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Rob Marris: Will the hon. Gentleman remind me from whose brief he is reading?

Mr. Flight: The hon. Gentleman will pleased to know that it is from an eminent tax counsel.

The Inland Revenue has confirmed that section 102C(3) covers circumstances not covered by paragraph 6, and that the "and" should therefore be read disjunctively, so that it covers the two distinct cases. I would therefore ask the Paymaster General to confirm that what was previously paragraph 11(1)(d) and is now paragraph 11(3)(d), which states

"would fall to be so treated but for section 102C(3) of, and paragraph 6 of Schedule 20 to, the 1986 Act"

refers to two distinct cases, with the effect that the "and" in the sentence should be read disjunctively?

There also seems to be an omission, because the provision does not cover gifts of land made post-1999, which might be caught only by section 102A or 102B, but where the donor pays full consideration for his occupation of gifts of a share in land. This point has been raised with the Revenue. I trust that the Paymaster General will be aware of these somewhat exotic legal points. More seriously, they illustrate the mistake of not thinking through all the implications of these provisions in such complicated tax areas.

Dawn Primarolo: I would not describe them as exotic legal points. I would describe them as probing the limits of possible future ways of getting round the legislation.

Mr. Flight: I am afraid that the Paymaster General's slant on that is incorrect. The law needs to be clear, and many aspects of the Bill are not clear. It is the duty of the Paymaster General to ensure that the law is clear.

The reaction of the lawyers to Government amendment No. 91 is that it is another case of a lack of clarity. Is the intent that if a property falls within paragraph 11(3)(b), there will be no pre-owned assets charge to be adjusted under 11(3)(a), even though the amendment does not appear to affect amendment No. 227?

There are other more straightforward areas of the Bill that have yet to be sorted out fairly. I understand that the Revenue is talking to the Historic Houses Association about the issue of historic chattels that belong to a property, and that it now understands the issue and is considering addressing it in its continuing consultations. It seems simple to me that, when chattels are settled and on public view for the normal number of days required for them not to be exempt, and when there is a heritage connection with the building, it would be foolish not to exempt them. They would simply be stored in a barn where no one would be able to see them and they would come to no good, or they would be sold. There would be no benefit to anyone.

It is still not clear whether a full repairing lease at fair market rent would be acceptable—

Madam Deputy Speaker: Order. Will the hon. Gentleman help the Chair and other Members by telling us to which amendment he is speaking?
 
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Mr. Flight: In truth, I do not think that I can. These points relate to all the amendments to schedule 15, which still await clarification. I am about to conclude, but I was giving examples of areas that still need to be tidied up. A lot of problems and unfairnesses need to be addressed. I understand that the Government and the Inland Revenue intend to address these and other issues that have not yet been resolved, either through guidance notes or, if necessary, through legislative changes to schedule 15, before the Bill passes into law.

This whole area is regarded too lightly by the Government on the ground that it apparently affects only a small number of people. Important issues of principle in relation to retrospection are involved, and important issues of practice in relation to fair transition arrangements and to other areas not intended to be caught by the changes being thus caught.

Mr. Burnett: I hope that the House will understand that this part of the Bill is causing widespread disquiet, and that, far from affecting only a few people, it could affect many millions of people in this country. I shall return to that point later. I hope that you will allow those of us who catch your eye, Madam Deputy Speaker, to range fairly widely on this matter. It is complex, and it is therefore difficult to be confined purely to the amendments before us.

We support the Conservative amendments and the comments that have been made about the retrospective element of these provisions, which we believe is grossly unfair. It does not enable people to change and modify their personal affairs in time to meet what are effectively very punitive arrangements, as the hon. Member for Arundel and South Downs (Mr. Flight) has said. He referred particularly to the element of taxation on net rather than gross figures.

It is a grave mistake to deal with actual as well as perceived inheritance tax defects by using income tax. The reason for that is pretty clear: it is ludicrous to have a nil rate band of inheritance tax of £250,000 and an income tax charge to overcome inheritance tax avoidance on pre-owned assets with a capital value of about £100,000. The Government increased the de minimis limit from £2,500 per annum to £5,000 per annum, but that is still too low. The Government seem to believe that a multiple of 20 is about the right amount, which would mean that we are talking about capital assets worth about £100,000 yielding £5,000.

I want to make a couple of mundane points that will nevertheless be important to practitioners. Will the Paymaster General confirm whether the £5,000 per annum de minimis limit operates with a slab effect, as with stamp duty? If the £5,000 per annum de minimis limit is exceeded, does the whole sum come into taxation? In addition, will she let the House know whether it is possible to add to that £5,000 per annum de minimis limit the annual exemption and any other exemption, such as the exemption on gifts to children on marriage?

3 pm

Dawn Primarolo: This is a complex area. With regard to the £5,000, the hon. Gentleman asked whether it had a slab effect. I would call it a cliff-edge effect: essentially, if the value is £5,001, taxation would be paid on the
 
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whole £5,001, not just on the £1 excess. On the issue of gifts for children, I will answer when I reply to all the amendments, as some amendments deal with that issue.

Mr. Burnett: I am grateful to the Paymaster General. I think that she is saying that it has the cliff-hanger effect—[Hon. Members: "Cliff edge."] I am grateful. We call it the slab effect with stamp duty, and it is the cliff-edge effect with inheritance tax.

What horrifies me about this tax is that it criminalises the innocent. I referred to that in Committee, and I cannot understand why the Government are not sympathetic. The prices of property in this country are high, and it is prosperous—

Dawn Primarolo: I understand that the hon. Gentleman feels strongly about this issue, but the proposed arrangements do not criminalise anyone. There are something like 32,000 IHT estates each year: five out of every 100 deaths. When people seek to avoid paying their tax, the arrangements make provision to bring it back in. While not wishing him to reduce the passion that he feels for this subject, I ask him not to mislead anyone: there is no criminality, and no criminal offence, in those proceedings.

Mr. Burnett: I acknowledge that what the Paymaster General says is right: it would be criminal only if the taxpayer, who was held to have to pay tax, refused to do so. That would present possible criminal liability. Perhaps the language that I have used is slightly exaggerated. What I am saying is that the proposals will bring into account for taxation a number of people who had absolutely no idea whatever that the arrangements that they had innocently made brought them to account for an income tax charge. That is not criminal.

Dawn Primarolo: I must press the hon. Gentleman on this point, because anyone listening to this debate will be entirely misled. There is not a criminal offence under those proposals. Evasion is a criminal offence that can be prosecuted, but those offences under the tax law are dealt with as civil offences. What is being proposed, however, is that people are not allowed to avoid the tax in the first place, and all good, fair taxpayers comply with that anyway.

Mr. Burnett: I think that I made it quite clear that what the Paymaster General said in her first intervention on me was correct, and that perhaps I was using slightly exaggerated language. My point is that individuals will innocently be brought to account for income tax without the slightest inkling that the arrangements that they were making would involve any charge to taxation whatever. If she will allow me, I shall elaborate further on that point.

This is not criminal liability—it could be if the tax was not paid, if a court order to pay the tax was made, and if, thereafter, it was not paid. Conceivably, that could be criminal liability. I shall give the example of a mother and her carer daughter. The daughter forsakes the opportunity to get on the housing ladder and moves in with her mother, who says to her daughter, who might be married or unmarried, "This house will be yours
 
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when I die." The daughter spends a considerable amount of money improving the property, and I know from my constituency experience that there are many such families. I reckon that there are many such families throughout the country. There are hundreds of thousands or perhaps even millions of people in those circumstances.

The mother and daughter—or people in any other relationship—do not realise that at that stage, or as the money is spent, the daughter has acquired an equitable interest in the property. The daughter owns some of the property. [Interruption.] Before the hon. Member for Wolverhampton, South-West (Rob Marris) intervenes, I will tell him that the gifts with reservation provisions would not bite in those circumstances, because owners of equitable interests would be entitled to enjoy property equally, disregarding the shares that they had, and they would not be caught with a reservation of benefit charge.

As I said, the mother and daughter do not realise that the daughter has an equitable interest in the property. They have received no professional advice, because, of course, they did not know that there was any possible income tax charge that could have been accruing for years after those arrangements had been made. The mother dies, and this charge then falls into account. That is outrageous, and grossly unfair. The least that the Government could do, given the high prices of real estate and high rents, is to increase substantially the de minimis limit.

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