Capital Transfer Tax (Hansard, 17 December 1984)

§ Lord Beswick
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie)
My Lords, the capital transfer tax legislation already contains numerous anti-avoidance provisions. The Government keep the effectiveness of these provisions—and the need for any further legislative safeguards—under regular review.

§ Lord Beswick
My Lords, I am obliged to the noble Earl for that Answer. Has he, or the Government, a view about the expensive salesmanship of the City gentlemen who say that they can reduce or even eliminate the necessity for paying tax? Is he aware that one City company, for example, says: The capital transfer tax is a voluntary tax". In these circumstances, should not the law be strengthened or some of these people charged with misleading advertising?

The Earl of Gowrie
My Lords, I am not wholly clear what kind of schemes the noble Lord has in mind. It is, of course, impossible to block all forms of avoidance. A balance must be struck between stopping undue avoidance on the one hand and making our tax system oppressively complex and full of traps for the unwary on the other.

§ Lord Simon of Glaisdale
My Lords, rather than proceeding with immense complication, often belatedly and frequently ineffectively, against particular schemes for avoidance of tax, can consideration again be given to the American and Australian system of providing simply that any transaction whose paramount object is the avoidance of tax shall be void for that purpose though valid for all others? Would that not greatly simplify our fiscal code?

The Earl of Gowrie
My Lords, I shall of course give consideration to what the noble and learned Lord has said, but I would claim that the tax is still cost effective. The estimated yield from CTT for 1984–85 is £680 million, and the cost/yield ratio of 3.2 per cent. compares rather favourably with that for other capital taxes.

§ Lord Kennet
My Lords, the noble Earl has spoken of preventing undue avoidance and has thereby introduced into debate the interesting concept of due avoidance. Would he be so kind as to describe that, or define it?

The Earl of Gowrie
My Lords, yes, I think there has to be a balance between what is regarded as avoidance and what is regarded as prudent tax planning, which has always been wholly legitimate.

Lord Morris
My Lords, is it not true that a learned judge, many years ago, rightly distinguished between the duty to avoid tax, that is, the duty to one's family and one's interests, and the fact that tax evasion is a crime?

The Earl of Gowrie
My Lords, one should, I believe, pay one's taxes but one should not pay more in taxes than one can reasonably avoid.

Lord Bruce of Donington
My Lords, the noble Earl has passed some observations about the cost effectiveness of this particular tax. Will the noble Earl inform the House as to whether he considers the total yield from this tax to be one that is satisfactory, bearing in mind that the yield is but a fraction of that formerly yielded by estate duty?

The Earl of Gowrie
My Lords, I confess to a certain personal bias against capital taxation generally—and I speak disinterestedly as I am not personally the possessor of capital. Nevertheless it seems to me a sensible thing for the economy to try to build up capital, rather than the reverse. As taxes go, £680 million seems to me to be a fair amount of revenue.

§ Lord Beswick
My Lords, would the noble Earl agree that there is another aspect to this? This wad of material I have here is only some of that which came to me within a space of two or three weeks. Most of it is on high-quality paper and there are prepaid envelopes. If this kind of costly extravagance had been shown by those who dig our coal or produce our gas would not the noble Earl be saying that it is evidence of waste in the public sector?

The Earl of Gowrie
My Lords, the trouble is that the noble Lord, Lord Beswick, is in the fortunate position, unlike myself, of being beseiged by people instructing him about the disposition of his taxes; so I do not quite know what he is referring to.

§ Lord Somers
My Lords, would not the noble Earl agree that all these various taxes on capital—capital gains, capital transfer, death duties, et cetera—are enough to dissuade anybody from making any money at all, even if it is possible?

The Earl of Gowrie
My Lords, that is precisely why we have tried to raise tax thresholds and narrow tax bands. I am encouraged to say that there is some evidence that people are trying to make a bit more money, and I hope that they will be able to keep it.

§ Lord Beswick
My Lords, may I congratulate the noble Earl on his cleverness in the last answer he gave me? But may I also ask him: is he not aware of this material that is going around?

The Earl of Gowrie
My Lords, I am aware that there is quite an industry which encourages individuals to invest in various forms of investment schemes the object of which is to lower the liability to taxation. I am not aware that this is doing any appreciable harm to the Inland Revenue. My advice from the revenue is that they are satisfied with the tax base of this particular form of taxation.

§ Lord Bruce-Gardyne
My Lords, is it not the case that the main single reason why the yield from capital transfer tax has hitherto been lower than the yield from death duties, which the party opposite replaced with CTT, is that the former Chancellor, Mr. Denis Healey, produced the surviving spouse concession? Is it not therefore somewhat illogical to complain at the result that that has produced?

The Earl of Gowrie
My Lords, I think it is not only illogical but it is rather a slap in the face of spouses. I should have thought that noble Lords opposite, of all persuasions and, indeed, all sexes, would be reluctant to engage in that.