§ 'Where any part of the value of a person's estate immediately before his death is attributable to the interest of a tenant in an unexpired portion of a lease for a fixed term of agricultural property in Scotland and either he had been tenant of the said property continuously for a period of at least two years immediately preceding his death or he had become tenant of the said property by succession there shall be left out of account in determining the value transferred on the death any value associated with any prospect of renewal of the lease by tacit relocation.'—[Mr. Peter Rees.]
§ Brought up, and read the First time.
Mr. Deputy Speaker
With this we may discuss new clause 30—Capital Transfer Tax: Scottish agricultural leases (tacit relocation)—and the following amendments: No. 173, in clause 94, page 82, line 45, at end insert—'(3) Succession to a tenancy of agricultural property in Scotland for agricultural purposes shall not be a transfer of value unless it occurs for consideration in money or money's worth when the amount of such consideration shall be charged to Capital Transfer Tax as an asset in the estate of the deceased.'.and Government amendment No. 226.
§ Mr. Rees
In Standing Committee there was a keen debate on amendment No. 453, initiated by my hon. Friend the Member for Galloway (Mr. Lang) and the hon. Member for Edinburgh, Central (Mr. Cook) on the capital transfer tax implications of the problem created by the 1003 Agriculture (Miscellaneous Provisions) Act 1976 which, I am bound to say, without reopening old wounds, was not a very well thought-out measure. It was found to have a slightly different impact north of the border compared with its impact south of the border or west of Offa's Dyke. In England and Wales it created a new tenancy on the death of a tenant but in Scotland there was some kind of transmissible interest. I tread with a little diffidence, since I am not, by training, a Scottish lawyer. It created an asset—or was thought to—of a kind which passed, even though to a restricted class of persons. The Inland Revenue is charged only with the duty of administering the law which we enact. It reached the conclusion, rightly or wrongly, that that gave rise to a charge to capital transfer tax.
That is a matter for dispute. The hon. Member for Edinburgh, Central referred to some great legal opinion obtained by a highly reputable body north of the border. I am not concerned on this occasion to debate the merits of that. The Government were impressed by the arguments advanced from both sides of the Committee on that occasion. We felt that it was obviously wrong and undesirable that basically, in laymen's terms, the same circumstances should give rise to a charge to capital transfer tax north of the border but not south of the border or west of Offa's Dyke. I hope that the House will feel that we responded in full measure to the points made.
The results of our considerations are to be found in new clauses 29 and 30 and amendment No. 226, which contains a new schedule to add to the detail of the provisions.
We need the two new clauses because I believe that some leases are held by tacit relocation. That is a term of art which is known to Scottish lawyers. I have become familiar with it only in the last few weeks. After the termination of a lease for a fixed term—it is held by the tenant from year to year--the tenant's interest, whatever it be, passes on his death to a limited range of persons, mainly members of the family.
Another situation involves an agricultural tenancy for a term of years which is still in existence. On the death of a tenant that can also be passed to a limited class of persons. I understand that in Scotland 90 per cent. of such cases involve tacit relocation. In either event we felt it right that the matter should be put beyond doubt. There is a strong case for saying that there was a charge to capital transfer tax. In both cases there should be no charge to capital transfer tax except where there has been a transfer for consideration. In other words, where the tenancy passes by the normal course of law to the family, there should be no charge to capital transfer tax, but where some gain from the disposal is to be had there should be a charge to capital transfer tax.
However, there is one exclusion—for those who have acquired the tenancy less than two years before the relevant death. The reason for that is that there might be an opportunity for abuse or avoidance. We thought that it was right to exclude transmission in that situation.
The starting date for the provisions will be 15 November 1976, the operative date of the Agriculture (Miscellaneous Provisions) Act 1976. However, there is to be no clawback if there has been a disposal before Royal 1004 Assent has been given to this Finance Bill. There will be an option to choose the new or the old basis if a death occurs before Royal Assent: is given to this Bill.
We are discussing a complex series of provisions. I hope that the House, having considered them in depth, will feel that they do adequate justice to the point eloquently made my my hon. Friend the Member for Galloway and the hon. Member for Edinburgh, Central. I hope that they will be welcomed north of the border as exempting the agriculture community and tenant farmers, of whose affairs we heard this afternoon in a speech on a Ten-Minute Bill, from a charge to capital transfer tax from which their neighbours south of the border are already exempt. I commend the new clauses to the House.
§ Mr. Cook
Again, the Opposition do not take the slightest exception to the new clauses. It would, therefore, be for the convenience of the House if I made my remarks brief so that the House might progress to the perhaps more interesting and challenging debates later, when there might be a tension between the two sides of the House.
The Minister was generous enough to say that the new clauses come forth from a debate on amendments tabled by the Opposition and the hon. Member for Galloway (Mr. Lang). He tabled the same amendment, and our names, therefore, appeared in happy conjuction on the Order Paper. I am grateful to the Minister for responding to the anxieties expressed during that debate and for removing a real problem north of the border.
What I had regarded as a modest proposal and a modest change in the statute has resulted in a substantial change of impenetrable complexity. As far as I and those from whom I have sought advice can tell, the new clauses and amendment meet the point made in Committee. l do not see any difficulty in the two-year exemption. It is a prudent precaution. I do not think that it will give rise to difficulty in cases where fathers hand on to their sons, and may do so for several generations.
There are differences between the two sides of the House about some of the other provisions relating to capital transfer tax. The Minister will not be surprised if there is more austerity and longer debate when we reach those matters. I do not know when that will be. It could be later this afternoon or any time between now and noon on Thursday.
When we reach the capital transfer tax provisions we shall have something to say about the generosity that the Government have managed in relation to capital taxation. Nevertheless, it is right that this concession should be made. It is not, and never was, right to regard the transfer of a farm tenancy as the transfer of a marketable capital asset which can be sold at a profit.
I am grateful to the Minister for making the changes. I assume that even if the text as drafted falls short of some of the anxiety expressed it will have its impact on the Capital Taxes Office and make it more sympathetic to the problem. As the Minister said, the view taken by the Capital Taxes Office was never tested in a court. Had it been tested, a different view might have been taken. I am happy that, as a result of the new clauses, that will not be required.
§ Mr. Peter Fraser (South Angus)
I warmly welcome the new clauses and the Government amendment. I congratulate the Minister. The changes will be welcomed by farmers, and tenant farmers in particular. The Law 1005 Society of Scotland has also been desperately anxious about the provision and will be relieved that we are making the change.
One point that is equally important as a matter of emphasis is that one of the alternative proposals was that, because capital transfer tax was not imposed on tenancies in England, one solution might be to change the basis of tenancies in Scotland. I am exceedingly relieved that that procedure, or device, was not adopted to eliminate the difficulty. If we had, for fiscal reasons, changed the basis of tenancies in Scotland, that would have been regarded with the greatest of suspicion. I should have thought that the device that we have used is the most welcome. It is also worthy of emphasis that the view of the Capital Taxes Office has not been tested in the courts, but that the matter is now put beyond doubt.
There has been some suspicion in Scotland—because the Capital Taxes Office has become more aggressive recently—that this provision comes about as a consequence of changes that have been made by the Government in earlier Finance Acts. That is untrue. If there is any charge to tax, it is a charge to tax that has been there since capital transfer tax was first introduced to the taxation of this country. I hope that that is now absolutely clear in Scotland.
It is also important, and will be extremely welcome in Scotland, that it is not simply a matter of looking to the imposition of capital transfer tax after the passage of the Bill through the House; it will go back to November 1976, possibly by a slightly elaborate route. That is something which will wholly deal with the point.
In view of the welcome that has been given to the new clause by the Opposition Front Bench, I hope that it is an indication that at any time in the future if there should be a Labour team in the Treasury, it will be taken to have given, through this provision, the clearest indication to the Scottish farming community that it can look to a "hands-off" attitude with regard to capital taxation, not only in the tenant farming sector but in the owner-occupied sector.
On behalf of all tenant farmers in Scotland I am grateful to the Minister of State for what he has done. The new clause is warmly welcomed.
§ Mr. Campbell-Savours
I shall intervene briefly. We all heard the comments which were made by my hon. Friend the Member for Edinburgh, Central (Mr. Cook) and the hon. Member for Galloway (Mr. Lang) in Committee on this matter. The Committee may have been swayed by the arguments which were put.
Since I have not had a great deal of time to assess the implications of the clauses, will the Minister of State give a clear undertaking to the House that there is no more in these clauses than was originally sought by the two hon. Members to whom I have referred? If that be the case, we can presume that the new clause will have the support of the House, even without the considerable consideration which should be due to it, but which it may not receive. I may not be here to hear the Minister of State wind up, because I have another engagement, but I assure him that I shall read his comments in the Official Report.
§ Mr. Ian Lang (Galloway)
I echo the warm welcome which my hon. Friend the Member for South Angus (Mr. Fraser) afforded to the concession which the Government have made. It reflects the reasoned approach which we 1006 have made over a considerable time, as well as the arguments which I put in Committee. It is a relief to Back Benchers to find that their arguments do not fall on stony ground and that we were able to persuade our right hon. and hon. Friends of the strength of our case on this occasion.
As my hon. Friend the Member for South Angus said, these new clauses and amendments will be warmly welcomed in farming circles in Scotland. They also reflect the work which a number of my hon. Friends have put in on behalf of Scottish farmers. We had a wide-ranging series of meetings in addition to the discussions which I have had with Ministers. We have also had discussions with my right hon. Friend the Secretary of State for Scotland and my hon. Friend the Minister of State, Scottish Office. Over the past few weeks and months the Government have become well aware of how important that issue is in Scotland. It is a relief to see it met in this full-hearted and constructive way.
The hon. Member for Edinburgh, Central (Mr. Cook) said that this was a small point. I have tried to show that it is not a small point in the minds of tenant farming circles in Scotland. It is a relief to see the law in Scotland put on all fours with that in the rest of the United Kingdom and to see it done within the parameters of the Finance Bill rather than by amending the laws of land tenure in Scotland, which would have been a complicated and difficult process.
The amendments have been warmly welcomed in Scotland by bodies such as the National Farmers Union. That reflects the universally held view that it is highly undesirable that there should be any fiscal inequity between Scotland and England or any other part of the United Kingdom. That potential inequity was founded on a technicality in the difference between the leases in England and in Scotland. I understand that the main difference was that in England a new lease is created at the time of succession, unlike in Scotland.
I imagine that the cost to the Exchequer will be small. My hon. and learned Friend the Minister of State may be able to give the cost at some stage, but I imagine that the cost to the Exchequer will be small, whereas for individual tenant farmers in Scotland, it could have been severe. At one time there was talk of valuations of 25 per cent. of a notional open market value. That could have hit some farmers severely and it could have damaged the whole tenant farming sector. Where it would have struck, it would have struck deep. Therefore, it is all the more welcome that it is being removed.
The exception to which my hon. and learned Friend referred, whereby, if there is a consideration on the transfer of the lease, is acceptable. One would accept any such consideration to re-enter the tax net. The two-year exclusion to which he referred also seems reasonable. What has been recognised in the amendment is that the transfer of such an agricultural lease in Scotland is not the transfer of an asset so much as a transfer of a statutory right. It is a right which is not marketable or assignable and which can pass only narrowly to the immediate family, and even then only to a person who is considered to be a proper person to carry on the business of farming. Therefore, the narrow nature of the bequest with which we are concerned underlines the importance that it should not be taxable as an asset in the normal way.
I thank my right hon. and hon. Friends for the responsive way in which they have appreciated the threat 1007 to the tenant farming sector in Scotland and also for ensuring that fiscal equity will continue to run in those matters on an even basis throughout the United Kingdom.
§ Mr. John MacKay (Argyll)
The tenant farming sector is an important part of the farming ladder in Scotland, as elsewhere in the United Kingdom. It is under considerable pressure, for various economic reasons. Anything which puts further pressure on it is to be deprecated. That problem was giving rise to considerable concern among tenant farmers who, like the rest of the farming industry, are not enjoying good times at present, especially on the hills. That is despite the great efforts made by my right hon. and hon. Friends in the Department of Agriculture and Fisheries for Scotland and in the Ministry in England.
On the hills especially there are considerable problems. Some of the farmers there will not be helped by some of the clauses in the Wildlife and Countryside Bill. Be that as it may, yesterday's problems for hill farmers will be offset by today's good news to the tenant farmers. If we cannot have a system of tenant farms which can be passed on from father to son and in which a farmer can go into a tenancy knowing that he can pass it on without considerable financial problems, the tenant farming scene in Scotland will begin to decline and will collapse.
If that happened, for many people the bottom of the farming ladder would be eroded. That would be a serious matter. All of us who represent rural areas in Scotland can thank the Treasury Bench for what they have done about that. Perhaps not many people were involved, but they were involved to a worrying degree in the financial problems which would have arisen. For them, and for the rural Members who represent them, I thank the Government for this part of the Finance Bill. It will greatly assist those people to pass on their tenancies from one generation to another without considerable financial damage.
§ Mr. Peter Rees
I am gratified to find such unanimity in the House. It is rare that one achieves that in capital transfer tax matters. I am sorry about the hint from the hon. Member for Edinburgh, Central (Mr. Cook), who has been so urbane this afternoon, that that unanimity may not persist when we deal with other capital transfer tax clauses.
I assure the hon. Member for Workington (Mr. Campbell-Savours)—the only Member for a constituency south of the border, apart from myself, who has ventured to intervene in this specialised Caledonian debate—that, arcane and extensive though the provisions are, they do no more than reflect and meet the point made both in Committee and in the House. He is at perfect liberty subsequently to read Hansard and compare what I have said with the detailed provisions. I know that he is an assiduous person—
§ Mr. George Foulkes (South Ayrshire)
Far from the debate relating to purely Scottish interests, does not the Minister agree that, regrettably, far too many English Members have an interest? I regret that they own land in Scotland. The tenant farmers lease their land from someone and, regrettably, too many of the owners are English.
§ Mr. Rees
I usually find the hon. Gentleman's interventions engaging but irrelevant. However, that intervention was neither engaging nor relevant. No doubt he will raise more substantial points in due course.
I regret that the provisions should turn out to be so extensive and complex. They merely reflect the complexity of land tenure law and capital transfer tax law in Scotland. I do not think that this Administration can accept responsibility for either.
I wish to respond to the points raised by my hon. Friend the Member for South Angus (Mr. Fraser), who did not have the privilege of serving on the Committee. I do not believe that it ever entered our minds to change the basis of tenancy in Scotland. It would not be part of my limited responsiblities to attempt such an awe-inspiring task. I am happy to leave that to the Law Officers in Scotland and my right hon. and hon. Friends at the Scottish Office. I honestly do not believe that that thought ever crossed their minds.
I hope that the capital transfer tax officers cannot be characterised as aggressive. The Inland Revenue is charged only with administering the law that the House enacts. Inevitably, ambiguities must be resolved from time to time, and not always necessarily in favour of the taxpayer. I am happy to state categorically that the position that they may have taken in regard to individual cases was not on the instruction of the Government. It would have been improper for the 'Government to intervene in individual cases.
If we find the law to be unattractive or inappropriate, it is for us to alter it. We must then stand back and leave the Inland Revenue to administer it as it finds it. It would be improper for me or any of my right hon. and hon. Friends to intervene in the slightest degree in such matters. We have taken a view about the law in response to the many points made, both in Committee and outside, with such eloquence by hon. Members. The fruits of our deliberations are to be found on the Amendment Paper, although in a slightly extended form.
It would be inappropriate for me to comment on the entirely hypothetical position that might be adopted by a Labour Administration, if there were to be one, on the arcane area of capital transfer tax. It would be interesting to explore their general approach to capital transfer tax problems as we develop our debate. I had better leave that point there, but no doubt the hon. Member for Edinburgh, Central will disclose, with his usual candour and charm, what plans he might have if he were charged with responsibility in that area. He might care to enlarge a little and tell us his plans for a wealth tax—
§ Mr. Rees
I readily accept that point. If I understand the tenor of the point made by my hon. Friend the Member for South Angus, he was going a little wider. I have no doubt that, within the rules of order, and at a suitable moment, the hon. Member for Edinburgh, Central will take the opportunity to assure the agricultural interests both north and south of the border that the Labour Party has their interests at heart when considering the extensions of capital transfer tax that have been lightly promised at various times during the debates, and also its plans for a 1009 wealth tax, which it is seriously considering. Perhaps that point lies without the scope of the debate. It would not be for me to encourage or press the hon. Gentleman in that regard.
I am gratified that there should be such unanimity of view in the House about this point. I only hope that unanimity persists. I commend the new clauses and the schedule to the House.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.
§ New clause 30 read a Second time, and added to the Bill.