CHARGEABLE GAINS: RESTRICTION OF GIFTS RELIEF ETC (Hansard, 28 April 2004)

§ Mr. Flight
I beg to move amendment No. 8, in schedule 21, page 382, line 10, at end insert '; or (c) a person who would qualify for one or more of such benefits mentioned in paragraph (b) above if the appropriate claim were made.'.
First, may I welcome your chairmanship of our deliberations this afternoon, Mr. McWilliam? In the course of the clause stand part debate, I referred to this amendment, the essence of which is to include people who would be entitled to disability allowance even though they may not have claimed it, as in many cases people who are entitled do not do so. There may be some practical problems in implementing that, but there seems to us to be an issue of basic fairness, whereby people should not be excluded merely because they have not put in the relevant claim.

§ Mr. Burnett
Is it in order for me to speak to my amendment No. 42, Mr. McWilliam?

§ The Temporary Chairman
No. It is a separate argument and in a separate group.

§ Dawn Primarolo
I hope that I will be able to persuade the hon. Member for Arundel and South Downs (Mr. Flight) to withdraw this amendment. First, I have no quarrel with the thought behind the amendment. The problem is how to deliver such a change through the Inland Revenue. The concerns that prompt the amendment are that, currently, the definition of a disabled person means that there may be trusts for people who are disabled, under which the settlor will not get the benefit of the exemption provided for in the measure. The hon. Gentleman asks that we modify the definition to include people who might be in receipt of attendance allowance or disability living allowance, if they had made an appropriate claim. We must therefore know that they might have made a claim, and that it might have been appropriate.
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In all honesty, for the life of me, I cannot see how the Inland Revenue, as the tax department, could possibly know who might have applied and whether they may have been successful under the rules. Obviously, there are huge practical difficulties in terms of how the Revenue, as the tax department, would be able to settle on these issues for the purposes of taxation. I hate to say this, but I do not even want to contemplate what the anti-avoidance measures would need to be in relation to decisions at each stage by the Revenue. Basically, the Revenue would have to adjudicate on what are deemed applications—as they may never have been made—when clearly it would be the role of another Department in relation to people who are entitled to such benefits.
The other point that struck me is that if a disabled person for some reason chose not to claim state benefits, in the knowledge that that would have an effect on the capital gains tax bill, that is their choice. Surely, if a huge amount of money was at stake, I cannot believe that the taxpayer would not be advised at least to apply for one of the benefits, to see whether they were entitled, although they may not wish formally to make the claim, which would be processed through the Revenue.
What lies behind the proposal is a laudable aim, in terms of ensuring that people receive everything to which they are entitled, and that wherever possible, rights are delivered to that person, regardless of whether an application through another route had been made. I discussed this matter with my officials, and I know that the hon. Gentleman is keen to reduce the costs of central Government in what we have affectionately called the Flight plan for —30 billion of public sector cuts. I hate to say this to him, but he would be spending a huge proportion of that revenue on the checks and balances in the process that his amendment proposes.
Although the principle would be generally accepted that, wherever possible, rights should be delivered, rather than requiring an application, at present, there is no way known to Ministers, officials or humankind to deliver his amendment. I therefore ask the hon. Gentleman to consider withdrawing it, having aired the important principle in the House.

§ Mr. Flight
First, I am delighted to hear that when the Gershon team has outlined planned savings of up to —30 billion, the Government will name them after me.
I accept the Paymaster General's argument that the proposal is probably impractical. There is a moral point, and I would just hope that in any circumstances in which 912 someone had historically suffered as a result of not claiming a benefit, that might be put right and attention given to sorting out the tax affairs to date. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.

§ Mr. Burnett
I beg to move amendment No. 42, in schedule 21, page 386, line 15, leave out '10th December 2003' and insert '1st April 2005'.
May I also welcome you, Mr. McWilliam, as Chairman? I have had the privilege of sitting on several Committees that you have chaired, and I am pleased to move amendment No. 42, in my name and the names of my right hon. and hon. Friends.
The amendment is probing, and before I go into great detail, I want to refer to the fact that the Paymaster General, in the last but one debate, said that she was not here to give tax advice. That may or may not be the case, but I remember that in 1985, the Inland Revenue issued a consultation document called "The Preceding Year of Assessment and the Cash Basis of Assessment". It contained a textbook example of exactly how to lose one year's profits, which came to be quoted in many learned textbooks.
Basically, amendment No. 42 seeks to extend the time for the provisions of the schedule to apply. We are seeking to replace 10 December 2003 with 1 April 2005. Effectively, the amendment delays the implementation of the proposals to allow for further comment. I know that the Paymaster General is excitedly waiting for an opportunity to discuss what is behind the amendment, and to assure us that the proposal will not unfairly prejudice taxpayers and unfairly fetter businesses. There has been discussion about taper relief rules and their manipulation.
I look forward to hearing what the Paymaster General has to say. Having considered that, I shall make up my mind about whether we feel satisfied with the explanation.

§ The Temporary Chairman
I thank all Members for their kind words of welcome, and hope that they will not have cause to recant in the next couple of months, when they will be spending far too much time in my company.

§ Dawn Primarolo
I shall be asking the House to reject the amendment, for two reasons.
First, this is anti-avoidance legislation designed to stop people from obtaining gifts relief on transfers of assets to settlor-interested trusts in order to avoid capital gains tax. To delay the introduction of a measure designed to protect public revenues would simply increase the drain on the Exchequer from the avoidance that already exists, and would give a flag for it to be possible for at least another 12 months. The loss is almost impossible to calculate because we do not know what the behavioural changes might be; but according to current estimates, if we delayed the introduction of the provisions the Exchequer could lose some —50 million—a significant amount. In effect, people would be rewarded for trying to avoid tax for a further 12 months, and I cannot agree to that.
The second reason for rejecting the amendment is that in this case there is no need to provide a period of grace giving people an opportunity to unwind existing 913 arrangements that might have been caught by the start date of 10 December 2003, because the measure applies only to disposals to trusts on or after that date. Disposals made earlier are not affected.
The Inland Revenue published draft legislation and detailed explanatory notes on 10 December 2003 so that anyone contemplating a disposal to a settlor-interested trust on or after that date could be fully aware of the capital gains tax consequences of such a disposal. I think that that is entirely right.
The hon. Gentleman mentioned taper relief. I think he was referring to the so-called taper clock, to which the hon. Member for Arundel and South Downs (Mr. Flight) also referred. Some people have used settlor-interested trusts to gain full business asset taper relief on assets that they owned before April 2000 that did not become business assets until the definition was relaxed, gifting the assets into trusts after 5 April 2000 and thereby restarting the taper clock. It remains the Government's policy that changes to the taper relief rules were to be effective from 6 April 2000, and that they should not apply in relation to any part of the period of ownership falling before that date. This measure prevents people from using settlor-interested trusts—as they have been—to reduce their capital gains tax liability in a way that was never envisaged or condoned, as the policies of 2000 and 2003 made absolutely clear.
I hope that the hon. Gentleman will not press his amendment. No other measures relating to the taper relief rules have been changed. Anyone with a business asset who sells it will receive business asset taper relief. Assets that became business assets on 6 April 2000 will receive the relief in proportion to the time during which the assets were business assets before being sold. There is no question of any of the rule changes made in 2000 or 2002 being disturbed. All that is being prevented is the use of settlor-interested trusts to restart the clock.

§ Mr. Burnett
I think I made it clear at the outset that ours was a probing amendment. I was delighted, or at least pleased, to hear what the Paymaster General said.
The Paymaster General said earlier that we had debated the point about business asset relief many times in Committee. It is of course grossly unfair that those who have held assets before a certain late do not receive relief, while those who hold them after that date do. It is chronically unfair—but I will not start that debate again, because we have already discussed it at length on at least two occasions.

§ Mr. Flight
It is in circumstances like these, in which people feel that they have been treated unfairly, that they turn to avoidance techniques such as the one we are discussing. In a sense the problem is of the Government's own making.

§ Mr. Burnett
I have heard that view asserted frequently. I certainly asserted it myself before I became a Member of Parliament, to justify certain steps that I used to take on behalf of clients. I shall be rather more circumspect now, but the hon. Gentleman is right: people do feel very unfairly discriminated against because of the arbitrary nature of the relief.

§ Dawn Primarolo
I shall not ask the hon. Gentleman to share with us exactly what he got up to in tax planning, and we will not tell anyone else about it.
914 Surely the hon. Gentleman will acknowledge that when the Government introduced taper relief it was for future gains, and related to the development of businesses from that time forward. It is not acceptable to say that we should backdate it, at huge cost to the taxpayer, with no gain in the explicit policy. That is why the start date is where it is.

§ Mr. Burnett
I do not agree. People should be given incentives to stay in business and to grow their businesses. The fact that they fall short of the arbitrary date by a few days, or a year, is economic nonsense. People should be given incentives throughout their ownership of business assets. If relief is introduced, they should benefit. When business assets relief was introduced for inheritance tax, and other reliefs for capital gains tax, they did not arbitrarily discriminate against already-held assets. This is nonsense.
I think I have said enough. The Paymaster General has given me a reasonable explanation. We have trespassed slightly on old ground; so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That this schedule be the Twenty-first schedule to the Bill.

§ Mr. Flight
May I ask the Paymaster General to make it clear that the concept of derived property used in new section 169F refers to a property within the settlement under consideration, and not to property that might pass from one trust to another?
New section 169G refers to a former spouse being required to supply information to the Inland Revenue. We seek some assurance that such a request would be treated sensitively, recognising that a former spouse may not have information, or may not wish to be involved in their former spouse's affairs any longer.

§ Dawn Primarolo
As the hon. Gentleman said, this is about sensitivity. It would be depend on the precise facts, which as he knows can cover a vast array of examples. If a person is able to enjoy benefit from the property, the question is: is it derived from that trust, or is it derived from another trust? It would depend on the precise facts of the transfer. It may be helpful if he wrote to me with some specific examples of the difficulties, so that I could respond to those particular points, rather than make general statements that will be wide of the mark. It is necessary to have sensitivity and these issues can be complex. Some will be acceptable and some will not be. We need to take it forward on that basis.