SECTION 8o FINANCE ACT I981 (Hansard, 11 July 1984)

§ Sir William Clark
I beg to move, That the clause be read a Second time.
The clause is a simple amendment, and I hope that my hon. Friend the Minister will be able to accept it. It refers to the assessment of capital gains tax where there is a trust account in a foreign country but the beneficiaries of that trust account are in this country. If there is a capital distribution, those beneficiaries must pay capital gains tax in the same way as anyone else.
Section 80 of the Finance Act 1981 changed the method of assessment. Before 1981, if the foreign trustee were to make a capital distribution from a trust, capital gains tax was paid by the beneficiary, but in some cases the foreign country in which the trust was situated might have had a capital gains tax of its own. America, for example, has a capital gains tax. Before 1981, the Revenue, as with all double taxation agreements, rightly gave credit for the capital gains tax paid in the foreign country. Therefore, if there were a capital gains liability in this country of, shall we say, £1,000, but £200 had been paid in America, the charge in this country would be £800.
I understand on good authority that the Inland Revenue says that section 80 is not clear in its interpretation of the relief on foreign tax paid. The amendment is tabled in the hope that my hon. Friend will accept it and thus ensure that there is no ambiguity.

§ Mr. Hayhoe
As my hon. Friend would be the first to acknowledge, this is a complicated area of tax legislation. I am advised that the clause as drafted would allow the deduction of foreign tax paid by the trustees of a nonresident trust in calculating trust gains attributable to United Kingdom beneficiaries. The clause is unnecessary because there is an existing capital gains tax relief in section 11 of the Capital Gains Tax Act 1979, which allows, and provides for, precisely such a deduction.
My hon. Friend may be concerned with a different point from that to which he referred, whether tax credit relief is available in these circumstances to allow the deduction of foreign tax paid by the trustees from the tax paid by the United Kingdom beneficiaries. The position is complicated, and the Inland Revenue already has it under review, as my hon. Friend suggested. The Revenue has been legally advised that tax credit relief is available only where the amount of trust gains on which the beneficiary is to be charged to tax can be clearly and unambiguously identified with the trust gains that have been subject to the foreign tax.
I have said enough to acknowledge the complexity of this matter. It is clear on the legal advice that I have that the clause as drafted is unnecessary because it means only what is already in our legislation. Therefore, I hope that my hon. Friend will withdraw his clause. I have responded to his other point by saying that the Inland Revenue has this matter under consideration. I am sure that my hon. Friend the Financial Secretary will be writing to my hon. Friend on the details. If legislation were required, it could be introduced in a later Financial Bill.

§ Sir William Clark
I am grateful for my hon. Friend's reply, although my advice is contrary to his. Section 80 of the 1981 Act changed the method of assessment for capital gains tax for foreign trustees. In view of what my hon. Friend has said, and the fact that he has accepted the spirit of my new clause, although not the exact wording, I beg to ask leave to withdraw the motion.