot of people would subsequently set up trusts all over the country. That is palpably absurd. The relief is so small that the costs of setting up the trust would not make it worth a candle. But of course there will be all sorts of people who, for normal and genuine reasons, will set up trusts subsequent to 7th June. They will get no relief at all, because of this arbitrary line in the Government's schedule. That is wholly unjustifiable. Therefore I hope that we shall have the opportunity to press this amendment to a Division if amendment (a) is not carried.

When the Minister of State was introducing this he said that it was only a temporary, rough-and-ready solution, pending full consultation. The Chief Secretary had promised full consultations on a proper solution to this problem. These consultations were to be with the various advisers, including our advisers on the Opposition side of the House. I shall read to the House what the Chief Secretary said on 7th June: I propose that there should be wide consultations between the Inland Revenue and various institutions and individuals—including the advisers of both hon. Gentlemen—to see whether an answer can be found to the problem. He went on: I hope that we can have consultations fairly quickly, and if some other forms of trust can be included for Report I shall willingly look at them. I certainly do not rule them out entirely."—[Official Report, Standing Committee A, 7th June 1978; c. 862.] Clearly we thought that there would be consultations with our advisers and the Inland Revenue between 7th June and Report, so that we could see whether some sense could be made from this nonsense.

Instead, after accepting—which we did, both orally and in writing—the Chief Secretary's offer of consultations with our advisers, we suddenly received a letter nut of the blue from the private secretary to the Chief Secretary saying that he was terribly sorry but there was absolutely nothing that could be done before Report and that there was no possibility of any discussions before September at the earliest.

That goes back on the Chief Secretary's word, and is very shameful. Many people were hoping that as a result of the Chief Secretary's offer something could be done—as the Chief Secretary had indicated in the excerpt from Hansard that I have quoted—to find some way of bringing these people and their trusts within the ambit of the relief.

It is deplorable that these consultations should not have taken place, and that the Bill is passing on to the statute book in this form. Of course, the consultations might not have produced any answers, but at least they should have been attempted. It is really very regrettable that, having made this offer, which we welcomed unreservedly at the time, we should now he told that there is no possibility of any talks until September. That is a rather empty offer anyway, because in September there will be an election campaign, leading to a change of Government.

5.15 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

The hon. Member gave the impression that the Chief Secretary gave an undertaking that consultations would take place before Report. That is not so. The hon. Gentleman must be aware that the undertaking was given without a time limit. Because of the particular problems in volved, most notably the short space of time between Committee and Report, it was not practical, nor was it expected, either then or later, that these consultations would be held in that period.

Mr. Lawson

I understand the Financial Secretary's loyalty to the Chief Secretary. I can only reply to him—notwithstanding the efforts of the Minister of State's compatriots in the Public Galleries—by reading again what the Chief Secretary said in Hansard on 7th June. He said: I hope that we can have consultations fairly quickly, and if some other forms of trust can be included for Report I shall willingly look at them. I certainly do not rule them out entirely."—[Official Report Standing Committee A, 7th June 1978; c. 862.] That is what he said, and the Financial Secretary cannot get away from that.

Therefore subject to anything that the Minister of State may say in replying to this debate, we shall certainly wish, when the time comes, to press these matters to a Division.

Mr. Denzil Davies

The hon. Member for Chichester (Mr. Nelson) moved amendment (a), which I understand will be pressed to a Division, either now or later on, unless hon. Members are convinced by my arguments in the mean-time. [An HON. MEMBER: "They would be more convincing in Welsh."] I am quite prepared to reply to the debate in Welsh if hon. Members would prefer it, but it would not be in order.

Amendment (a) apparently commends itself to the Conservatives. I was asked about the yield from capital gains tax in relation to trusts. The figure that I have, which is the best estimate that the Inland Revenue has, is about £60 million a year. If amendment (a) is accepted, depending on how many people would take advantage of the relaxation—and one can assume that almost anyone who could would do so—the estimate of the loss of yield would be about £50 million. That is the best figure that I can give to the hon. Gentleman.

Accepting amendment (a) would involve—not immediately, because it would take some time to split up some trusts—a loss to the Revenue of about £50 million. It is only fair that I should tell hon. Members that before they press their amendment.

Mr. Lawson

The Minister of State will agree that the first-year costs—thisyear costs—would be a tiny fraction of that amount.

Mr. Davies

I do not know how the hon. Member is able to be much more certain than I can be. It may be possible for a large number of these trusts to be split or broken up into smaller units, and within this year it may be that it would involved half of the £50 million. I do not know. I said that I could not say—and neither can the hon. Gentleman. I think that the statement that he has made could not be substantiated. We are talking about £50 million, whether it is this year or next year.

I hate to quote back at hon. Members what they said in Committee, because they might quote back at me what I said in Committee. However, in Committee the hon. Member for Chichester said, in moving other amendments on these lines, that he wished to ensure that no individual is able to circumvent his tax liability by setting up multiple trusts."—[Official Report, Standing Committee A, 7th June 1978; c. 850.] It follows from amendment (a) that what would happen would be the setting up of multiple trusts. That is the reason why we are finding so much difficulty in giving to trusts the relief that is given to individuals. There is no secret about this. The main reason for the difficulty is that once that kind of relief is given to trusts, there will be a proliferation of multiple trusts, to take advantage of the low rate. As I have indicated, we believe that the cost of that would be about £50 million.

Mr. Nelson

However deserving are the beneficiaries of the trusts that will receive the full relief under the new schedule—and I am sure that they are deserving—is it not the case that were they minded to set up multiple trusts, even in those limited deserving categories, they would not be prevented from doing so under the new schedule as it is drafted? The Minister cannot have it both ways.

Mr. Davies

I accept that entirely. That is where the dilemma takes us. Once we recognised that there was a problem relating to the multiplicity of trusts that would follow from amendment (a) we failed, in time for the Finance Bill and these debates, to produce something that would give a measure of relief to trusts without entailing this danger.

But we recognise, of course, that there are certain categories that are very deserving—trusts for the mentally handicapped and the physically handicapped. We gave a measure of relief in those cases. I recognise that it is illogical—at any rate, it is not completely logical—but it follows from the difficulty.

My right hon. Friend the Chief Secretary offered consultations with the Opposition on this point. We recognised the difficulty and we offered consultations to see how we could give relief to trusts in general without creating a state of affairs in which there would be a multiplicity of trusts, trusts split up. We do not know yet how to deal with that. It seems that the Opposition do not know how to deal with it, either, because now they are pressing amendment (a), which would create that very situation. I do not know where that leaves the consultations, or whether hon. Members still wish to have consultations if they are to press amendment (a).

Mr. Lawson

Tomorrow.

Mr. Davies

That is entirely a matter for the Opposition. However, I should have thought that having made up their minds by voting for amendment (a), having said "We stand for the same regime on trusts as for individuals", and knowing that the consequence of that is bound to be a multiplicity of trusts, there would not be much to consult about, although we shall be quite happy to honour the undertaking and to go on with the consultations.

The hon. Member for Braintree (Mr. Newton) dealt with a narrower point. He said that there was some difficulty, in that there could be cases in which individuals who are not in receipt of attendance allowance could still be physically disabled. I accept entirely that there may be some such cases. But whatever definition one introduces into the legislation—and this category is the one used for capital transfer tax purposes, as the hon. Member will know—if one were merely to say "physically disabled" or "seriously disabled", one would still have the same problem of having to decide whether, in a particular case, a person fell within whatever definition was laid down.

Mr. Newton

I accept that this will be one of the long-term difficulties with all our provision for the disabled. However, why, for example, was this not extended also to people in receipt of mobility allowance, who are defined as being unable to walk or virtually unable to walk? Many of those will not be in receipt of the attendance allowance but are, none the less, so disabled that they are unable to walk, or virtually unable to walk.

Mr. Davies

This matter was debated at some length in discussion on the Finance Act 1977, when we looked at it in relation to capital transfer tax. It was felt at the time—and this was accepted—that the best definition was the receipt of attendance allowance, but I accept entirely that one could use other definitions. However, one still has the same problem. If we change this definition to mobility allowance, next year the hon. Member will table an amendment and will no doubt be able to find cases in which people are not in receipt of mobility allowance but are still physically disabled and should be benefited. So this is a problem that will remain with us whatever choice of definition we make.

I think that I have dealt with most of the—

Mr. Lawson

The date—amendment (c).

Mr. Davies

The date is, I think, a reasonable date. As my right hon. Friend said in Committee, this is a temporary relief, pending consultations, which we would have hoped that we would have had with the Opposition, without them committing themselves in the way that they propose, it seems, by voting for amendment (a). We hope that this is a temporary measure and that we can have consultations. We hope that next year we shall be able to bring something forward that is clearer and more logical than the present position.

I accept that the present position is entirely illogical. That is why the date was chosen. It is a reasonable date. It is a temporary solution pending consultations. But now, as I have said, the Opposition are deciding that they want amendment (a) with all the consequences of the multiplicity of trusts, and I wonder how fruitful those consultations will be. Therefore, I cannot accept any of the amendments.

Amendment agreed to.

Amendments made: No. 20, in page 28, line 10, leave out subsections (8) and (9) and insert— '(8) Schedule (Relief for gains less than £9,500) to this Act shall have effect as respects the application of this section to husbands and wives, personal representatives and trustees.'.

No. 21, in page 28, line 40, leave out '(9)' and insert '(4), (7), (8)'.—[Mr. Bates.]