§ Mr. Nicholas Brown (Newcastle upon Tyne, East)
I beg to move amendment No. 13, in page 75, line 16, leave out '1982' and insert '1974'.
§ The Chairman of Ways and Means (Mr. Harold Walker)
With this it will be convenient to take amendment No. 14, in page 75, line 20, leave out '1982' and insert '1974'.
§ The Chairman
Order. It might be better if the hon. Gentleman were to speak to the amendment and then ask the leave of the Committee to withdraw it.
§ Mr. Brown
I shall do precisely that. The insertion of the date 1974 does not set out the Labour party's ultimate response to the Government's proposals. We hoped that the amendment would be a device whereby we could have discussed matters of substance on the Floor of the House first, before the Committee moved on to discuss other amendments, particularly those in respect of line 38 which are matters of detail that should have been more properly discussed in Committee. However, I understand that the Government wish to discuss matters of principle in a clause stand part debate. It would be rather odd, therefore, if Opposition Members were to speak to the amendment while Conservative Members spoke in the clause stand part debate. It would be for the Committee's convenience to have just the one debate and, to help the Committee in that respect, I shall seek to withdraw my amendment.
§ The Chairman
Perhaps I should first put the Question to the Committee and then come back to the hon. Gentleman.
§ The Paymaster General (Mr. Peter Brooke)
In view of the spirit of the speech made by the hon. Member for Newcastle upon Tyne, East (Mr. Brown), I shall not delay the Committee long, but my hon. Friends would not wish me to let this moment pass without drawing attention to 1974, the date that the Opposition selected as the fulcrum of their amendment. It shows either, in the case of the dog, a return to his vomit or—
§ Mr. Brooke
—it is a return to one of the greater moments of the Labour party. I remember that 1974 was the year in which I opposed the right hon. Member for Islwyn (Mr. Kinnock) in his former constituency.
I would be the last to suggest that the inflation engendered by the Labour Government of 1974 was of a quality such as that which brought down the Roman empire, and which is recorded in the pages of Suetonius and Gibbon, but—
§ Mr. Nicholas Brown
This is most ungracious. There was no capital gains tax in the Roman empire. This cannot possibly be relevant.
§ Mr. Brooke
I am concluding my remarks. It would not be right to let this moment pass without drawing attention to the date that the Opposition selected. I am only sorry that they will not have a chance to develop their reasons for selecting it.
§ The Chairman
The hon. Member for Newcastle upon Tyne, East (Mr. Brown) has already sought leave to withdraw the amendment. Does he have the leave of the Committee to withdraw the amendment?
§ Amendment, by leave, withdrawn.
§ Mr. John Butterfill (Bournemouth, West)
I beg to move Amendment No. 15, in page 75, line 16, after '31st March 1982' insert'or which was acquired after 31st March 1982 with any chargeable gain arising on the corresponding disposal being held over under section 79 of Finance Act 1980 or rolled over under section 115 of the Capital Gains Act 1979.'.
§ The Chairman
With this it will be convenient to take the following amendments: No. 5, in page 75, line 38, at end insert—'(5) Where in the case of a disposal of assets which were acquired after 31st March 1982—
- (a) the person making the disposal had acquired the assets by applying the proceeds from a disposal before 6th April 1988 or other assets which he held on 31st March 1982 or had disposed of before 31st March 1982 and the consideration for that acquisition was reduced under section 115(1)(b) of the Capital Gains Tax Act 1979, or
- (b) the person making the disposal had acquired the assets before 6th April 1988 from another person who held the assets on 31st March 1982 and the consideration for that acquisition was reduced under section 79(1) of the Finance Act 1980,it shall be assumed that on acquisition those assets were sold by the person making the disposal, and immediately reacquired by him, at their market value on that date.'.No. 7, in page 75, line 38, at end insert—'(4A) Where in the case of a disposal of assets which were acquired after 31st March 1982—
165 it shall be assumed, if the taxpayer so elects, that on acquisition those assets were sold by the person making the disposal, and immediately reacquired by him, at their market value on the day of acquisition.'.
- (a) the person making the disposal had acquired the assets by applying the proceeds from a disposal before 6th April 1988 of other assets which he held on 31st March 1982 or had disposed of before 31st March 1982 and the consideration for that acquisition was reduced under section 115(1)(b) of the Capital Gains Tax Act 1979; or
- (b) the person making the disposal had acquired the assets before 6th April 1988 from another person who held the assets on 31st March 1982 and the consideration for that acquisition was reduced under section 79(1) of the Finance Act 1980
§ Mr. Butterfill
I congratulate the Government on their proposal to rebase capital gains tax to 1982. It is an excellent decision and it will be widely welcomed in the business community, having regard to the enormously damaging inflation that took place before that time and the fact that gains which accrued arose largely out of inflation rather than any real gain.
There is, however, an anomaly here. Chargeable transactions that took place between April 1982 and April 1986 will be taxed retrospectively on the gain which occurred before 1982 if the gain was deferred through roll-over relief. Perhaps my hon. Friend did not intend that to happen. I hope that, if he did intend it, he might reconsider the point. It seems rather unfair that people who legitimately took advantage of roll-over relief should have the base of their gains taken back to 1965, whereas all other gains will be rebased at 1982.
I simply ask my hon. Friend the Paymaster General whether there is any possibility of his reconsidering the matter.
§ Sir William Clark (Croydon, South)
I support my hon. Friend the Member for Bournemouth, West (Mr. Butterfill). There is an anomaly here. Like him, I welcome the change of date to 1982. The high rate of inflation from which we suffered occurred before 1979–80, so capital gains tax had become a tax on inflation. I should have thought that all fair-minded people would welcome the 1982 valuation.
A person who acquired an asset in 1970, for example, and sold it after 1982 with roll-over relief will find that the roll-over provision is now ignored in regard to the capital cost of the asset. If somebody sold an asset, such as a farm, and there was no roll-over relief, he would have paid CGT at 30 per cent. With roll-over relief, however, the rate is bound to be 40 per cent. That is a second anomaly.
A third anomaly, which I am sure my right hon. Friend the Chancellor did not intend, has been drawn to my attention by the Historic Houses Association. It involves the maintenance fund for heritage property. If roll-over relief is not allowed, the fund will pay at 35 per cent.
Will my hon. Friend reconsider this matter? I do not suggest for a moment that my amendment is worded correctly, but perhaps he will re-examine the matter to see whether the anomaly can be ironed out. If the Bill must stay as it is, I do not think that the rate of CGT should exceed 30 per cent., for a rate higher than that would create some hardship.
§ Mr. Tim Boswell (Daventry)
I commend the spirit of the amendment, and my own. Although the amendments were drafted in different places, they seem to have come to almost the same wording.
This matter was drawn to my attention by the National Farmers Union. The value of land rose sharply, almost as soon as capital gains tax was introduced in 1965, until 1982, since when it has virtually plateaued. Many farmers, especially those who have made partial disposals or 166 changed farms, rather as other business men may have exchanged assets, perhaps as part of an expansion scheme, will find that they are caught.
Retrospection always surfaces in Finance Bills. I agree that there is no perfect solution. I remember spending many years going into Finance Bills trying to work out formulae for what was retrospective, what was retroactive and what was merely unfortunate. Here, however, if an asset holder disposed of his property before 1982, he would be liable to capital gains tax, but those who disposed of an asset between 1982 and the Budget would have received at least indexation relief for any gains after 1982 and they would have known the situation that applied.
People with roll-over, however, and no anticipation of what would happen, let alone the fact that they now come into a higher rate of tax, are caught retrospectively and, I hope, accidentally. The Treasury Bench may want to say something about the welcome improvements that have been made in retirement relief. In extremis, one can always die and avoid the tax that way, but there are people who will be caught.
I declare a personal interest, not least because I happen to be my own constituent. Although my circumstances are not confined to me, they illustrate the extreme unfairness of the present arrangement. My family purchased a farm in 1967 so, for practical purposes, we are virtually contemporary with CGT. A motorway is being constructed across the farm. In January, I had notice to treat on a portion of my land, which is being taken. That pre-dated the Budget and falls within the spirit of my comments about the past. Unfortunately, on the second and larger portion of the take, we received a compulsory purchase order on, if my memory is correct, 19 March 1988.
There was therefore an enforced disposal which took place after the Budget, which could not avail itself of the relief that would have taken effect on or after 6 April.
I cannot believe that any sane or properly advised person would have conceived of disposing of their property in those circumstances. Making a more general point, it merely instances the way in which compulsory purchase orders still give rise to resentment and to an extreme case of the anomaly. I would not have dreamt of mentioning that example had there not been the broad and general issue to consider, and one is entitled to return to it.
There are people who have acted in good faith. They have moved from one farm to another, or from one business to another, and the value of their assets has expanded. Only in the case of those who happened to have different assets acquired after 1982 with roll-over or in special circumstances such as those I have mentioned—where I would, in essence, have to acquire an asset in order to roll over to it-would such difficulties arise. I commend the amendments to the Committee and invite the Treasury Bench to think again.
§ Mr. Brooke
Amendment No. 15, moved by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), seeks to give the benefit of rebasing where tax has been deferred on the occasion of a gift or the replacement of business assets between 1982 and 1988. Unlike amendment No. 5, spoken to by my hon. Friend the Member for Daventry (Mr. Boswell), and amendment 167 No. 7, spoken to by my hon. Friend the Member for Croydon, South (Sir W. Clark), amendment No. 15 does not appear to involve exempting the whole deferred gain. However, it does not spell out what it would do instead. If my hon. Friend the Member for Bournemouth, West will allow me, I will turn to amendments Nos. 5 and 7.
The amendments of my hon. Friends the Members for Daventry and for Croydon, South relate to situations where, under the Bill, the benefit of rebasing will not be available. The approach in the Bill is that rebasing will apply where, after 5 April 1988, the taxpayer disposes of an asset which he held in 1982 or acquired by a no-gain, no-loss transfer from someone who held it then. However, rebasing will not be available where, between 1982 and 1988, tax was deferred under the provisions for gifts and for replacement of business assets. That is because the taxpayer would be disposing of an asset which he acquired after 31 March 1982.
There are arguments of principle both ways. On the one hand, there is the argument underlying the approach in the Bill, which is the comparison with people who in the same circumstances opted not to defer tax between 1982 and 1988. They will have paid tax on their full gains at the time without the benefit of rebasing. It is questionable whether those who deferred paying tax should benefit compared with those who paid their tax at the time. The opposite argument, which underlies the amendments, is that the full benefit of rebasing will be available where the tax deferral took place before 31 March 1982. Therefore, to give no benefit from rebasing, where the deferral was between 1982 and 1988, could be seen as a little harsh.
However, my hon. Friends' amendments would be unjustifiably generous. They would exempt from tax the whole of the gain deferred between 1982 and 1988 and not just the pre-1982 component. The deferred gain will often contain a large post-1982 element and it would be wrong to exclude it from tax. To do so would be unfair to the majority of capital gains tax payers who, when disposing of assets acquired before 1982, would have their post-1982 gains taxed in full. There is no reason to exempt the post-1982 gain.
As to whether the pre-1982 gain should be exempted, there would frequently be acute difficulties in trying to identify precisely the pre-1982 component in the deferred gain. Even in the most straightforward case, the necessary records may no longer be available. Many cases will not be straightforward. It would be necessary to cater, for example, for the situation where a business asset sold in 1983 was subsequently replaced by a number of replacement assets, some of which have since been sold, others replaced, and some still owned by the taxpayer. Trying to unscramble all that in an attempt to identify the precise pre-1982 component in any deferred gain still in charge would involve long and complicated rules and impose a major burden of compliance on taxpayers. It would also be impossible to observe if, as would often be the case, records were not complete.
§ Mr. Nicholas Brown
I am following the Minister's remarks with interest. In order to extend my knowledge of these matters, can he say how much it would cost the Government to accept his hon. Friend's proposals?
§ Mr. Boswell
If I may follow through the argument advanced by my right hon. Friend concerning the 168 difficulties of computing the pre-1982 component, I readily concede that it would add another line to the calculation. However, in certain cases assets would have to he valued back to their more speculative 1965 values. If that can be calculated in principle, why cannot the 1982 value also be calculable?
§ Mr. Brooke
I hear what my hon. Friend says, but perhaps I may continue with the point that I was adducing.
My hon. Friend the Member for Daventry will appreciate that there are real difficulties. If anything needs to be done, it must be made simpler and much more practicable. The amendments of my hon. Friend avoid those practical difficulties simply by excluding the whole of any deferred gain from tax. As I have said, that goes too far. I may say, in reply to the hon. Member for Newcastle upon Tyne, East (Mr. Brown), that the figure he seeks is essentially unquantifiable but, on the basis of my hon. Friend's amendments, the cost could be up to £50 million. In any event, the amendments go too far and would often exempt from tax large real gains made since 1982. At the same time, the amendments would give no benefit where there has been a succession of deferrals between 1982 and 1988—for example, where a business asset had been replaced by another asset which had itself been replaced.
I have listened carefully to the points made by my hon. Friends, and between now and Report I shall consider sympathetically whether there is anything that we can do in the circumstances that have been described.
§ Sir William Clark
My right hon. Friend spoke of the difficulties of defining the pre-1982 component and the roll-over relief, but the roll-over relief could be calculated. If it had been given on a profit, say, of £10,000, we know there would have been a deferment of £3,000 capital gains tax. I anticipate no administrative difficulty in assessing the amount. Nevertheless, I am delighted that my right hon. Friend will look again at this matter.
§ Mr. Butterfill
I am grateful for the sympathetic way in which my right hon. Friend has listened to my comments, and I am grateful also for the contributions made by my hon. Friends. A number of important points have been made, and I am grateful to my right hon. Friend for the helpful way in which he has responded to them. I hope he will look carefully at the situation in which the actual rate of tax could be increased from 30 per cent. to 40 per cent. As was said, that could create a most unfair anomaly for many taxpayers. However, in view of my right hon. Friend's remarks, I beg to ask leave to withdraw my amendment.
§ Mr. Brooke
I should not want to leave the debate on this amendment with my hon. Friends under any misunderstanding about the terms in which I have responded. I have said that I will look sympathetically at the points made, but I am not responding to the questions of detail—particularly that relating to the 30 per cent. tax rate.
As to the point made by my hon. Friend the Member for Croydon, South, it is in cases where the asset has been dismembered that complications arise in identifying the pre-1982 component.
§ Sir William Clark
Surely, if there has been a multiple acquisition of assets and the roll-over has gone on and on, the Inland Revenue has the record.
§ Mr. Brooke
The Inland Revenue, as my hon. Friend says, knows how much gain is being deferred. What the Revenue does not know—I am sorry if I did not manage to communicate this in my earlier remarks—is how much is attributable to the period before 1982.
§ Mr. D. N. Campbell-Savours (Workington)
Could the Minister put a cost or value on the amendment that we have been discussing?
§ Mr. Brooke
I refer the hon. Gentleman to my earlier answer to his hon. Friend the Member for Newcastle upon Tyne, East.
§ Amendment negatived.