§ In a year in which we can give no income tax relief, I cannot make major changes in capital taxation. I do, however, propose to continue the process of making more sense of the structure of capital taxes.
§ First, there is capital transfer tax. One new concept introduced as a feature of that tax was the idea of cumulating gifts made at any time in a person's life. Some allowance was made for the earlier payment of tax on transfers during life than on death, but only at the bottom of the scales. As a result, people are deterred from transferring their property during their lifetime. This is undesirable. Business property, in particular, should be permitted to pass more freely from one generation to another.
§ I propose therefore to recast the lifetime scale. At the bottom the charge on gifts will remain half that on death; at the top it will become two-thirds. I also propose limiting cumulation to 10 years and extending the capital gains tax roll-over relief to gifts into trust, to avoid a double charge. I hope that, by encouraging gifts, the Exchequer will benefit as well as the taxpayer. I also propose to increase the annual exemption to £3,000.
§ Capital transfer tax is also holding back the supply of land for new entrants to the farming industry. Tax is not the only factor, of course. But it is important to maintain a proper balance between owner-occupied and let land, allowing for their different value. I have in mind the unequal treatment of let land. At present, no relief is normally given on let land. In future relief will be available at 20 per cent. Agricultural land not subject to a lease will continue to receive relief at 50 per cent. The difference in the rate of relief recognises the lower value that let land commands and the lower tax burden it attracts as a result. The facility to pay CTT by interest free instalments will be extended to let agricultural land and the limit of £25,000 will be removed.
§ Next, I turn to trusts. I am grateful to all who responded to our consultative paper. I propose to tackle some matters this year, but on discretionary trusts draft clauses will be prepared for further discussion and we shall legislate next year. Meanwhile, there will be a final extension of the transitional period to 31 March 1983, or 31 March 1984 where an application has to be made to a court.
§ I also propose dealing with certain avoidance devices which centre on the market value rule for capital gains tax purposes, and aligning the capital gains tax rules with the new income tax rules developed following the Vestey case.
§ The net affect of all these proposals in the capital tax field will be a cost of £5 million this coming year but a gain of £15 million in a full year—the saving from the anti-avoidance measures exceeding the cost of the reliefs I have proposed.