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Dawn Primarolo: I answered that question on Second Reading. The point is that 18 is the age of majority. People can get married or serve their country at that age; they can do all the things that adults can do. People might want to write trusts in which the beneficiaries do not get control of the assets until they are 25, 35, 45 or even 52—that seems a good age today—but this is not about when the individuals get control of the assets, it is about when they come into tax. That is the point that is being made. The hon. Gentleman also knows that, with
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certain trusts, the beneficiary never materialises. The trusts go on in perpetuity. This relates to situations in which a spouse has the use of a property, for example, and on their death, the property transfers to the children of the first marriage. We need to discuss that matter further. We are not talking about when trusts end but when they never end, control remains and the beneficiary does not have access. That is the problem with which we are trying to deal.

Mr. Redwood: What does the Paymaster General think would be the revenue cost over a five-year period were the Committee to pass the Opposition amendment as opposed to her proposal? I want to get a feel for how big the problem is over a five-year period, as such things take time to work through.

5.30 pm

Dawn Primarolo: The Opposition new clauses would completely negate the Government's legislation, so everything scored in the Red Book would be lost. The right hon. Member for Wokingham understands—I was going to say "needs to appreciate", but that would be totally unfair, as I know that he does—that tax law is about making sure that a situation holds now and does not continue, as well as making sure that no other person is encouraged, and that large numbers of people are not encouraged, to use tax avoidance in that way. Surely, if inheritance tax is raised under certain circumstances with those exemptions—whether a gift and the seven-year rule or the spouse exemption on transfer—the Committee should expect the regime to operate in such a way. There is always a consequence, and if a tax regime is used in a way that it should not be and left unchallenged, the problem will get greater and greater—a point that hon. Members often make to me, saying, "Why are you acting now? Why didn't you act last year? How do you work the balance?" That is the clear answer to the right hon. Gentleman's point.

The right hon. Gentleman also spoke about retrospection, but I completely reject the idea that there is any retrospection. The Government have provided for a two-year transition. If the provision is not enforced until 2008, how can there be retrospection? Everyone will have the opportunity to make the necessary changes.

The hon. Member for Chipping Barnet then adopted the "Let's make it up, because it must be true if we say it," approach. She said that pension and death-in-service payments will be caught by the Bill. That is absolutely not the case. Let us have some rational debate, and hear what the Opposition say about why their new clauses are better. When we discuss that in Standing Committee—the Opposition chose to discuss it in Committee and not on the Floor of the House—we can go through all those issues. It is utterly ridiculous, however, to table a new clause and then say, "Because I say so, it must be true."

Mrs. Villiers: The point about retrospectivity is that many trusts cannot be varied. One would have to go to court and spend a large amount of money on it, and even if a court hearing were to take place, not all courts will allow the trust to be varied. Therefore, the provisions are retrospective, because not everyone will be able to adapt the existing arrangements to comply with the new rules.
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Dawn Primarolo: The hon. Lady does not know what she is talking about. Legally qualified Conservative Members pointed out on Second Reading that the legal advice is always to review one's will regularly—at least every two years. If I decide that I want to vary my will, I do not have to go to the High Court to do it; I vary my will. The regulations in place for a variation of a will after death or in the circumstances of incapacity—as raised on Second Reading—are clear. Opposition Members are trying to isolate the measure completely from the interaction of all the inheritance tax and trust rules, and they are simply wrong.

Mr. Newmark rose—

John Bercow rose—

Dawn Primarolo: I will give way first to the hon. Member for Braintree (Mr. Newmark) and then to the hon. Member for Buckingham (John Bercow), and then I would appreciate it if I could make some progress on the new clause.

Mr. Newmark: My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) was spot on in referring to the retrospective nature of the Bill. Retrospectivity in this context means that individuals will have to change trusts that are already in place. Non-retrospective legislation would say "From this point on"—or, in the case of this Bill, in two years' time—"these will be the rules." The Bill is retrospective because it will force people to change existing wills and existing trusts.

Dawn Primarolo: I know that the hon. Gentleman is new to the House, but pretending that the world began only when he entered it is utterly ridiculous. Did the Conservative Government agree that when they reduced mortgage interest relief at source—MIRAS—they were doing something retrospective? No, they did not. When they reduced the married couples allowance, were they taking retrospective action because of the expectation that existed? Of course they were not. When they reduced advance corporation tax relief, was that a retrospective measure because all the companies said that they had expected to receive it in perpetuity? Of course it was not. That is such a ridiculous point that I am surprised that the hon. Gentleman wanted to make it.

John Bercow: I am a bit suspicious. I have a high regard for the Paymaster General, but she treated a serious and thoughtful inquiry from my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) as an opportunity to launch into a stream of rather unnecessary invective. May I ask the Paymaster General a simple question? Is she seriously saying that it is ordinarily possible for someone to alter the terms of an existing trust as quickly, simply or inexpensively as that person could alter his or her will? That was the gravamen of the question that my hon. Friend asked, and it deserved a more serious response.

Dawn Primarolo: The hon. Gentleman and I have known each other for quite a long time. He knows very well that I have not even started on the invective yet.

The point is that the wills set up the trusts, either in the lifetime of an individual or on death. The will is the trigger, and those who want to change their wills can do
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so. The trusts make it possible to plan for a tax that has not yet been triggered, to retain control of assets whose control will be determined after death. They control the assets beyond death to determine who will get them and who will not. I do not think it unreasonable for us to say that if a trust specifies a certain beneficiary after a certain event, that beneficiary should receive the product.

Rob Marris: Will the Paymaster General give way?

Dawn Primarolo: I will, but it will be the last time.

Rob Marris: I am grateful to the Paymaster General for her generosity.

I am becoming a little confused by some of the comments made by Opposition Members. Perhaps I have misunderstood the Government's proposals. I thought that the proposals did not affect trusts that had been set up, say, a year ago—trusts that already exist. If that is the case, the hon. Member for Chipping Barnet (Mrs. Villiers) is wrong; if not, could the Paymaster General explain why?

Dawn Primarolo: People have two years in which to ensure that there is a proper end to a trust. In that sense, such trusts are affected; otherwise, it would be a bit like our saying, "Just because you have already successfully planned a tax avoidance, we will leave it in place."

It may help the Committee if I explain the purpose of the measure and what it does before dealing with the new clauses. As I have said, the purpose is to stop inheritance tax avoidance through the use of certain types of trust—not all trusts. Before the Budget, it became clear that some wealthy individuals were using trusts in that way. The avoidance worked in different ways, and was often highly technical, but the end result was the same: substantial assets passed from generation to generation with no inheritance tax ever being paid.

I have made it clear that the Government consider it unfair that a small number of wealthy people should be able to exploit trusts in that way by combining rules. The new rules prevent such unfair avoidance, while protecting straightforward and sensible arrangements made by honourable people.

This measure brings accumulation and maintenance trusts and interest in possession trusts into the mainstream tax rules for discretionary trusts. It does not, therefore, create a new regime; it merely brings such trusts into the regime that applies to all the others. The money put into a trust during a person's lifetime—

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