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8.45 pm
Why are we going in for this complication? Why do we have these rules on the order in which the losses must be applied? Is not it incredible--or non-credible--to suppose that if artificial losses are created, they will not be used immediately to offset gains? Why would people otherwise take the trouble and expense to set up these artificial schemes?
We want to know whether these matters have been thought through. Does this proposal really represent the bare minimum required to address the notional or potential loss? Will the position of entirely innocent trusts--which continue to administer themselves on the same basis and are not the source of any artificial schemes--be made considerably less favourable by what I believe to be a far too bluntly drafted clause?
Dawn Primarolo:
As this is the first time that I have addressed the hon. Member for Grantham and Stamford (Mr. Davies) from the Dispatch Box since his promotion, may I belatedly congratulate him and welcome him to the Opposition Front Bench?
I will try to deal with the points raised by the hon. Gentleman, which are very important. The Government were faced with a serious situation. The current tax rules in this area are anomalous. Trustees of trusts are taxed as a separate person from the beneficiaries for capital gains purposes, and are chargeable on all gains made on trust property at the special rate.
It is more than a little odd that, in those circumstances, the rules should allow losses on trust property to be passed to beneficiaries to set against gains on property which have not emerged from the trust. Losses realised by the trustees ought to be allowed only against property which is in the trust or which has come out of the trust. That is what the new clause is trying to deal with.
The hon. Member for Grantham and Stamford asked about the purchased interests, and why we have not attacked them. There would be a real difficulty in establishing whether a trust interest had been purchased. Under some arrangements, the trustees and the beneficiaries may be bypassed altogether, with the money--because there is a payment--going directly from the purchaser to the scheme organiser or the loss creator.
It would have been futile to introduce legislation which missed the mark and allowed some schemes to escape and provide opportunities for other schemes to be reworked to get around the rules. The hon. Member for Grantham and Stamford asked whether that may still be the case. We have tried to write the rules in the new clause in such a way as to prevent that from happening in what is a complex area.
We have tried to avoid immensely complex legislation, which could deny the transfer of loss to beneficiaries who might be genuinely added at the discretion of the trustees. That would be wrong in principle. The only situation where we consider it justified for losses to continue to be transferred from a trustee to a beneficiary is where the asset on which the loss arises is transferred to the beneficiary.
Mr. Quentin Davies:
I am well aware of what the proposals are. I am asking the Paymaster General to think a bit further about a limitation that would exclude beneficiaries who have purchased their interest in the trust. Her original response was that such beneficiaries would not necessarily have had to purchase their interest because they could have been nominated by the trustees or a beneficiary, but it is fundamentally implausible that the trustees or a beneficiary would give away their interest--which must, by definition, have a value if it serves a purpose in a tax avoidance scheme--for no consideration.
Now, the Paymaster General says that the sums concerned might have been transferred from the ultimate beneficiary--the beneficiary of the artificial scheme--to the organisers of the scheme, with the trustees and the beneficiary having no benefit, but it would be a breach of trust law for a trustee simply to give away such an interest. A provision based on someone having directly or indirectly purchased an interest in a trust is a great deal more robust than she originally thought.
Dawn Primarolo:
I do not agree. After careful consideration we came to the conclusion that such a
Mr. St. Aubyn:
Why, in closing the loophole, are the Government shifting the principle of tax neutrality from the beneficiary to the trust, introducing a much tighter definition that is very unfair to those who were given much fairer treatment under the previous Government's reforms over 18 years?
Dawn Primarolo:
To ensure that the abuse is stopped. The potential loss of tax is so great that we had to act. If tax planners introduce such complicated and ingenious ways of getting round the intent of legislation, they must expect the Government to respond.
Dawn Primarolo:
The complaint of the hon. Member for Grantham and Stamford seems to be that the Government have gone too far and that there were other ways of dealing with the matter. I have explained that, despite the fact that we considered some of his suggestions carefully, the only way of guaranteeing that we deal with the root problem is embodied in the new clause, which I commend to the House.
Mr. Deputy Speaker:
Order. The Minister has finished her contribution. She is not giving way.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
Brought up, and read the First time.
Dawn Primarolo:
I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker:
With this, it will be convenient to discuss Government amendment No. 25.
Dawn Primarolo:
This clause makes a small but necessary change to the tax rules dealing with the
On 26 May this year, the House passed a resolution extending the range of destinations covered by that scheme. Members can now also get the costs of one visit a year to the national Parliament of another EU member state. We need to carry that through to the tax rules; otherwise, we shall have a tax exemption for some payments authorised by Parliament for hon. Members' EU travel, but not others. The new clause extends section 200(2) to take in the additional destinations now included in the House scheme.
We also need to make a consequential amendment to schedule 5 of the Bill to ensure that the same rules apply to any corresponding payments made to Members of the Scottish Parliament and of the devolved Assemblies, in line with the resolution of the House.
Mr. Oliver Letwin (West Dorset):
I do not want to tarry long on the new clause, because there are juicier morsels to come. However, I should like to ask the Paymaster General two or three questions.
We recognise that, in principle, the measure flows from a resolution of the House, to which the Minister referred. During the debate on that resolution, my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), who occupies a special position in the House, mentioned that:
If a visit is for a specific business reason, why would it be taxable? Why is it not analogous to a business visit engaged in by any private sector employee who has correctly stated that the purpose of his visit is a business purpose, which counts as a business expense and is not taxable?
'.--(1) In section 200 of the Taxes Act 1988 (expenses of Members of Parliament), in subsection (2), for the words from "the cost of" to "Strasbourg" substitute "EU travel expenses" and after that subsection insert--
"(3) For the purposes of subsection (2) above 'EU travel expenses' are the cost of, and any additional expenses incurred in, travelling between the United Kingdom and--
(a) any European Union institution in Brussels, Luxembourg or Strasbourg, or
(b) the national parliament of another member State.".
(2) This section has effect in relation to sums paid on or after 1st April 1999.'.--[Dawn Primarolo.]
"There has been a decline in the reputation of this institution in the past few years"
and went on to say:
"It is vital to the authority of this institution that we maintain the public perception of the integrity of Members of Parliament."--[Official Report, 26 May 1998; Vol. 332, c. 416.]
Doubtless, the Paymaster General recalls my right hon. Friend's remarks. In the light of those remarks the House made an amendment--originally tabled by my right hon. Friend, I believe--to the resolution that required Members who took up the option of a trip to Paris, Rome and so on to state in advance the purpose of their visit. That gives rise to my precise questions.
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