Finance Bill

[back to previous text]

Mr. Burnett: Christ.

Mr. Tyrie: The hon. Gentleman is shocked, but there are more points to be made.

Will the Economic Secretary explain why an election cannot be made under section 98 of the Finance Act 2002? Why can a repayment of gift aid relief not be carried back a year? I have not seen an explanation for that. Why is it restricted to self-assessment? The Government are reducing self-assessment; higher rate taxpayers are no longer automatically included, so would it not be logical to help charities by enabling those that regularly receive tax repayments to use the provision? They are the so-called R40 claims cases.

Incidentally, in a representation from the Chartered Institute of Taxation, it was pointed out to me that the Economic Secretary suggested that that was his intention when he introduced the provisions a couple of years ago. He said:

    ''I reassure him that the carry-back provision that we are discussing is available to all taxpayers. The self-assessment return is simply a convenient mechanism for claiming it; the Government and the Inland Revenue will make available alternative routes for those who do not receive self-assessment returns.''—[Official Report, Standing Committee F, 13 June 2002; c. 402-403.]

It seems that the Government originally intended that provision, but that they are not now enacting it.

Finally, on the question of short returns, will those using the new short forms from April next year be eligible for the scheme? As far as I am aware, they are not currently. This is the second trial year of short returns. Why have they been omitted? Is it because of complexity? Is the Economic Secretary sure that they need to be omitted?

John Healey: As the hon. Gentleman says, the clause introduces a new facility on self-assessment returns to allow individuals to give all or a specified amount of

Column Number: 235

their tax repayment to charity. The taxpayer will specify to which charity the donation is to be made and they will be able to make a gift aid declaration on the return so that the donation can be worth even more to the charity. The taxpayer can also choose to remain anonymous and still make the donation under gift aid.

I welcome the welcome in principle for the clause from the hon. Member for Chichester (Mr. Tyrie). I lost count of the precise number of questions that he asked, but I hope that I have not lost track of the points that he wanted answering. On the question of highlighting a possible limit, I will consider his points made and determine whether due and appropriate attention has been given to making taxpayers aware of it.

That was No. 1—no, in fact it was the hon. Gentleman's question No. 2, but to return to his first question, there are some 38,000 charities on the list and the number is increasing all the time. Charities have the opportunity to enter their names on it throughout the year, and it is regularly updated so that taxpayers can access the information. There are no criteria—there is a process. That is because, by asking charities to put themselves forward for inclusion we can offer taxpayers a single list from which to choose that does not exist anywhere else. If there were another suitable and comprehensive list, we would use it. All that the taxpayer has to enter on the return is the code for the charity. That should eliminate errors and confusion about which charity has been chosen to benefit from the repayments. The approach has allowed the Inland Revenue to develop a streamlined process. The charities signing up have simply to provide their bank account details, allowing donations to be paid directly into their accounts. Charities receive the tax repayments on gift aid donations made that way without having to make claims.

Mr. Tyrie: Just to clarify that, is the policeman for the list the Charity Commission?

John Healey: That is not strictly true—it is an administrative list that does not bestow or signify any status. It is compiled and maintained by the Inland Revenue because no suitable list is held by any other body. It allows the Revenue to hold, at the charities' instigation, the information that is required to make the clause effective from the point of view of the Revenue and of the charities, and to make the matter as simple as possible for taxpayers.

The hon. Gentleman also asked about errors—in particular, those that the Inland Revenue might make. Where, because of a mistake by the Revenue, a repayment is sent in error to a charity, the Revenue will request return of the payment by the charity. The taxpayer will not need to take any action.

Mr. Tyrie: Will the taxpayer be informed that he can claim higher rate gift aid relief?

John Healey: I am dealing here with the error that the Inland Revenue might make in directing a payment to the wrong charity. That should not affect the taxpayer in any way.

Column Number: 236

I come to the question of why there cannot be a carry-back. The hon. Gentleman referred to the reforms in the Finance Act 2002. The provision that he referred to as section 98, allowing donations to be treated as having been made in the previous year, would not work in this situation. A donation needs to be made before the return for the previous year is filed. However, the donation of a repayment cannot be made until after the return is filed. The return generates the repayment and therefore the donation. At that point, a taxpayer cannot be certain of the precise amount of a repayment and cannot therefore claim the relief in that return.

He also asks about the new short return. As he knows, a pilot version of the short return has been issued to 400,000 people for the current tax payment year. He is right that it does not contain the facility for taxpayers to donate repayments to charity. That is because the form was built on the version that we used in the previous year during the much smaller pilot. I can confirm that the facility should be on the form for 2004-05 and we expect that that will be issued to 1.5 million taxpayers.

The measure offers a new, simple way for individuals to make donations to charity. Taxpayers will be prompted, in completing their returns, to consider charitable giving. They will also be encouraged to make use of gift aid. Charities should therefore benefit from more donations and from extra tax on donations that are gift-aided. Currently the amount is 28p in every pound donated.

I hope that members of the Committee will see the measure as the latest in a series that we have implemented to boost charitable giving—notably those in the 2000 package—that have proved to be a significant success for charities. In 1999-2000 about 43,000 charities claimed gift aid. In 2003-04 the number was about 56,000. In 2000-01, charities claimed £222 million in gift aid. Two years later, the sum was £506 million—nearly two and a half times the amount of tax relief topping up charity incomes. Charities see great potential in the new facility brought in under clause 83. There are about 3 million self-assessed repayments each year, totalling about £3 billion.

Finally, charities will receive the donations automatically through bank automated clearance system—BACS—transfer, and will receive tax repayments on any gift-aided donations without making any claims to the Inland Revenue. The system is very easy for charities. As I have explained, charities that are not yet on the list can be added throughout the year.

Question put and agreed to.

Clause 83 ordered to stand part of the Bill.

Mr. Burnett: On a point of order, Mr. McWilliam.

The Chairman: Order. Before the hon. Gentleman raises his point of order, I want to point out that there is a large group of amendments to schedule 15. Clause 84 gives effect to schedule 15 and specifies the start year. I suggest that if members of the Committee want

Column Number: 237

to make any points about the general principle of inheritance tax they should do it in the debate on clause 84, because by the time we have dealt with the group of amendments, we will have eaten into the time on schedule 15 and it will not be possible to have that debate. Does the hon. Gentleman still want to raise his point of order?

Mr. Burnett: I do not. I thank you, Mr. McWilliam, for anticipating what I was going to say.

Clause 84

Charge to income tax by reference to enjoyment of property previously owned

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

Dawn Primarolo: I thought that it would be appropriate at the beginning of the debate to mention the points that you made about clause 84, Mr. McWilliam, which simply enables schedule 15 to take effect. I shall not discuss the details of the schedule, but set the scene of the Government's approach.

The provision implements one aspect of the anti-avoidance measures that we announced in the pre-Budget report last year, directed at avoidance involving the contrived use of trusts. We are concerned specifically with the range of schemes that allow wealthy taxpayers to give their assets away, or achieve the appearance of doing so, and so benefit from the inheritance tax exemption for lifetime gifts, while in reality retaining continuing enjoyment of and access to those assets, much as before.

Mr. Jack: Will the Paymaster General give way?

Dawn Primarolo: I am happy to give way, but I do not intend to drift into discussion on schedule 15. I simply wanted to lay before the Committee the reasons for the Government's approach to the problem.

Mr. Jack: I am grateful. For the sake of our understanding of the Government's line on this matter, will the right hon. Lady define what she means by the word ''wealthy'', which she just used, and suggest the amount of assets that she believes have been protected by the mechanisms that she described?

11 am

Dawn Primarolo: Indeed. The right hon. Gentleman is, as always, using his experience as a most highly regarded Financial Secretary to anticipate the major points that I want to make in my brief opening remarks. I will deal with those points as I develop the argument.

As Committee members will be aware, avoidance on those lines has been a risk ever since inheritance tax was introduced in 1986. Successive Finance Acts have tried to keep inheritance tax avoidance under control by disapplying the normal rules in the case of gifts with reservations, and attempting to block loopholes revealed by attempts by tax planners to work around

Column Number: 238

the rules. This Government made the last effort on those lines as recently as the Report stage of what is now the Finance Act 2003. Despite those efforts, schemes to circumvent the ''gifts with reservations'' laws continued to multiply rapidly until December 2003. The schemes were increasingly contrived and were being marketed as packaged solutions that could be offered to people by their financial advisers.

We do not have a complete count of how many of those schemes have been executed. It is in the nature of things that the Inland Revenue gets to hear of such schemes—if ever—only when they become active, after the individual concerned dies and inheritance tax rules come into play. Since the pre-Budget report, however, it has been suggested that there are more than 30,000 clients for particular schemes that have had wide success most recently. Assuming that schemes involve assets of the order of £500,000 on average, which seems to be the consensus among their marketers, some tens of millions of pounds, or more, must be wrapped up in them. The Government are facing a substantial loss to the Exchequer.

Faced with such figures, the Committee will not be surprised to hear that the Government decided to take action. It is not enough to tackle new arrangements and future avoidance. The Government wanted to send a clear message that artificial avoidance of that kind is not acceptable. Those who devise and market such schemes, and the people who take advantage of them, need to understand that and not assume that avoidance is risk-free.

Such schemes have grown so rapidly because they have are regarded as a one-way bet. The essential point is that nothing really changes. For example, let us consider somebody who wants to ensure that the house that they live in is not part of their taxable estate, but they want to remain living there. They see their adviser, sign a series of papers and pay a substantial fee, even though there might be a relatively small amount of work in it. The client goes home, the paperwork is filed and the arrangements are designed to unscramble when the client dies and have no lasting effect. The only real effect is inheritance tax savings that can run into hundreds of thousands of pounds or more. Given that perception of risk and rewards, it is not surprising that people and advisers have found such schemes increasingly attractive. The clause gives notice that that is a false perception.

People who have used such schemes, or who contemplate others like them in future, are right to think that they will get any inheritance tax saving that their scheme is able to assure, but they are wrong to think that that protects them against any future tax charge. That is at the heart of the changes under schedule 15.

 
Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index


©Parliamentary copyright 2004
Prepared 18 May 2004