HL Deb 02 February 1995 vol 560 cc1585-8

3.17 p.m.

Lord Eatwellasked Her Majesty's Government:

Whether they will reconsider Schedule 17 to the Finance Bill, given that the new proposals contained in that schedule to levy taxation on the non-existent income on interest-free loans will have a considerable impact on the many charities which benefit from such loans

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley)

My Lords, as drafted at present that provision could impose a tax liability on a person who lends money to a charitable trust. I can announce, however, that my right honourable friends will be bringing forward an amendment at Committee stage in another place to take loans to charities outside the new charge.

Lord Eatwell

My Lords, I am most grateful for the Minister's reply. I am glad that he has responded to the pressure which the Labour Party brought to bear in relation to the matter. Will he confirm also that Schedule 17, as currently drafted, would result in a parent who offers an interest-free loan to his children to purchase a house being taxed on the non-existent income? Is that part of the schedule also to be reconsidered?

Lord Henley

My Lords, I can confirm that we are making the change announced. It was not as a result of pressure from the noble Lord or from the party opposite. I notice that he had about four attempts to get his Question right with the final draft of the Question appearing on the Order Paper only this morning. The noble Lord is wrong on the point he made. This applies only to loans to trusts and does not apply to a loan that someone makes to another individual, whether interest free or not.

Lord Eatwell

My Lords, I attempted to help the noble Lord by ensuring that he received counsel's briefing before the Question was tabled. I should have thought that he would have understood it and would therefore discover that Section 660C does indeed apply to loans between persons, such as loans from parents to children.

Lord Henley

My Lords, I am grateful for the advice I received from counsel, Mr. Robert Venables. I have read and studied it, as have legal advisers in the Treasury. I have the most enormous respect for such an eminent lawyer, but on that point he is wrong, as is the noble Lord.

Lord Boyd-Carpenter

My Lords, I wish the noble Lord, Lord Eatwell, many happy returns of the day. Perhaps I may say to my noble friend that he should be congratulated on the extremely sensible answer that he has given, which reflects great credit on the Government's financial administration.

Lord Henley

My Lords, I am grateful to my noble friend for those comments. I shall certainly pass them on to my right honourable friends in the Treasury. I echo also the kind remarks my noble friend made as regards the noble Lord, Lord Eatwell.

Lord Bruce of Donington

My Lords, is the Minister aware that it hardly lies in his or the Government's mouth to criticise corrections to Questions that are tabled in the interests of the House as a whole? Would it not be better if the Government paid far closer attention to the accuracy of their replies and the information contained in them?

Lord Henley

My Lords, even Homer nods, as they say. The important thing is that we have got it right, or we intend to get it right by means of an amendment. Just as we got it wrong in making the error in advance, I was pointing out to the House that the noble Lord, Lord Eatwell, took three attempts to get his Question right.

Lord Peston

My Lords, will the Minister clarify his Answer? It is most important. Did the noble Lord actually say that if any noble Lord—or, indeed, anyone else—lent a sum of money to one of his children at zero interest, no tax would be payable? Can the Minister confirm in simple terms that the answer to the question is: no tax will be payable?

Lord Henley

My Lords, no tax would be payable on notional interest in such a case. Schedule 17 deals with the case of loans, interest free or at a lower rate of interest than the commercial rate, to a trust and not to an individual.

Lord Dubs

My Lords, while we welcome the fact that charities are to be exempt, can the Minister indicate whether the increased tax that is intended in the schedule to the Finance Bill would apply to interest free loans made to organisations which are not charitable?

Lord Henley

My Lords, the measure is not designed to increase tax. Our original thought was that it would probably have more or less no effect whatever; in fact, it might raise a certain amount of tax. It is merely to implement the proposals of the Chancellor of the Exchequer to simplify the income tax benefit to settlor rules. For tax purposes, those rules treat the income of trusts and other settlements as the settlors in certain circumstances.

Lord Barnett

My Lords, would the Minister care to check the answer he gave to my noble friend Lord Peston? If the sum of money loaned was a substantial one, would it still not be liable to tax of any kind?

Lord Henley

My Lords, I am trying to make clear the fact that the notional interest would not be taxed under the provisions about which we are talking. They purely relate to transfers to trusts; they do not relate to transfers to individuals.

Lord Richard

My Lords, if I may say so, the Minister is being at his most peevish this afternoon in relation to the drafting of my noble friend's Question. Will the noble Lord confirm that the Clerk of the Parliaments has informed the Government that the reason that there were different drafts of the Question was that, unfortunately, the Clerks got it wrong when it was first tabled and it was thereafter put right?

Noble Lords

Oh!

Lord Henley

My Lords, I can neither confirm nor deny that.

Lord Richard

Ask your Chief Whip!

Noble Lords

Order!

Lord Henley

My Lords, I was in no way being peevish; indeed, I believe that I was having a bit of innocent fun at the expense of the noble Lord opposite. There is no need for the noble Lord to get on his high horse about it.

Lord Richard

My Lords, with respect, I am on my high horse because a little bit of fun is absolutely splendid if the facts upon which it is based are absolutely right. Will the Minister confirm the facts with his noble friend the Chief Whip who, I am told, knows the position, which is indeed as I have stated?

Lord Eatwell

My Lords, I am most grateful for the good wishes expressed by the noble Lord, Lord Boyd-Carpenter, and echoed by the noble Lord, Lord Henley. However, will the noble Lord confirm another pernicious aspect of Schedule 17, namely, that settlements on non-existent income made prior to the passage of the legislation into law will attract taxation? In other words, taxation will be levied retrospectively on settlements made prior to the Bill being enacted. Is that not an unfortunate principle?

Lord Henley

My Lords, to suggest that it is retrospective is absolute nonsense. No one setting up a trust is entitled to expect that the income tax treatment of that trust will stay the same throughout its existence. Indeed, the noble Lord can ask any of his colleagues who have been Chancellor of the Exchequer, Chief Secretary, or whatever. They will confirm that that has always been the case.