SUMS PAID TO SETTLOR OTHERWISE THAN AS INCOME (Hansard, 15 July 1981)

§ Sir Graham Page

I beg to move amendment No. 59, in page 28, line 13, at end insert— '(c) in paragraph (b) for the words "the next following year" there shall be inserted the words "the next following eleven years.". Clause 41 amends section 451 of the Taxes Act, or is a rewrite of that magician's provision which converts capital 1286 payments into income in certain cases, provided that there is some income in the settlement fund from which the payment was said to be a payment of capital.

Let us suppose that the settlor transfers some of his invested savings to trustees and settles them so that he might become a beneficiary under that trust. When he needs some capital there might be an advance of capital of £10,000 to the settlor. If there is £1,000 of income in the fund, that money could be advanced to him as £9,000 capital and £1,000 income. On that basis he is assessed on the £1,000 income. As time passes and further income accrues, he is assessed up to the £10,000 advance.

However, let us suppose that after the first advance and the calculation of income in the fund at that time no furl her income goes into the fund for a considerable time. It may be 15 or 20 years before one has any income to set against the capital payments and to assess the tax on it.

I submit that anything more than 12 years is too long. We must draw the line somewhere to reach a settlement of assessments that would convert the capital payment into an income payment. The amendment seeks to limit that period to 12 years. I think that that is fairly generous to the Inland Revenue.