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Dawn Primarolo: I shall give way to the hon. Gentleman, but then I shall deal with house prices, equity release schemes and some of the other points that have been made.
Mr. Flight: Will the Minister confirm that, putting it in simple language, the provision is about, for example, a couple who, hoping that they will both live for another seven years, give their house worth £400,000 to their children, but set up a trust so that whoever outlives the other is still able to live in the house until they die? I think that describes the main circumstances, and no one would regard that as either cheating the system or avoidance.
Dawn Primarolo: There are many sections in the inheritance tax rules; one is called "Gifts with Reservations". The Court of Appeal decision in the Eversden case paved the way for artificial schemes that enable married couples to put their assets beyond inheritance tax estates while retaining the enjoyment of them for their lifetime. We want to correct that. As I said, the new clause is specifically about that issue. Opposition Members are getting too worked up. Although I understand the views of Opposition Members about other aspects of inheritance tax, we are discussing only whether a set of rules should apply to all equally.
Dawn Primarolo: I want make a point about property prices and the inheritance tax threshold. If that does not answer the hon. Gentleman's point, I shall be more than happy to give way to himas always.
The inheritance tax threshold is still about twice the average UK house price. Only about 5 per cent. of estates will pay inheritance tax this year. However, let us look at the question the other way round: how much has the inheritance tax threshold moved since its introduction in 1986, and what has happened to house prices in that period?
The latest statistics, for quarter one, show that house prices have risen since 1986 at much the same rate as the thresholdabout 250 per cent. The UK average house price is about £140,000. Even in London and the south-east, prices are still below the threshold. The figure for Greater London is £215,000 and for the south-east, excluding London, it is £190,000. The rules are consistent with the movement of the threshold since its introduction in 1986 and its reflection in house prices. The question of property prices is not directly relevant to the new clause; the point at stake is that the movement of the threshold is keeping pace with prices.
Mr. Laws: The Paymaster General said that she estimates that about 5 per cent. of estates are above the threshold and will be caught by inheritance tax. Will she tell us how that has changed over the last 10 years? What is the size of the increase?
Dawn Primarolo: I have seen the figure, but I apologise to the hon. Gentleman for being unable to give it to him immediately. I shall be happy to send him the figures. By estates, I mean the number liable to pay inheritance tax, which may not necessarily be on property. Significant numbers of people pay inheritance tax that is not on property. Currently, about 29,000 estates are in the category; movement is more or less static, although I cannot remember the exact figure.
Mr. Bercow: The Government tend to increase thresholds in line with inflation, whereas the overall rise in property prices over a period is appreciably greater than that. I hope that the Paymaster General will reflect on that point in further deliberations. However, if the right hon. Lady's main criticism of Opposition Members is that we have identified the wrong member of the family tree, and that it is not in fact granny, but mummy, daddy, hubby and wife who are being clobbered, that is cold comfort.
Dawn Primarolo: May I tell the hon. Member for Yeovil (Mr. Laws) that, if my memory serves me right, the number in the threshold rose by about 3,000 last yearmore than indexation or the rate of inflation would have required? It is not unreasonable to look back over a period and to take 1986 as the base year.
Dawn Primarolo: May I answer the hon. Member for Buckingham (Mr. Bercow) before moving on? On the point that he makes about the application of the new clause, I was simply seeking to help Conservative Members. I understand that they wish to abolish inheritance tax, and I look forward to finding out where the £2.4 billion that the Government currently raise from inheritance tax would come from. The hon. Gentleman will want to question many aspects, but I was seeking to correct Conservative Members by saying that the new clause does not deal with those issues; it specifically and narrowly deals with issues that arose from a particular case involving married couples.
Mr. Baron: The Paymaster General is being slightly selective in her figures. It is all very well to go back to 1986, but I am sure that she will accept that the period
included one of the biggest house price falls in recent memory. House prices fell from their peak in about 1988 and bottomed in 199495, after which they picked up slowly, so such a comparison does not give the complete picture. I hope that such a price crash will not happen again. Recent historythe past eight or nine yearsshows that inheritance tax thresholds lagged far behind the rise in house prices.
Dawn Primarolo: The facts speak for themselves in respect of the average house price throughout the country and in specific regions where house prices are much higher. The hon. Gentleman should consider the role of the Conservative party when in office in establishing the inheritance tax threshold. As I have demonstrated, the increase in the threshold has kept pace with the increase in house prices, but it is not the role of inheritance tax to help to regulate house prices; its role is fairly to tax assets according to rules that operate for all the people who are caught by them.
Mr. Burnett: The Paymaster General talks about the rules being interpreted fairly, but the capital taxes office sometimes interprets the rules in a draconian manner. I ask her to give some thought to such matters because, sometimes, entirely innocent transactions are caughtfor example, the outright gift of a dwelling by parents to their children, where the parents move out, but move back two years later to be nursed by the children. Surely the capital taxes office should not apply the reversion of benefit rules, which will be amended by the new clause today, in such cases?
Dawn Primarolo: I will certainly reflect on the point, but I am trying to explain the new clause and its narrow application to married couples.
I wish to make two final points, the first of which relates to what the hon. Member for Billericay (Mr. Baron) said about home reversion plans. He may not know this, but his hon. Friend the hon. Member for Eddisbury (Mr. O'Brien) is awarewe debated it in a statutory instrument Committee only a few days ago in relation to the transfer to the Financial Services Authority of the regulation of mortgages and other financial productsthat the Chief Secretary to the Treasury announced that a consultation paper, in which the options for regulating the sale of home reversion schemes would be examined, would be published this autumn.
Various aspects of the home reversion market will be considered, as mortgage-backed equity release schemes will fall within the scope of the FSA. So the answer to the hon. Gentleman's question is, yes, the Government are considering those wider points, and we enter the consultation with an open mind to hear what the industry has to say about the important role of such products and what their future may be. That issue was also raised the hon. Member for Arundel and South Downs (Mr. Flight) and the hon. Member for Eddisbury, who takes a particular interest in it and is knowledgeable about it.
Mr. Baron: May I urge on the Paymaster General the importance of the issue and the urgency of the situation? If one believes the latest figures, there is no doubt that the whole industry is growing very rapidly, as is the
practice of using equity release schemes. Often, as we all know, very vulnerable people are involved, so I ask her to ensure that the Government put their full weight behind the issue and that it is looked at very quickly indeed.
Dawn Primarolo: If the hon. Gentleman scrutinises the record of debates in the Statutory Instrument Committee he will see that the new FSA regulatory regime was discussed. Hon. Members on both sides of the Committee agreed that the Government must ensure that future regulation of this important and complex area is correct. We recognise the importance of the issue, so to legislate in haste may not be the best way forward. The Chief Secretary to the Treasury issued more details in a press release on 5 June, and I am sure that the hon. Gentleman will be interested in reading it.
The hon. Member for Arundel and South Downs referred to the fact that the new clause will come into force only from June 2003. The tax-effectiveness of earlier Eversden-type schemes is still dependent on the courts' final view of whether schemes work under the old law. The House of Lords will decide whether to agree to a further appeal, but my advice is that, although the Inland Revenue is confident about the interpretation of the old law it believes that enough tax is at stake to lead us to act now to prevent any subsequent arrangements from being made. However, pre-June 2003 issues are clearly matters for the courts.
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