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Mr. Jon Trickett (Hemsworth): Having listened carefully to my hon. Friend the Member for Darlington (Mr. Milburn), I have to say that I detected none of the implications referred to by the hon. Member for Cirencester and Tewkesbury (Mr. Clifton-Brown). I did, however, note that the point of the hon. Gentleman's speech was precisely what the amendment is intended to prevent--the possibility that a further loophole may be opened in the inheritance tax legislation and rules.
In considering the matter, we are entitled to examine the broader context in which clause 92 is being proposed. Part of that context is formed by clause 91, which raises the threshold for the payment of inheritance tax from £200,000 to £215,000. That is £10,000 more than is necessary for the usual indexation, and it will cost £16 million a year in lost revenue to the Exchequer. Adding that to the previous year's huge increase, the threshold for inheritance tax has risen by 40 per cent. in two years, from £154,000 to the proposed figure of £215,000. Inflation is running at about 2.5 per cent. That threshold increase vastly outstrips the retail prices index and house price inflation.
Conservative Members have declared an ideological opposition to inheritance tax. This further loophole may be designed to ensure that the tax is eventually abolished. The implications of abolition are substantial. The likely cost would be £1.6 billion--the equivalent of 1p on the standard rate of income tax.
Given the Government's record and their ideological commitment to the removal of inheritance tax, we are entitled to be suspicious that they may be opening a further loophole in the tax through which millionaires and others could crawl, as happened with the 1992 decision to relieve agricultural properties from inheritance tax. A small industry has developed, advising estates on how to take advantage of that provision. The industry could also feed on clause 92. According to the 1996 Inland Revenue statistics, a large number of the country's wealthiest estates have already found loopholes to avoid inheritance tax.
The Chairman:
Order. The hon. Gentleman must relate his remarks to amendment No. 7.
Mr. Trickett:
Thank you for that advice, Mr. Morris. I shall endeavour to take it.
It is clear that a large industry of tax advisers, lawyers and others has developed around the specific function of advising estates on how best to exploit any loopholes that emerge. Our amendment was drafted to offer the Government assistance--they are obviously in need of it--in avoiding the possibility of the clause becoming an additional loophole.
Even without clause 91, there has been a decline in the inheritance tax base, as the Inland Revenue figures show. There has been a 2.5 per cent. reduction in the past two years in the number of estates paying inheritance tax. We need to ensure that a potential new loophole is not opened. The amendment would help to do that.
Mr. Clifton-Brown:
Do the hon. Gentleman or any of his hon. Friends have any idea why reliefs were given to agricultural properties? It was because agriculture is a long-term business with relatively low long-term returns.
Mr. Trickett:
I understand the hon. Gentleman's point. That may have been the intention, but, as civil servants in ministerial offices who draft legislation often do not realise, there is a wise world out there, full of people who do nothing but try to find ways of exploiting loopholes. The Sunday Times said that the Marquis of Bath, whose wealth is estimated at £40 million, was investigating the loophole. Our amendment is drafted to secure the objectives that the Government claim to want to achieve. We feel that there is a danger in the drafting of the clause that a further loophole might emerge.
Mr. Jack:
This has been an interesting debate. Before I deal with the substance of hon. Members' remarks, I hope that, with your indulgence, Mr. Morris, I can deal with the detail of the points relating to clause 92 and something that I said in previous exchanges.
I did not in any way want knowingly to mislead the hon. Member for Sherwood when I said to him that we have made the register more widely available. I should be absolutely clear: the path that is more widely available in the ways that I described--through libraries and the Internet--relates to works of art. Particular provisions relate to the requirements that those who qualify for exemption for land should, with the help of heritage advisory agencies working with local authorities, draw up a list of such information. In following up the points, I satisfied myself--indeed, the hon. Member for Edinburgh, Central (Mr. Darling) probed me by means of parliamentary questions on how we audit the fact that such matters are properly adhered to--about that information, but in the light of the further comments of the hon. Member for Sherwood, I shall obviously look again at the matter.
Mr. Tipping:
I am very grateful for the Minister's comments. If works of art can go on the Internet and not breach taxpayer confidentiality, I find it difficult to understand why the issue of land cannot be considered again.
Mr. Jack:
I am sure that local authorities, for example, that keep lists of land that is available for public access
I turn specifically to the content of the amendment. With his considerable knowledge--not only from his direct farming interests--of land law and surveying, my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Clifton-Brown) made the farming background to the measure very clear. He went to the heart of why we are debating the item. Indeed, the hon. Member for Darlington (Mr. Milburn) asked me specifically where the representations came from, from whom we had heard, and so on, and made a number of points about legal advice.
This is one of the rare occasions on which all Members of Parliament say to people, "Why don't you write in and we will have a look at the matter." This is one of the genuine occasions when a concerned citizen did just that through the good services of his Member of Parliament. As my hon. Friend the Member for Cirencester and Tewkesbury said, the matter was taken up by the Country Landowners Association, and we also received representations from the National Farmers Union. To a certain extent, the matter snowballed, but one could not say that there was a mass lobby of the Treasury on the point.
Once we had taken legal advice on whether the concerns of those who made representations were real or imaginary, I understood very clearly the importance of ensuring, especially with regard to the narrow range of schemes so affected, that there were not unnecessary barriers to land entering an environmental scheme. Our previous exchanges identified fairly adequately the narrow range of habitat schemes that potentially would have caused somebody an inheritance tax liability--as clause 92 does--as opposed to other environmental schemes which would not. It was right to make the move.
The reason why the Government said that the proposal's costs were negligible is that under the scheme the land has to come from within the curtilage of an existing farm. The short answer is that if the land had not gone into one of the tightly defined environmental schemes, it would have continued to have been farmed land. If the land had been on an owned farm or on one farmed under the Agricultural Tenancies Act 1995, to which my hon. Friend the Member for Cirencester and Tewkesbury referred, by definition it would have automatically qualified for inheritance tax relief, subject to the conditions to which my hon. Friend accurately attested. By definition, costs cannot therefore be anything other than negligible.
In terms of this tightly defined scheme, we are talking about relatively small parcels of land. I stated earlier that I had been to see one habitat scheme alongside the River Ribble, and it involved a margin of land alongside a tributary of the river. We are not talking about broad acres, but narrow areas. Other forms of environmental scheme are more extensive in terms of acreage--for example, the environmentally sensitive areas scheme covers something like 10 per cent. of farm land in this country. The narrow scheme that we are discussing does not fall into the same category.
As we have been invited to consider seriously the amendment, we must look at exactly what it says. At its heart there is a motive test. The hon. Member for
Darlington (Mr. Milburn) had clearly done a certain amount of homework, but he did not tell us what kind of motive test he envisaged. If the amendment were passed, it would create considerable uncertainty among those who may have to act upon it. The amendment is flawed in that respect.
The scheme cannot be deemed to be a vast handout to rich people. I doubt very much that anyone would follow the circuitous route referred to by Opposition Members during their remarks on the amendment. If one followed the logic of the hon. Member for Darlington, one would go out to buy a farm to put a piece of land into a narrow group of environmental schemes to get the inheritance tax relief that one could otherwise have received even if one had not put the land into such a scheme. He went down an extremely tortuous route to try to make his wider point--that inheritance tax relief on agricultural land is, in some way, a vast tax dodge.
The constituency of the hon. Member for Darlington is surrounded by some of the best farming land in north Yorkshire, and he will know that the countryside can remain almost unchanged for decades and centuries, as families with a long-term interest in the area farm the land. If he ventures out from the urban citadel that is Darlington, he will meet some of the farmers whose families have farmed the land for up to three generations. These are precisely the people to whom the hon. Gentleman referred in his opening remarks, when he said that we must maintain the fabric of the community, and particularly family farms. These are the people who, by and large, form the farming communities in this country.
The hon. Member for Darlington also asked what would happen if someone bought a farm to get the advantages of clause 92, but then simply "sat on the land" and allowed it to rot. He asked whether such a person would still qualify, and that is a serious point. This is where the two-year rule to which he referred is used. In judging whether the farm is a working farm, the Inland Revenue will look at the farm's accounts to see if proper business has been carried out. If it turns out that the farmer has simply sat on his backside and done nothing, the accounts would quickly start to show that it was not a properly farmed piece of land, and it would not--by definition--qualify for the types of relief about which we have been talking.
I must remind the hon. Member for Darlington that the two-year test in terms of owner-occupation--introduced to establish whether the land acquisition was merely a passing fancy or a genuine attempt at farming--was a definition borrowed from the capital transfer tax regime that a previous Labour Administration introduced. We merely carried forward the test into our legislation, and I hope that he will agree that there is some sense in that. I hope also that he will accept our assurances about the way in which the Inland Revenue checks to make certain that the land is being properly farmed. If it is being properly farmed, the hon. Gentleman--from his earlier comments--can have no objection to the inheritance tax provision being applied. That is another reason why the amendment is entirely unnecessary.
The hon. Gentleman gave the Committee the impression, perhaps inadvertently, that all farm land was owned by some vast group of rich people using it simply as a means of tax avoidance--no, I do him a disservice, because he mentioned family farms, and I must not mislead the Committee about that, although he did give
that impression in his later remarks. He may be interested to know that the majority--more than 70 per cent.--of estates in receipt of relief are worth less than £500,000, and 90 per cent. less than £1 million. Considering that agricultural land prices might be £2,000 to £3,000 per acre, we are hardly talking about especially large farms.
We are talking about precisely the group of farmers that the hon. Gentleman said should receive assistance, to avoid having the family farm broken up through the inheritance tax mechanism. I could not stand here and say that some people may not in the past have bought a farm with tax in the back of their mind, but the evidence that I put before the Committee this evening showed that proper working farmers gain the advantage of the provision.
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