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Standing Committee A
Tuesday 18 May 2004
[Sir John Butterfill in the Chair]
(except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39)
Charge to income tax by reference to enjoyment of property previously owned
Question proposed [this day], That the clause stand part of the Bill.
Question again proposed.
Mr. Howard Flight (Arundel and South Downs) (Con): I welcome you, Sir John, to the Chair for our deliberations this afternoon. This morning, I was making a point of principle about the clause, which is very much about the natural human desire to hand on property to children. Many of the problems that the clause addresses are caused by the bubble in house prices from Birmingham to the southern part of the country, which is a wider issue that needs to be considered.
The Government are either deliberately or in a somewhat blinkered manner ignoring some of the possible impacts of their proposals. I wish to focus on the opposition of the Low Incomes Tax Reform Group. Its basic concern about the provisions has to do with the practice, which has become necessary and widespread, of parents giving their children capital for a deposit to buy a house. Later, when the parents are old and one may be widowed, it becomes desirable that the children take in the widowed person and provide a granny flat. Even with the slightly improved exemptions provided in the Government's amendments, it is quite likely that the value of the granny flat will be £100,000 or more, and a situation could arise in which granny moves in and finds a tax bill. I am sure that that is not the Government's intention, but what people perceive is as important as what is intended, and the legislation ought not to result in such circumstances.
I would like to put on record the objections of the tax reform group. It is concerned that the invention of a new income tax charge will bring with it many potential disadvantages for people who are not well off. Tax returns and tax situations will become much more complex, more record keeping will be required and more literature will have to be read and understood.
Uncertainty as to the scope of the legislation will require non-taxpayers to gain tax knowledge in order to ensure that they are outside it. The tax reform group has been advised several times by Revenue officials
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that it worries too much about people who are outside the tax net and that, as such people's incomes are too low, tax and contact with the Revenue should not be an issue for them. However, from its experience over several years of running clinics to help peoplepensioners in particularwhose income may be only a few thousand pounds per year, it has learned that people's concerns as to whether they should be paying tax loom large in their minds.
The tax reform group makes the point that the potential annual charge under the proposals will be seen in the press and elsewhere as concerning money given away by parents or people who are related to the main residents, and that that is likely to generate fear among those who have given away things in the past or who are thinking of doing so in the future. It is clear that extra Revenue resources will be required to reassure people and explain the implications of the legislation. The tax reform group is particularly concerned that an evaluation of the scope of the charge may require knowledge of family transactions dating back a long time. The provisions require detailed record keeping for the future, which will be potentially inclusive of normal family arrangements.
The provisions could create all sorts of unintended effects. People who have given away assets or cash to their children, perhaps many years ago, and fallen on less favourable times could find themselves subject to an income tax charge if helped by their children in their later years. There is a multitude of arrangements concerning the use of the family home in a long-term care scenario, and where family arrangements enable the older relative to remain in the community, they could be rendered impractical by an income tax charge. Gifts given over many years, for example, by grandparents to grandchildren could generate an income tax charge if related family members helped the grandparents in later life.
It would be unwise of the Paymaster General to dismiss those concerns. Ordinary citizens are extremely conscientious about their tax obligations. What Conservative Members dislike about the proposals and their details is that they could result in many unexpected circumstances. The de minimis limit ought to be similar in quantum to the nil rate band under inheritance tax, which has already been raised by the hon. Member for Torridge and West Devon (Mr. Burnett). If the limit were lower, as the Government propose, all the bureaucracy, intrusion, arbitrary results and worry that are envisaged could come to pass. The basis of the de minimis limit should be clear to a typical pensioner; we should not have a computational de minimis where a person has to collect all the facts, do the sums and see whether the result is less than the set figures. All that would achieve is an increase in staff and in fees paid to advisers.
Rob Marris (Wolverhampton, South-West) (Lab): Is the hon. Gentleman saying that he objects to the fine print of the clause, or that he and his party object to the principle that it embodies?
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Mr. Flight: I think that I made it clear before we retired for lunch that we object to the principle of retrospective taxation. I am now trying to spell out why the provisions, which the Paymaster General explained are aimed at the better-off, are a cause for worry to all sorts of ordinary citizens. There are two separate aspects, but I made it clear up front that we object to the retrospective nature of the provisions. If this is a hole that needs to be plugged, it should properly be plugged by amending the IHT legislation rather than by the retrospective impact of what is being proposed.
A general and worthwhile point is that the potential impact of so much of what gets done is not thought through. I am about to speak about the other end of the scalehistoric homesbut I thought it appropriate to mention that it was the Low Incomes Tax Reform Group that voiced the strongest objections. As the Paymaster General will say, the provisions were not intended to impact on those on lower incomes at all, but they may do and that is a concern.
The arrangements present major problems for historic houses and their contents, where, for bona fide reasons, the owners cannot comply with the more demanding standards to qualify for conditional exemption. The great majority of the electorate value our historic homes and their heritage and are, by and large, supportive of many families for whom it is quite a financial struggle to maintain them.
There are more than 1,800 recorded privately owned historic homes remaining in Britain. Some 350 are open to the public regularly and attract 15 million visitors each year. A further 200 provide some degree of public access less regularly. The Historic Houses Association recently conducted a survey that found that of the 350 major houses open to the public, 45 will be affected by the proposals. The largest recorded tax change relates to chattels and in quantum is in the order of £1 million per annum.
Rob Marris: Does the hon. Gentleman agree that those 350 historic homes, and the other 200, are open to the public because of UK inheritance tax legislation? That is why the public can, on occasions, gain access to the 200 and can quite frequently gain access to the 350.
Mr. Flight: The point is not immediately relevant, but I do not agree. If the hon. Gentleman had read his literature, he would have discovered that even in 1800 virtually every historic house was open to any member of the public who cared to knock at the front door. The tradition of houses being open to the public, which I do not deny has been put on a commercial basis, is long established. It is a mistake to believe that the collective social interest in the historic homes of this country does not go back a very long time.
The point that I seek to makethis is slightly irrelevantis that the arrangements that we are discussing cause problems and in various ways are likely to lead not to more houses being open, but if anything to the reverse. I am sure that hon. Members
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of all parties would agree that we want to see our historic assets preserved and available to those who want to visit them.
Mr. Stephen Pound (Ealing, North) (Lab): A number of my relatives visited many stately homesusually after dark, it has to be said, and not by invitation.
The hon. Gentleman mentioned earlier the onerous conditions. Let us consider the life of a truly great parliamentarian, one who is still respected and revered in many parts of this building: Tom Driberg. When he wanted to leave his house at Bradwell-juxta-Mare to the nation, he had to come up with half the money, which was £500,000. He could not do that. Today's papers tell us that Lord HeskethI was going to say that he was an equally distinguished parliamentarian, but I would not normally compare Tom Driberg to Lord Heskethis selling his house because he is unwilling to allow any public access. It is one of the most beautiful stately homes in Northamptonshire, and, whereas his father and grandfather married rich Americans and saved it, he is now selling it and it could be bought by a Russian. Does the hon. Gentleman really want that?
Mr. Flight: I thank the hon. Gentleman for his interesting observation. I am disappointed to hear his racial prejudice against Russians. I hope that whoever buys the house will do the right thing and open it to the public.
There needs to be a fair trade-off in such matters. I do not know the detailed circumstances of Lord Hesketh's case, but one of the things that really worries me is that a human reaction to many of the proposals is to say, ''Forget it. We'll cash in the chips and go somewhere else.'' Whatever the fiscal proposals are, they must go with the grain of things, and not against it.
Of the 350 great houses, 45 will be affected by the proposals. At least 150 of the second-tier historic homes, many of which contain historic collections, will be hit. The proposals would make it difficult to fulfil the recently increased qualifications for conditional exemption. I would point out to the hon. Gentleman that the Finance Act 1998 made it more difficult to qualify for conditional exemption.
I want to read out one or two quotations. The hon. Gentleman may not have much sympathy with them, but I think that they are realistic. The owner of the home of an eminent Victorian statesman and political figure said:
''We shall not be able to afford the 5 per cent. on chattels and since the whole object is to keep them in this Grade 1 listed building, we shall have to quit the house which will be unoccupied for at least some years. The house is listed Grade 1 because of its association with''
the famous Victorian politician and statesman. The owner continues:
''If the house is vacated, an additional caretaker and security will need to be employed. Such people would however be unable to personally escort individuals and parties . . . The rent for the trusts was fixed after taking careful legal advice and a retrospective rule would therefore seem totally unfair. Income tax is paid by
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both trusts on the rent. If the house is vacated, all the many charity events and functions we hold in the house, garden and field will come to an end.''
Another house of major importance and political significance has been owned by the same family for some 700 years. The owner states:
''My efforts to rescue and restore this property for the benefit of the nation and future generations could come to nothing. We could not possibly afford the extra tax charges. My son, in Government service, could not move in, the house would be abandoned, the business would suffer and we might have to contemplate selling the entire property.