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Mr. Geoffrey Clifton-Brown (Cotswold) (Con): My hon. Friend is putting across a highly technical case very cogently. Does he agree that, because of the way in which the Government have treated inheritance tax, and the fiscal drag, some people who have bought their own council houses will now come within the IHT net? There is nothing wrong with arranging one's affairs to minimise tax payable—and that is basically all that those people were doing. They should be allowed to unravel those schemes without having to pay a huge amount of double taxation, which is effectively a fine on taxpayers for arranging their affairs so as to pay the minimum amount of tax.

Mr. Hammond: My hon. Friend is certainly right on the first count: as I said earlier, a modest three-bedroomed former council house in my constituency will certainly take an estate within the scope of inheritance tax. On his second point, there is a constant debate about the line between acceptable tax planning and unacceptable tax avoidance. That line is not clear or easily defined and those who have been involved with this Finance Bill accept that there are some difficult decisions to be made. In one sense my hon. Friend's comments are incontrovertible: people who have held up their hands and acknowledged that the game is up, and seek to unwind the schemes that they have set up in order to comply with the intention of the legislation, should not now be subject to an excessive penalty wholly disproportionate to the mischief in which they are alleged to have engaged.

I think that that is wholly unintentional, because earlier this year the Government took steps to ensure that people who made elections were not subjected to a double tax charge. I have to believe that it is the Government's intention that people should be able to unravel and escape from these schemes without facing the double tax charge. I hope that the Paymaster General will be able to confirm that this afternoon.

Mr. Clifton-Brown: Is my hon. Friend aware of the old tax maxim that tax evasion is totally illegal, while tax avoidance is perfectly legal?

Mr. Hammond: I would prefer to say that tax planning is perfectly legal. As our tax code has developed, the more convoluted forms of avoidance, while not illegal, are certainly subject to action by the Revenue. We have acknowledged during the Bill's passage that there is a constant game of cat and mouse. The Paymaster General expressed the view in Committee that she did not want to have to engage in a constant game of cat and mouse, but that, I fear, is the
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lot of Paymasters General, who are constantly pursuing a moving goal. Tax planning will move on and the Government and the Revenue will seek to close down the more convoluted and artificial tax-avoidance schemes. That is their right. The concern on this side of the House has always been about the degree of retroactivity in seeking to close down such convoluted tax-avoidance opportunities.

I hope that the Paymaster General will be able to say something positive to this group of 50,000-odd people who simply want to get on with the rest of their lives, having recognised that what they did in the past was unwise and has certainly not delivered any benefit. Indeed, many families have been put through enormous stress, and we are not talking about wealthy individuals with complex affairs. Many are just ordinary families. Those people are now fearful of taking any action until the Revenue confirms that there will be no double tax charge. The longer the delay in releasing the debt and unwinding the scheme, the more income tax will have to be paid on the deemed charge equal to the value of the rent of the property that they continue to live in.

In fairness to those ordinary families, I hope that the Paymaster General will be able to accept new clause 5. If not, I hope that she will at least confirm unequivocally at the Dispatch Box today that the Government will either amend the regulations or take appropriate alternative steps to allow those schemes to be quickly and effectively unwound so that there is an alternative route for those people for whom election under regulation 6 is not an appropriate exit. They should be able to unwind their schemes without undergoing the huge potential costs that the current regime imposes on them.

Mr. Gummer : First, I would like to declare a disinterest in the sense that I have never created such a trust or been a beneficiary of one, so I believe that I can be perfectly objective about the subject. Secondly, I acknowledge that I have taken part in debates on these matters before and disagreed with the Paymaster General on her definition of retrospection. I retain that belief, but I took from that debate her genuine intention to ensure that people who had perfectly reasonably entered into a perfectly proper legal undertaking would be able at least to disengage themselves from it. Although that did not overcome the problem that they would not have made the initial decision all those many years back had they been told that the terms of the agreement would be subject to retrospection, it did at least solve the problem of retrospection in the sense that, previously, they were punished for finding themselves in their current circumstances. I agree with my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) that, since then, the Paymaster General has shown herself willing to try to maintain her position.

I want to refer to three main points. First, it does not seem to me to be in any sense unpleasant to seek to allow one's children to live in the house in which they have been brought up, whereas I think that there is something wrong with a taxation system that does not view that as a natural activity. I believe that in most cases, if not all, people will already have paid tax on the money that they have invested in their houses. It is not as though they are perpetuating a non-taxable value: they have paid tax, spent money on the house and brought up their families
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in it. I have no difficulty in saying that there is nothing dishonourable whatever—indeed, I think that it is very honourable—in people wanting to allow their children to continue to live in that house.

Secondly, we should accept that the increase in house prices has meant that many who live in houses that are now caught by inheritance tax do so in circumstances in which they are not themselves very wealthy. They are capital rich, but may not be that well off in current terms. The children who are to inherit the house often find, for the same reason, that it is the only chance that they will ever have to live in a house of their own. They may be financially involved in the house already and may have continued to live in the house with the objective of allowing their children, in turn, to live in it. It is neither wicked nor a mark of extreme wealth to seek to achieve such a sensible end. Indeed, it is often a mark of someone who has used his taxed income properly. That becomes even more important when people do not get any mortgage relief—tax relief on the mortgage costs that people have to pay.

Thirdly, many would say that a sensible tax regime would exclude the family house in any case. I personally take the Belgian view in believing that there should be no inheritance tax at all. I believe that it is the wrong way of taxing and that there are many preferable ways of doing so. I would replace it with something different, which is not at all unreasonable. It is clearly an attractive option because Belgium attracts a large number of French people to live under its tax system. For many people, the ability to hand on what they have earned to their children is much of the reason for earning it in the first place. It is a dangerous thing for a society that does not encourage such continuity and that sort of enterprise.

Mr. Clifton-Brown: My right hon. Friend is making a cogent contribution. Does he agree that many people nowadays have to work way beyond the retirement age in order to pay the mortgage on a very expensive house purely in order to pass it on to their children? If the fiscal drag that comes from the inheritance tax system continues, people may be thwarted in that aim and may well choose not to work for so long past their retirement age.

Mr. Gummer: My hon. Friend makes an important point, but I do not want to follow too far down that particular road for this reason: I am not justifying my position on inheritance by virtue of the fact that high house prices have made what is inherently wrong more obviously wrong. I want to argue something much more fundamental, which is that a society that wants to encourage stability and enterprise is a society in which the ability of families to hand on money and a home is a crucial component of that stability.

Those who believe in a property-owning democracy should not believe in a one-generation society. Those of us for whom the family is the most important element in our lives—who support marriage, want the state of marriage to be important, and want married couples to work together, so that their children can inherit from them—should be encouraged, not discouraged.

Mr. Walker : My right hon. Friend has got to the nub of the problem. We, as Conservatives, believe that the family is the most important thing in people's lives, whereas Labour believes that it is the state.
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