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Mr. Home Robertson: It is worse than that, because not only can the land just be sat on to qualify for the tax breaks to which my hon. Friend referred but even more money can be paid in from the taxpayer by setting the land aside, and getting paid by the Ministry of Agriculture, Fisheries and Food for doing nothing.
Mr. Milburn: I thank my hon. Friend for his intervention. He brings a certain knowledge to our debate--not knowledge of tax avoidance, of course, but knowledge of rural communities and the agriculture industry. Perhaps I have been too generous in regard to those matters.
Without our amendment, the possibility of abuse and tax avoidance will be extended. The amendment would empower the Inland Revenue to deny inheritance tax relief to those owning land in habitat schemes when it was clear that the purpose was tax avoidance. We want relief to focus on those with genuine environmental objectives, not on those who shelter behind them merely to gain a tax advantage. The public should not foot the bill for the wealthiest, who are using lax laws to reduce their liability.
At a time when ordinary families are paying more tax than they were at the last general election, the Government should stand up for the decent, hard-working majority of taxpayers. Those who are experiencing the biggest tax hike in peacetime history, following 22 separate tax rises, are entitled to demand a fair and efficient tax system; but the current inheritance tax rules ensure that the system is not fair and efficient. In many respects, inheritance tax has become a purely voluntary tax, and clause 92 would extend that spirit of voluntarism to land covered by habitat schemes.
The loopholes in the inheritance tax system mean that many of the wealthiest members of society get off scot free, or at least mostly tax free. The latest figures for 1993-94 from the Inland Revenue's 1996 statistics--a riveting read, as the Government Whip will no doubt appreciate--show that there were only 1,478 cases of inheritance tax being paid on agricultural property, out of a total of 17,363 paying any form of inheritance tax. That represents just 6 per cent. of the total number of estates notified for probate.
The Government's argument seems to be that, as the inheritance tax system that they created is so riddled with anomalies and loopholes, the answer is not to reform it
but to extend it on the way to abolishing it. It is less a case of "If it's broke, fix it" than a case of "If it's broke, axe it"--and, as I have said, the beneficiaries of such an approach would be the wealthiest members of society. If the Prime Minister's objective--abolition of inheritance tax--were fulfilled, the wealthiest people would reap the biggest rewards. At the very top, each of the 201 families inheriting estates valued at more than £2 million would gain nearly £1 million. Such a tax cut would hand out millions to people who are already multi-millionaires.
I do not believe that abolishing inheritance tax, or extending it in the way suggested in clause 92, will do anything to create an enterprise economy in which merit is the crucial determinant of success. If the Conservatives got away with their objective, it would merely make the wealthy even wealthier. If there is room for tax cuts in the future, they should be used to help the hard-working majority. Opposition Members want to reform the inheritance tax system rather than abolish it, and the amendment is a step in that direction.
It is of course right that the inheritance tax system does not penalise people on middle incomes, whose property values may rise over time, which is why raising inheritance tax thresholds--
The Chairman of Ways and Means (Mr. Michael Morris):
The hon. Gentleman appears to be drifting into a general discussion on inheritance tax. The amendment--as he knows, because he moved it--deals specifically with inheritance tax and habitat schemes.
Mr. Milburn:
I was about to mention two matters. First, raising inheritance tax thresholds may be a desirable reform. Secondly, however, the system must be safeguarded against abuse if it is to have integrity and command public confidence. Amendment No. 7 intends to achieve precisely that objective, which is why it is so important.
We want family businesses and farms to be protected. Opposition Members want to prevent the breaking up of bona fide businesses and farms and the tax system to work fairly and efficiently. The extension of inheritance tax proposed under clause 92 should not be made unless taxpayers' interests are properly safeguarded. Our amendment would accomplish that goal. It would prevent tax avoidance but offer help to genuine farmers and to those interested in preserving the very best of the British countryside.
Mr. Clifton-Brown:
My hon. Friend the Financial Secretary to the Treasury kindly mentioned that I made representations to him on clause 92's exemption for habitat schemes. That tribute should have gone to my constituent, Mr. Michael Fitzgerald, because he brought the matter to my attention. Thereafter I brought the matter to the attention of my right hon. Friend.
I think that it would be helpful if I explained to the House the origin of clause 92 and the need for amendment No. 7. I am indebted to the Country Landowners
Association, of which I am a member, for providing the technical note which I shall use. It is important to understand how the issue arose, and the note at least partially answers the questions asked by the hon. Member for Darlington (Mr. Milburn) about why it was necessary to include clause 92 in the Bill.
Under section 117 of the Inheritance Tax Act 1984, as amended, agricultural property can qualify for inheritance tax agricultural property relief only if the property is
When set-aside schemes were first introduced, owners who elected the fallow option were considered to remain in occupation of their land for purposes of agriculture because the scheme required the landowner to maintain the property in a fit state for agricultural production. The Revenue's view was that, although minimum maintenance was required under the scheme, the requirement provided sufficient indication of intent, as suggested by the word "purposes".
The 20-year habitat scheme, the inheritance tax exemption and amendment No. 7--all of which the Committee has spent so much time discussing today--push so far forward any prospect of future agricultural use that the requirement to maintain the land in a fit state for future agricultural use would not make sense. Thus, there is no hook on which the Revenue can justifiably hang a proper belief that such land remains in agricultural application.
When I brought the matter to the attention of my hon. Friend the Financial Secretary to the Treasury, he took legal advice from the Revenue--perhaps also from elsewhere--and its view was precisely the one which I have paraphrased. However, he considered--I am grateful to him for this--that a charge to inheritance tax under the habitat schemes would deter people wishing to enter those schemes. Indeed, my constituent, Mr. Fitzgerald, who entered 212 hectares in the scheme, would not have done so had it not been for clause 92. I am therefore grateful that my hon. Friend has seen fit to remedy the situation in that way.
The amendment exemplifies some of the worst fears of farmers and landowners. The hon. Member for Darlington made it clear that should the Opposition get anywhere near power, they will not only introduce changes such as that which they have proposed this evening but will seek to extend the scope of inheritance tax. One of the easiest ways to extend its scope would be to abolish what are known as potentially exempt transfers.
Anyone who keeps an asset for more than seven years is exempt from inheritance tax, but I believe that one of the first things that the Opposition would do is abolish that relief. We should then have a potential wealth tax in the making--who knows, perhaps the Opposition are proposing a wealth tax. The Opposition have ruled out some personal taxation options but that means that others will have to be considered. This particular exemption relating to habitat schemes--
The Chairman:
Order. The hon. Gentleman knows when he is guilty of straying out of order.
Mr. Clifton-Brown:
To return to the amendment, I must say that it strikes one as a little spiteful. We are trying to improve the environment. If someone has the foresight to buy a piece of land, and probably pays a great deal of money for it, he is by nature altruistic and wants to improve the general habitat. Does it really matter if, at some stage in the future, he might get away without paying a little bit of tax? The amendment is simply jealousy of the highest order and shows that the Opposition are still unreconstructed when it comes to tax. Jealousy is still their motive.
"occupied for the purposes of agriculture"
during the required period. As the hon. Member for Darlington made clear, in the case of owner occupation the required period is two years immediately prior to any transfer of the property, and in the case of occupation by someone other than the owner, the required period is seven years immediately prior to any transfer.
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