§ Mr. StrawI beg to move amendment No. 116, in page 98, line 2, leave out paragraph (a).
The purpose of the amendment is to make subject to a charge to tax the situation when a beneficiary becomes entitled to property in a trust or to interest in possession within a trust in a settlement where he attains the entitlement before the age of 25.
Clause 110 is about accumulation and maintenance trusts, which may be better known, at least to my hon. Friends, as discretionary trusts for children. They arise as a legitimate device. Property cannot be passed absolutely to minors, and it becomes desirable to settle it on trusts. The usual procedure is to settle it on trust, by which some income can be used for the education and maintenance of potential beneficiaries, with the rest being accumulated and becoming settled on the beneficiaries, often at the age of 25 or on marriage. Concessions were originally made on the tax treatment of such trusts under the capital transfer tax legislation of 1975. They were tightened, in 1976.
The result of the labours of Lord Cockfield is that the law relating to the tax treatment of discretionary trusts, described in the Finance Bill as settlements without "interest in possession", has now been recast, in particular so that there is generally no exit charge when property leaves the trust. However, at the same time as this recasting has taken place there has been a substantial reduction in capital transfer tax applicable both to transfers on death and to lifetime transfers.
Labour Members have become increasingly unhappy about the additional exemptions that are made for accumulation and maintenance trusts, so much so that now no tax is to be charged, if the House approves subsection 947 (4)(a) of clause 110, when the property is passed to a beneficiary and he becomes beneficially entitled to that or to an interest in possession in respect of the property.
We had a brief discussion on the matter in Committee when we debated what at that time was clause 86. As a result of an explanation from the Solicitor-General about a paving clause in the Bill relating to the definition of relevant property, we withdrew the amendment.
We have given considerable thought to the desirability of allowing this concession to remain in the body of the Bill, but, in view of the substantial recasting of the law relating to discretionary trusts and the overall substantial reduction of capital transfer tax for these trusts and for other transfers, we do not consider that this further exemption is desirable. That is why we have tabled the amendment.
§ The solicitor-GeneralThe hon. Member for Blackburn (Mr. Straw) is quite right when he says that the law relating to capital transfer tax on discretionary trusts has been substantially recast. He is also right when he says that there is no longer an exit charge, although it is important to remember that there is a proportionate charge when funds leave the trust. It is not that the exit charge has been done away with and not replaced by anything at all.
I shall limit my remarks to what the hon. Gentleman said about the accumulation of maintenance trusts. I respectfully suggest to him and to the House that what is being done need not give rise to the concern that he expressed. In fact, it does not change anything.
There are two exceptions from the charge that arises when property ceases to be held on accumulation of maintenance trusts. These are paragraphs (a) and (b) of the subsection to which the amendment relates, and the amendment relates to the first paragraph only—that is, the exception that applies when a beneficiary of the trust becomes beneficially entitled to the property, or to an interest in possession in it, on or before attaining the age of 25. That is similar to the exemption under the existing legislation, which is paragraph 15(2)(a) of schedule 5 to the Finance Act 1975.
The special reliefs are designed to ensure that, for capital transfer tax purposes, gifts to infants are treated no more harshly than gifts to adults. I realise that I said that in Committee, but I repeat it because it is the substance of the argument. It is not always possible or wise to make an outright gift to an infant. The gift would normally be deferred until the infant attains a specified age, which is commonly the age of majority, and the property would be technically held in discretionary trust. But for the special reliefs, a gift made to an infant in that way would be subject to a tax charge when the property went into the discretionary trust, and again when it came out of the trust. On the other hand, a gift to an adult would not suffer the second charge.
The Government, like the Labour Government who introduced this relief, take the view that a gift to an infant that is deferred until he reaches the appropriate age—often 25—should be treated in broadly the same way as a outright gift to an adult. The exemption from the charge when the beneficiary becomes beneficiary in title to the property or to an interest in possession in it on or before attaining the specified age is necessary to achieve that objective. If the beneficiary took the property at the 948 specified age, there would be no further tax until he died or gave the property away. The same is true of a direct gift to an adult beneficiary.
The hon. Gentleman was good enough to refer to some tightening of the other provisions relating to the trusts. The one point that arises on the amendment is that without this relief money settled on an infant would pay tax on the way in and on the way out, whereas a gift to an adult would pay tax once only. It is necessary to balance the two.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 212, Noes 308.
951| Division No. 271] | [10.26 pm |
| AYES | |
| Abse, Leo | Evans, Ioan (Aberdare) |
| Adams, Allen | Ewing, Harry |
| Allaun, Frank | Faulds, Andrew |
| Anderson, Donald | Field, Frank |
| Archer, Rt Hon Peter | Flannery, Martin |
| Ashley, Rt Hon Jack | Fletcher, Ted (Darlington) |
| Ashton, Joe | Ford, Ben |
| Atkinson, N. (H'gey,) | Forrester, John |
| Bagier, Gordon A.T. | Foster, Derek |
| Barnett, Guy (Greenwich) | Foulkes, George |
| Barnett, Rt Hon Joel (H'wd) | Fraser, J. (Lamb'th, N'W'd) |
| Benn, Rt Hon Tony | Freeson, Rt Hon Reginald |
| Bennett, Andrew (St'kp't N) | Garrett, John (Norwich S) |
| Bidwell, Sydney | Garrett, W. E. (Wallsend) |
| Booth, Rt Hon Albert | Golding, John |
| Boothroyd, Miss Betty | Gourlay, Harry |
| Bray, Dr Jeremy | Graham, Ted |
| Brown, Hugh D. (Provan) | Hamilton, James (Bothwell) |
| Brown, Ron (E'burgh, Leith) | Hamilton, W. W. (C'tral Fife) |
| Buchan, Norman | Hardy, Peter |
| Callaghan, Rt Hon J. | Harrison, Rt Hon Walter |
| Callaghan, Jim (Midd't'n & P) | Hart, Rt Hon Dame Judith |
| Campbell, Ian | Hattersley, Rt Hon Roy |
| Campbell-Savours, Dale | Haynes, Frank |
| Canavan, Dennis | Heffer, Eric S. |
| Cant, R. B. | Hogg, N. (E Dunb't'nshire) |
| Carmichael, Neil | Holland, S. (L'b'th, Vauxh'll) |
| Carter-Jones, Lewis | Home Robertson, John |
| Clark, Dr David (S Shields) | Homewood, William |
| Clarke, Thomas C'b'dge, A'rie | Hooley, Frank |
| Cocks, Rt Hon M. (B'stol S) | Howell, Rt Hon D. |
| Cohen, Stanley | Hoyle, Douglas |
| Coleman, Donald | Huckfield, Les |
| Concannon, Rt Hon J. D. | Hughes, Mark (Durham) |
| Cook, Robin F. | Hughes, Robert (Aberdeen N) |
| Cowans, Harry | Hughes, Roy (Newport) |
| Cox, T. (W'dsw'th, Toot'g) | Janner, Hon Greville |
| Craigen, J. M. (G'gow, M'hill) | Jay, Rt Hon Douglas |
| Crowther, Stan | John, Brynmor |
| Cryer, Bob | Johnson, James (Hull West) |
| Cunningham, Dr J. (W'h'n) | Jones, Rt Hon Alec (Rh'dda) |
| Dalyell, Tam | Jones, Barry (East Flint) |
| Davidson, Arthur | Kaufman, Rt Hon Gerald |
| Davies, Rt Hon Denzil (L'lli) | Kerr, Russell |
| Davis, Clinton (Hackney C) | Kilroy-Silk, Robert |
| Davis, Terry (B'ham, Stechf'd) | Kinnock, Neil |
| Deakins, Eric | Lambie, David |
| Dean, Joseph (Leeds West) | Lamond, James |
| Dewar, Donald | Leadbitter, Ted |
| Dixon, Donald | Lestor, Miss Joan |
| Dobson, Frank | Lewis, Ron (Carlisle) |
| Dormand, Jack | Litherland, Robert |
| Douglas, Dick | Lofthouse, Geoffrey |
| Dubs, Alfred | McCartney, Hugh |
| Duffy, A. E. P. | McDonald, Dr Oonagh |
| Dunlop, John | McElhone, Frank |
| Dunnett, Jack | McGuire, Michael (Ince) |
| Dunwoody, Hon Mrs G. | McKay, Allen (Penistone) |
| Eadie, Alex | McKelvey, William |
| Eastham, Ken | MacKenzie, Rt Hon Gregor |
| Edwards, R. (W'hampt'n S E) | McNamara, Kevin |
| Ellis, R. (NE D'bysh're) | McTaggart, Robert |
| English, Michael | McWilliam, John |
| Ennals, Rt Hon David | Marks, Kenneth |
| Marshall, Dr Edmund (Goole) | Shore, Rt Hon Peter |
| Marshall, Jim (Leicester S) | Short, Mrs Renée |
| Marshall, Michael (Arundel) | Silkin, Rt Hon J. (Deptford) |
| Martin, M (G'gow S'burn) | Silverman, Julius |
| Mason, Rt Hon Roy | Skinner, Dennis |
| Maxton, John | Smith, Rt Hon J. (N Lanark) |
| Maynard, Miss Joan | Soley, Clive |
| Meacher, Michael | Spearing, Nigel |
| Mikardo, Ian | Spriggs, Leslie |
| Millan, Rt Hon Bruce | Stallard, A. W. |
| Miller, Dr M. S. (E Kilbride) | Stoddart, David |
| Mitchell, Austin (Grimsby) | Stott, Roger |
| Morris, Rt Hon A. (W'shawe) | Strang, Gavin |
| Morris, Rt Hon C. (O'shaw) | Straw, Jack |
| Morton, George | Summerskill, Hon Dr Shirley |
| Moyle, Rt Hon Roland | Taylor, Mrs Ann (Bolton W) |
| Newens, Stanley | Thomas, Dr R. (Carmarthen) |
| Oakes, Rt Hon Gordon | Thorne, Stan (Preston South) |
| O'Neill, Martin | Tilley, John |
| Palmer, Arthur | Tinn, James |
| Park, George | Torney, Tom |
| Parker, John | Urwin, Rt Hon Tom |
| Parry, Robert | Varley, Rt Hon Eric G. |
| Pavitt, Laurie | Wainwright, E. (Dearne V) |
| Pendry, Tom | Walker, Rt Hon H. (D'caster) |
| Powell, Raymond (Ogmore) | Weetch, Ken |
| Prescott, John | Welsh, Michael |
| Price, C. (Lewisham W) | White, Frank R. |
| Race, Reg | White, J. (G'gow Pollok) |
| Radice, Giles | Whitehead, Phillip |
| Rees, Rt Hon M (Leeds S) | Whitlock, William |
| Richardson, Jo | Williams, Rt Hon A. (S'sea W) |
| Roberts, Albert (Normanton) | Wilson, Gordon (Dundee E) |
| Roberts, Allan (Bootle) | Wilson, Rt Hon Sir H. (H'ton) |
| Roberts, Ernest (Hackney N) | Wilson, William (C'try SE) |
| Roberts, Gwilym (Cannock) | Winnick, David |
| Robertson, George | Woodall, Alec |
| Robinson, G. (Coventry NW) | Woolmer, Kenneth |
| Rooker, J. W. | Wright, Sheila |
| Ross, Ernest (Dundee West) | Young, David (Bolton E) |
| Rowlands, Ted | |
| Sever, John | Tellers for the Ayes: |
| Sheerman, Barry | Mr. Lawrence Cunliffe and |
| Sheldon, Rt Hon R. | Mr. Ron Leighton |
| NOES | |
| Adley, Robert | Brinton, Tim |
| Aitken, Jonathan | Brittan, Rt. Hon. Leon |
| Alexander, Richard | Brotherton, Michael |
| Alison, Rt Hon Michael | Brown, Michael (Brigg & Sc'n) |
| Alton, David | Brown, Ronald W. (H'ckn'y S) |
| Ancram, Michael | Browne, John (Winchester) |
| Arnold, Tom | Bruce-Gardyne, John |
| Aspinwall, Jack | Bryan, Sir Paul |
| Atkins, Rt Hon H. (S'thorne) | Buchanan-Smith, Rt. Hon. A. |
| Atkins, Robert (Preston N) | Buck, Antony |
| Atkinson, David (B'm'th,E) | Budgen, Nick |
| Baker, Nicholas (N Dorset) | Bulmer, Esmond |
| Banks, Robert | Burden, Sir Frederick |
| Beaumont-Dark, Anthony | Butcher, John |
| Beith, A. J. | Butler, Hon Adam |
| Bendall, Vivian | Cadbury, Jocelyn |
| Bennett, Sir Frederic (T'bay) | Carlisle, John (Luton West) |
| Benyon, Thomas (A'don) | Carlisle, Kenneth (Lincoln) |
| Benyon, W. (Buckingham) | Carlisle, Rt Hon M. (R'c'n) |
| Berry, Hon Anthony | Chalker, Mrs. Lynda |
| Best, Keith | Channon, Rt. Hon. Paul |
| Bevan, David Gilroy | Chapman, Sydney |
| Biffen, Rt Hon John | Churchill, W. S. |
| Biggs-Davison, Sir John | Clark, Hon A. (Plym'th, S'n) |
| Blackburn, John | Clark, Sir W. (Croydon S) |
| Blaker, Peter | Clarke, Kenneth (Rushcliffe) |
| Body, Richard | Clegg, Sir Walter |
| Bonsor, Sir Nicholas | Cockeram, Eric |
| Boscawen, Hon Robert | Colvin, Michael |
| Bottomley, Peter (W'wich W) | Cope, John |
| Bowden, Andrew | Cormack, Patrick |
| Boyson, Dr Rhodes | Corrie, John |
| Braine, Sir Bernard | Costain, Sir Albert |
| Bright, Graham | Cranborne, Viscount |
| Crawshaw, Richard | Knight, Mrs Jill |
| Critchley, Julian | Knox, David |
| Crouch, David | Lamont, Norman |
| Dorrell, Stephen | Lang, Ian |
| Douglas-Hamilton, Lord J. | Latham, Michael |
| Dover, Denshore | Lee, John |
| du Cann, Rt Hon Edward | Lennox-Boyd, Hon Mark |
| Dunn, Robert (Dartford) | Lester, Jim (Beeston) |
| Durant, Tony | Lewis, Kenneth (Rutland) |
| Eden, Rt Hon Sir John | Lloyd, Ian (Havant & W'loo) |
| Edwards, Rt Hon N. (P'broke) | Lloyd, Peter (Fareham) |
| Eggar, Tim | Loveridge, John |
| Elliott, Sir William | Luce, Richard |
| Eyre, Reginald | Lyell, Nicholas |
| Fairbairn, Nicholas | Lyons, Edward (Bradf'd W) |
| Fairgrieve, Sir Russell | Macfarlane, Neil |
| Faith, Mrs Sheila | MacGregor, John |
| Farr, John | MacKay, John (Argyll) |
| Fell, Sir Anthony | Macmillan, Rt Hon M. |
| Fenner, Mrs Peggy | McNair-Wilson, M. (N'bury) |
| Finsberg, Geoffrey | McNair-Wilson, P. (New F'st) |
| Fisher, Sir Nigel | McNally, Thomas |
| Fletcher, A. (Ed'nb'gh N) | Madel, David |
| Fletcher-Cooke, Sir Charles | Major, John |
| Fookes, Miss Janet | Marland, Paul |
| Forman, Nigel | Marten, Rt Hon Neil |
| Fowler, Rt Hon Norman | Mather, Carol |
| Fox, Marcus | Maude, Rt Hon Sir Angus |
| Fraser, Peter (South Angus) | Mawby, Ray |
| Fry, Peter | Mawhinney, Dr Brian |
| Gardner, Edward (S Fylde) | Maxwell-Hyslop, Robin |
| Garel-Jones, Tristan | Mayhew, Patrick |
| Glyn, Dr Alan | Mellor, David |
| Goodhew, Sir Victor | Meyer, Sir Anthony |
| Goodlad, Alastair | Miller, Hal (B'grove) |
| Gorst, John | Mills, Iain (Meriden) |
| Gow, Ian | Mills, Sir Peter (West Devon) |
| Grant, Anthony (Harrow C) | Miscampbell, Norman |
| Gray, Hamish | Mitchell, David (Basingstoke) |
| Greenway, Harry | Moate, Roger |
| Griffiths, E. (B'y St. Edm'ds) | Monro, Sir Hector |
| Griffiths, Peter Portsm'th N) | Montgomery, Fergus |
| Grylls, Michael | Moore, John |
| Gummer, John Selwyn | Morris, M. (N'hampton S) |
| Hamilton, Michael (Salisbury) | Morrison, Hon C. (Devizes) |
| Hampson, Dr Keith | Morrison, Hon P. (Chester) |
| Hannam,John | Mudd, David |
| Haselhurst, Alan | Murphy, Christopher |
| Havers, Rt Hon Sir Michael | Myles, David |
| Hawkins, Sir Paul | Neale, Gerrard |
| Hawksley, Warren | Needham, Richard |
| Hayhoe, Barney | Nelson, Anthony |
| Heddle, John | Neubert, Michael |
| Henderson, Barry | Newton, Tony |
| Heseltine, Rt Hon Michael | Normanton, Tom |
| Hicks, Robert | Ogden, Eric |
| Higgins, Rt Hon Terence L. | Onslow, Cranley |
| Hill, James | Oppenheim, Rt Hon Mrs S. |
| Hogg, Hon Douglas (Gr'th'm) | Osborn, John |
| Holland, Philip (Carlton) | Page, John (Harrow, West) |
| Hooson, Tom | Page, Richard (SW Herts) |
| Horam, John | Parkinson, Rt Hon Cecil |
| Hordern, Peter | Parris, Matthew |
| Howell, Rt Hon D. (G'ldf'd) | Patten, John (Oxford) |
| Howell, Ralph (N Norfolk) | Pattie, Geoffrey |
| Howells, Geraint | Pawsey, James |
| Hunt, David (Wirral) | Penhaligon, David |
| Hunt, John (Ravensbourne) | Percival, Sir Ian |
| Irvine, Bryant Godman | Peyton, Rt Hon John |
| Irving, Charles (Cheltenham) | Pink, R. Bonner |
| Jenkin, Rt Hon Patrick | Pollock, Alexander |
| Jessel, Toby | Porter, Barry |
| Johnson Smith, Sir Geoffrey | Prentice, Rt Hon Reg |
| Jopling, Rt Hon Michael | Price, Sir David (Eastleigh) |
| Joseph, Rt Hon Sir Keith | Prior, Rt Hon James |
| Kaberry, Sir Donald | Proctor, K. Harvey |
| Kellett-Bowman, Mrs Elaine | Raison, Rt Hon Timothy |
| Kershaw, Sir Anthony | Rees-Davies, W. R. |
| Kimball, Sir Marcus | Renton, Tim |
| King, Rt Hon Tom | Rhodes James, Robert |
| Rhys Williams, Sir Brandon | Skeet, T. H. H. |
| Ridley, Hon Nicholas | Smith, Cyril (Rochdale) |
| Rifkind, Malcolm | Smith, Dudley |
| Rippon, Rt Hon Geoffrey | Smith, Tim (Beaconsfield) |
| Roberts, M. (Cardiff NW) | Speed, Keith |
| Roberts, Wyn (Conway) | Speller, Tony |
| Rodgers, Rt Hon William | Spence, John |
| Roper, John | Spicer, Jim (West Dorset) |
| Ross, Stephen (Isle of Wight) | Spicer, Michael (S Worcs) |
| Rossi, Hugh | Sproat, Iain |
| Rost, Peter | Squire, Robin |
| Rumbold, Mrs A. C. R. | Stainton, Keith |
| Sainsbury, Hon Timothy | Stanley, John |
| St. John-Stevas, Rt Hon N. | Steel, Rt Hon David |
| Scott, Nicholas | Steen, Anthony |
| Shaw, Giles (Pudsey) | Stevens, Martin |
| Shelton, William (Streatham) | Stewart, A. (E Renfrewshire) |
| Shepherd, Colin (Hereford) | Stewart, Ian (Hitchin) |
| Shepherd, Richard | Stokes, John |
| Shersby, Michael | Stradling Thomas, J. |
| Silvester, Fred | Tapsell, Peter |
| Sims, Roger | Taylor, Teddy (S'end E) |
§ Question accordingly negatived.