John Healey: I can see the very attractive picture that the right hon. Gentleman paints of a large property in sunny climes. In practice, we are concerned with producing legislation with a general application, not with framing it for the sort of exception that he posits. The aim is to create a legislative framework that will bring the biggest benefit and boost to income for charities, to increase donations, and to do so in a way that is as simple to administer as possible for charities, donors and the Inland Revenue. We are engaged in creating legislation for the general, not the exceptional, case.
Rob Marris: I take the point that the right hon. Member for Fylde made about a home for a charity in sunnier climes. However, that could cause a nightmare in other circumstances. Many of my constituents have land in India and I anticipate that they might wish, from honourable and generous motives, to give six acres in the Punjab to a charity, perhaps to a religious one, on which tax relief could be claimed. I am sure that the right hon. Gentleman knows how valuable land is in the Punjab, but it may not be so valuable in UK terms, and it could be awkward in terms of the charity's honour to refuse such a donation. That situation can arise now, but it could be greatly exacerbated were tax relief available.
Mr. Jack: The hon. Gentleman makes a powerful point and I am grateful for his constructive observations. He has highlighted the reason why I suggested to the Economic Secretary that there could be a mechanism—if not now, in future—for dealing with exceptional circumstances. I take the point of the hon. Member for Wolverhampton, South-West (Rob Marris) that to decline a gift could cause tremendous problems, but on the other hand, there may be examples—I thought only of the children's home—of ways in which a beneficial donation of an asset could help a UK-based charity or charities. My suggestion is that the proposal, instead of being ruled out, should be examined and if necessary a mechanism could be derived for exceptional circumstances to avoid some of the problems that we have identified. There are plenty of examples in UK legislation—for example, child support legislation—of exceptional circumstances being catered for by the departure mechanism, which takes into account things that do not neatly fit into an agreed national formula.
Mr. Flight: Although I accept some of the Economic Secretary's points, I believe that the issue has been greatly overstated. I should think that a Sikh temple in England would be extremely pleased to be given 10 acres of land in the Punjab, which is worth
Column Number: 387about three times more per acre than land here—it would be a valuable asset. The task of disposing of it is not difficult, so what is the problem with something that sounds as exotic as that?
The issues of valuation and the claiming of rights would not cause great problems either, because until a charity has certified that a donation has value it might not get tax relief. I feel that bigger problems are being created than those that exist. I see a different argument for ring-fencing UK taxation, with which, from many other perspectives, I agree. There is an issue in terms of the EU because, through the measure, the Government will attach different tax rights to UK land from those attached to the land of other EU countries. It may well be illegal to do that.
We will not press the amendment. The Government can think about it until next year. However, there will not be great problems if they show the will to take the view that a land gift should be viewed on an international basis. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
John Healey: I beg to move amendment No. 198, in page 72, line 23, at end insert—
(9AA) Where a person makes a disposal to a charity of—
(a) the whole of his beneficial interest in such freehold or leasehold interest in land as is described in subsection (9A)(a) or (b) above, and
(b) any easement, servitude, right or privilege so far as benefiting that land,
the disposal falling within paragraph (b) above is to be regarded for the purposes of this section as a disposal by the person of the whole of his beneficial interest in a qualifying interest in land.
(9AB) Where a person, who has a freehold or leasehold interest in land in the United Kingdom, grants a lease for a term of years absolute (or, in the case of land in Scotland, grants a lease) to a charity of the whole or part of that land, the grant of that lease is to be regarded for the purposes of this section as a disposal by the person of the whole of the beneficial interest in the leasehold interest so granted.'.
The Chairman: With this it will be convenient to take Government amendments Nos. 199 to 204.
John Healey: These amendments clarify the position of easements that are included as part of a gift of land and ensure that the provision correctly reflects the position in Scottish law.
Amendment No. 198 makes it clear that when a person makes a disposal to a charity of freehold or leasehold property, including any easement benefiting that land such as a right of access, that easement is included in the definition of the disposal of the whole of a beneficial interest in a qualifying interest in land. It also tidies up the drafting by inserting what was subsection (2) of proposed new section 587C of the Taxes Act 1988 into section 587B as new subsection (9AB). Amendment No. 202 consequently removes subsection (2) of proposed new section 587C. I am delighted that the hon. Member for Mid-Worcestershire (Mr. Luff) is with me on those points.
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Amendments Nos. 199, 200 and 201 make some small changes to proposed new subsection (9C), which deals with the application of the provision to Scotland. They provide specific Scottish translations of the English and Welsh terminology concerning Scottish tenancies and clarify the position of Scottish missives of let.
Amendments Nos. 203 and 204 deal with the transitional provisions covering the position prior to the changes to Scottish land law to be introduced by the Abolition of Feudal Tenure etc. (Scotland) Act 2000. The existing subsection (7) is deleted because Scottish Ministers will not be able to effect the end of feudal tenure before Royal Assent of the Finance Bill. There is also a minor amendment to the wording in subsection (9) more closely to reflect the wording used in the Abolition of Feudal Tenure etc. (Scotland) Act 2000.
The amendments simply clarify some points in the clause and I ask the Committee to support them.
Amendment agreed to.
Amendments made: No. 199, in page 72, line 29, leave out 'and'.
No. 200 in page 72, line 31, leave out
No. 201, in page 72, line 32, at end insert
(c) references to an agreement for a lease do not include references to missives of let that constitute an actual lease.''.'.—[John Healey.]
Mr. Flight: I beg to move amendment No. 81, in page 72, line 37, at end insert—
'(4B) At the end of subsection (2)(f) of section 25 of the Finance Act 1990 insert '', but this paragraph shall not apply where, had such property been transferred to the charity by way of gift, relief would have been allowed under section 587B of the Taxes Act 1988.''
(4C) At the end of subsection (3E) of section 339 of the Taxes Act 1988 insert '', but this subsection shall not apply where, had such property been transferred to the charity by way of gift, relief would have been allowed under section 587B of the Taxes Act 1988.''.'.
There is a problem with the clause, in that quoted shares or land that a donor wishes to give to a charity may be standing at a capital gains tax loss, particularly in the case of shares since the measures were introduced. If the donor makes a gift of the shares or land, thereby obtaining income tax relief under section 587B of the Taxes Act 1988, the shares or land will be transferred at a zero gain, zero loss consideration under that Act and the loss will not be available.
If the donor were to sell the shares or land to the charity and then gift the cash proceeds of the sale to the same charity, he would remain entitled to the capital gains tax loss on the sale but would be denied the income tax relief for the cash gift because of the anti-avoidance rules in section 252F of the Finance Act 1990 for individuals and the relevant section for companies, which deny gift aid relief unless the cash
Column Number: 389gift is not conditional or associated with or part of an arrangement involving the acquisition of property by the charity otherwise than by way of gift from the donor to a person connected with him.
The purpose of the amendment is to address that situation and to clarify that it applies to shares as well as to land.
John Healey: The provisions in section 25 of the Finance Act 1990 and section 339 of the Taxes Act 1988 are concerned solely with gifts of money. Effectively, the restriction that the amendment seeks to modify is intended to prevent the relief being used to make non-monetary gifts under gift aid. The amendment seeks to disapply the restriction in cases in which the property could have been gifted under section 587B of the 1988 Act, which gives relief to donors on the market value of gifts of listed shares—as the hon. Gentleman pointed out—and, with the extension introduced in the clause, land and buildings.
Relief is given under gift aid on readily identifiable cash sums. Relief under section 587B is given on the market value of the gift of the qualifying investment. Our aim with reliefs for charitable giving is to give sufficient incentive to donors to maximise the benefits that flow to charities. Removing the restriction in the gift aid provisions would open up opportunities to manipulate the relief so that the benefits of the relief flowed to the donor rather than, as intended, the charity.
I am aware that one of the representative bodies suggested that section 25 prevents a donor from selling a property to a charity and then donating the proceeds under gift aid. For the sake of clarity, I confirm that that is not a problem, provided the sale is at arm's length and there is no prior condition or arrangement to the effect that the donor will give all or part of the proceeds of the sale to the charity. The restriction is not intended to prevent innocent transactions but manipulation of the reliefs.
It is right that gift aid should continue to apply to unconditional gifts of money and not be opened up to conditional payments that are not pure gifts. Therefore, I hope that the hon. Gentleman will withdraw the amendment. If he will not, I ask the Committee to reject it.
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