§ Sir William ClarkI beg to move amendment No. 71, in page 144, line 42, after 'settlement', insert—
`made on or after 15th March 1988'.I wonder whether I might have more success on this amendment. I say at the outset that I have no vested interest in it.There is an element of retrospection in this. If the settlement is on the settler's own interest, there is a liability of 40 per cent., but if it is for his family, it is 25 per cent. Consequently, there is an anomaly that should be ironed out.
If, as my right hon. Friend said in Standing Committee, the clause was intended primarily to prevent avoidance arrangements developing, my amendment proposes that, if any settlement is made after 15 March, it should be caught. However, for anything done before 15 March—probably 10 or 15 days earlier—there should be no retrospection.
§ Mr. Norman LamontSchedule 8 provides broadly that gains of a settlement in which the settler or spouse has an interest will be taxed as though they accrued directly to the settler. My hon. Friend's amendment seeks to confine that to settlements after Budget day. Existing settlements are already within the scope of the equivalent income tax provisions, and our main objective this year is to assimilate the rates of tax, gains and income.
500 To exclude existing settlements from schedule 8 would mean that the gains concerned would be completely sheltered from the 40 per cent. charge. Apart from that general point, this would be a substantial advantage and an opportunity for avoidance of the higher rate. There would be nothing to stop further assets being transferred into existing settlements shortly before being sold. The terms of an existing settlement could be varied so that the settler or the settler's spouse would be appointed as beneficiary.
I will consider what my hon. Friend has said, but I do not think that there can be any justification for creating a situation in which capital gains would be taxed at a different rate. In one sense, any alteration in the capital gains tax rate will be accused of being retrospective because it hits accrued gains. That is an inevitable feature of any change made at any time to capital gains. One could not have a safe harbour for capital gains for somebody who happened to have a trust before the 1988 Budget. In some cases the schedule 8 rules may lead to an increase in the tax rate on gains, although there will be other cases where it will be at the basic rate.
The position here is little different from that of other cases where higher rate payers pay tax at 40 per cent. of gains on existing assets. A number of people have put to me the proposition that it may be difficult for the trust to be varied, but I do not believe that that is so. There are a number of ways around that. I shall think about what my hon. Friend has said, but it would not be right to have a different rate just because a trust has been set up.
§ Sir William ClarkIf a settlement has been made and it is not changed, why should not the provisions of my amendment be acceptable? If the settlement is changed, I accept that the extra settlement in the trust will be affected after Budget day, but if there is no change, why should there be this difference?
§ Mr. LamontI do not see why such settlements should not be subject to the same rate of tax as other taxpayers. There is no greater element of retrospection here. I raised the point about changing the trust because some people have argued that, if it is not possible to change a trust, trusts will not have the flexibility to deal with the higher rate.
§ Mr. LamontThe cost is uncertain—I shall go no further than that. I shall look at what my hon. Friend has said, although I doubt that he has a strong case. I should be happy to discuss it with him.
§ Sir William ClarkIn view of my right hon. Friend's assurance that he will look at it again—if he will do so, it is obvious that the Treasury accepts that there is a case —I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.