Finance Bill

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Mr. Flight: May I seek further elucidation? I believe that the Economic Secretary understands my basic point. Because of the way that the process works, one would not be able to use a loss if it was gifted; selling the asset and then giving the charity cash to buy it—going around the houses—is designed to obviate that. However, the Economic Secretary made it clear that that route would not work because, under the present arrangements, the transaction would not be deemed to be at arm's length. What other mechanism can the Minister suggest to address the problem? There will be a lack of incentive for people to gift assets that happen to have capital losses attaching to them, as opposed to assets that happen to have capital gains attaching to them. I cannot believe that that is the overall intent of the gift aid package. If the Government do not want to address the problem in the way that the amendment

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proposes, do not they see a need to address it in some other way?

John Healey: I am not as convinced as the hon. Gentleman seems to be about the nature or extent of the problem that he identifies, but I shall consider the matter further and give him my thoughts in writing.

Mr. Flight: I thank the Economic Secretary for his reasonable response. As the matter will be given further consideration, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 202, in page 73, line 1, leave out subsection (2).

No. 203, in page 74, line 14, leave out from beginning to second 'subsection' in line 16.

No. 204, in page 74, line 22, leave out 'coming into force' and insert 'purposes'.—[John Healey.]

The Chairman: I have listened to what the hon. Member for Torridge and West Devon said about the clause stand part debate. Significant parts of the clause have already been thoroughly debated. However, other issues in what is a fairly lengthy clause have not been debated. I am therefore prepared to permit a stand part debate on the basis that we do not go over ground that has already been covered.

Question proposed, That the clause, as amended, stand part of the Bill.

Mr. Burnett: I am extremely grateful to you, Mr. Gale. Two problems have been raised with me and with other Committee members by the Law Society. I do not believe that they have been debated before. They relate to technical problems with the provisions. The danger of recapture of tax relief will be a considerable disincentive for those making gifts of real property to a charity and will defeat the purposes of clause 96. I refer particularly to subsequent innocent, bona fide transactions that could lead to a claim for repayment of tax relief.

The first point relates to clause 96(5), which contains supplementary provisions for gifts of real property. Proposed new section 587C(9) defines a disqualifying event and, accordingly, a clawback of relief given under section 587B, where the person who made the disposal, or any person connected with him,

    ''becomes entitled to an interest or right in relation to all or part of the land to which the disposal relates . . . otherwise than for full consideration in money or money's worth.''

That is an extremely wide provision. It could catch a number of sets of circumstances in which the spirit of the rules is not breached. For example, if a person grants a lease to a charity and obtains tax relief, it would appear that that tax relief will be withdrawn if the person subsequently makes a gift of the freehold reversion to a relative. Given that example, the charity will still retain the benefit of the property given to it.

My second point concerns a gift that is given to a charity on condition, for example, that the property be used for charitable purposes, which is an eminently sensible provision. If, later, the condition is no longer satisfied, arguably a disqualifying event arises. That could occur many years later and it would not seem

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appropriate to recapture the tax relief if the arrangements were genuinely undertaken.

The first problem could be overcome if subsection (9)(a) were limited to the donor or a connected person becoming entitled to the interest acquired by the charity or an interest derived from that interest. The second set of circumstances that I have posited would appear to require a specific saving provision in the legislation.

I hope that the Minister will give some thought to those points. Those of us who advise donors to charity, or who have considered making gifts to charity, will not want to have the original tax relief recaptured or to receive demands for repayment if, in future, a bona fide incident occurs that could give rise to a charge to tax.

John Healey: I welcome the fact that the hon. Gentleman has raised the Law Society's technical concerns about the provision. We always take seriously the points that it makes on legislation. The difficulties that the hon. Gentleman has mentioned are to do with clawback provisions. The recapture provisions are clear. Donors would go into any transaction with their eyes open. The provision is there to prevent avoidance. The clawback is time-limited to six years. The donor has the option to delay innocent transactions. In addition, a subjective decision of what was innocent would be difficult to make.

Mr. Burnett: But of course, the donor will not have control over that six-year period.

4.15 pm

John Healey: The donor may not have control, but the clawback period lasts for six years.

Mr. Burnett: I appreciate that, but the problem arises when the donor has divested himself of the property and the charity or whoever has the property might subsequently make arrangements with the property that defeat the tax relief provisions.

John Healey: I fail to see the cause of the concern that the hon. Gentleman expresses so strongly. The provision is there to prevent avoidance. It is a proper and major consideration for the Government. I cannot understand the hon. Gentleman's argument and I, therefore, find it difficult to accept.

Mr. Burnett: I appreciate that it is important to prevent avoidance. The Economic Secretary stated that the clawback provision lasts for only six years. It is possible that a condition on use may be innocently broken within that six-year period, and in such circumstances a clawback could technically happen. Would the Revenue consider mitigation in such a case?

John Healey: Considering the hour, Mr. Gale, and the doggedness within which the hon. Gentleman is pursuing the point, I shall give the matter further consideration and look at the technical concerns raised by the Law Society. If he will allow me, I shall write to him.

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Mr. Flight: I shall be brief. The comments of the hon. Member for Torridge and West Devon lead me to consider the public policy review of charity law that will be reporting in the autumn. It may, for example, propose that certain bodies could lose charitable status more easily than at present, and that they will be required to meet criteria to maintain their charitable status that do not exist at present. The thought occurs to me that someone could give to a charity in good faith, but that the charity could lose its charitable status shortly afterwards because it did not meet the new criteria anticipated by charity lawyers. Would the donor lose the property and then lose his tax relief because the charity had ceased to qualify, or is the requirement merely that the charity should be a charitable body at the time of giving?

John Healey: The body needs to be a charity at the point of donation. I hope that answers directly the hon. Gentleman's question. The review that he mentioned underlines the importance that the Government attach to charitable giving. It would be wrong of me to pre-empt any judgments or recommendations that the report might make.

The clause is a further manifestation of how important charities are to the Government. It is a further step in our efforts to boost the incomes of charities and the level of giving to aid their purposes. It adds substantially to already substantial incentives for giving to charity that we have put in place. I commend the clause to the Committee.

Question put and agreed to.

Clause 96, as amended, ordered to stand part of the Bill.

Clause 97

Gift aid: election to be treated as if

gift made in previous tax year

Mr. Flight: I beg to move amendment No. 193, in page 74, leave out lines 27 to 32 and insert—

    '(2) Any such election must be made by notice in writing to an officer of the Inland Revenue on or before the 31st January next following the end of the year of assessment to which the claim made by the donor relates.'.

The Chairman: With this we may take the following amendments: No. 192, in page 74, line 27, at end add

    'or in any of the next succeeding six years of assessment.'.

No. 194, in page 74, line 34, leave out 'previous year' and insert

    'year to which the election relates'.

No. 195, in page 74, line 39, leave out 'previous year of assessment' and insert

    'year of assessment to which the election relates'.

Mr. Flight: The amendments are designed to extend the one-year roll-back for gift aid to a six-year roll-forward. That would give the gift aid system greater flexibility and encourage people to contribute more to charity. A change would also be made to give taxpayers more time to make a claim. They presently have until the end of the January following the end-of-year assessment to which the claim relates.

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John Healey: As the hon. Gentleman says, the amendments seek to extend the period available for donors to elect to have their donations made under gift aid. The clause allows donors to elect to have the donation treated as if made in the previous tax year. Higher-rate taxpayers can therefore claim their portion of the tax relief earlier. The amendments would allow the donation to be deemed to have been made in a later year, and any relief to be given against the tax liability of that later year.

In discussions on clause 86, the hon. Gentleman urged us to consider possible legislation from the point of view of the ordinary citizen. The operation of the relief would add considerable complexity for donors in identifying gift aid donations on which relief had not already been claimed, and in establishing when it would be most appropriate to claim unused relief.

In addition, the clause is intended to act as a prompt and incentive to higher-rate taxpayers to give to charity by making the relief available immediately. A reminder that they can do so will appear in the self-assessment returns from next year. By changing the deadline from the day of filing to a general one of 31 January, the amendment would reduce the incentive for immediate giving.

To allow a six-year carry-forward in the way proposed would add to the complications that I have suggested for donors and the Revenue, without necessarily increasing the sums given to charity. On that basis, I encourage the hon. Gentleman to withdraw the amendment, or my hon. Friends to reject it if he presses it.

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