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Session 2008 - 09 Publications on the internet General Committee Debates Finance Bill |
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The Committee consisted of the following Members:Liam Laurence Smyth,
Committee Clerk † attended
the Committee Public Bill CommitteeThursday 11 June 2009(Afternoon)[Mr. Jim Hood in the Chair]Finance Bill(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92)Schedule 27Remittance
basis 1
pm Question
(this day) again proposed, That
the schedule be the Twenty-seventh schedule to the
Bill. Mr.
Mark Hoban (Fareham) (Con): I welcome you back to the
chair for this afternoon’s sitting, Mr. Hood.
I
was talking about the Poles referred to by my hon. Friend the Member
for Hammersmith and Fulham in the debate last year on the residence and
domicile rules. I was pointing out to the Minister that there was
apparently a degree of confusion about what the limit would be in what
is introduced by paragraph 3 of the schedule. The explanatory notes
state: “Paragraph
3 amends section 809D(1)...which provides that an individual
unremitted foreign income and gains of less than £2,000 in a tax
year does not need to file a self-assessment tax
return” Paragraph
3 (3)(1A) of the schedule states that
“the individual
is not domiciled in the United Kingdom in that year and conditions A to
F in section 828B are
met.” In
clause 52, condition B in proposed new section 828B refers to the
matter of £10,000. There is a mismatch somewhere between the
explanatory notes and the Bill as to what the cut-off level would be,
so I should be grateful for some clarification. I shall have a little
more to say about the £10,000 when we come to the next
clause.
The other
issue that is resolved, in part, in the schedule, is that of the
trailing spouse. That was debated last year. The Government helpfully
made a positive move by introducing a de minimis limit of UK source
income of £100—the hon. Member for Taunton has tabled an
amendment to clause 52 about that. My only concern about the issue is
that the limit may be insufficiently generous, because it would give
rise to taxable income of £20. Do we want a trailing spouse to
go through that process simply for £20-worth of tax? Is there
not a higher, more pragmatic, limit? When we debated the issue last
year the Minister’s predecessor, the right hon. Member for
Liverpool, Wavertree (Jane Kennedy) was very much against increasing
limits. Is the Treasury much more interested in increasing limits this
year? The change from £2,000 to £10,000 is one increase.
Perhaps the Government should think more carefully about imposing too
high a burden in respect of a relatively small amount.
The other
issue that had a great deal of debate last year, both in the run-up to
the Committee stage of the Finance Bill and the Bill itself, was
remittances of
personal property. This year the exemption has been extended so that it
applies regardless of the source of income used to purchase a property.
That is a welcome move by the Government, which takes account of some
of the criticism made last year about the unworkability—if that
is a word in the dictionary—of the reforms and has taken things
further. However, one of the comments that has been made is that the
exemption could have gone a little bit further than the Government have
conceded so far.
The exemption
does not apply when the assets cease to be personal property. That is
entirely reasonable when the personal property has been sold, and I can
understand that. There is concern that the exemption should be extended
to include circumstances when the property has been lost or stolen.
That would be a welcome relaxation of the
rules. We
are grateful that the Government have made some progress in responding
to the concerns we raised last year, but I wonder if the Minister could
clarify the three issues that I have raised: the interaction between
the £2,000 and the £10,000 limits; whether there could be
a more generous amount for the so-called trailing spouse provision; and
whether the exemption for personal property could be extended to
include property that is either lost or
stolen. John
Howell (Henley) (Con): I shall echo a couple of the points
made by my hon. Friend. I am sure that the Minister is aware of the
comments made by the Institute of Chartered Accountants on this matter.
Although it has welcomed much of what is being proposed, it points out
that the consultative committee established for last year’s
Finance Bill needs to continue, to ensure that the changes come
through. I would like to know what commitment the Minister will give
about that.
I am not sure
whether this is appropriate for clause 51 or for clause 52, but there
is a point that needs clarification—it probably relates to both
clauses: the interaction of this legislation with settlements
legislation. It would be nice to know whether that issue has been
addressed and whether there should be some
clarification.
The
Financial Secretary to the Treasury (Mr. Stephen
Timms): I too welcome you back, Mr. Hood, after
our lunch break.
I am glad
that the hon. Member for Fareham (Mr. Hoban) was able to
welcome the changes in the schedule. Perhaps it was a slightly grudging
welcome. Nevertheless, it was a welcome and I am glad about
that.
Our aim in
introducing major changes to the remittance basis last year was to
maintain our international competitiveness and to increase the fairness
of the tax system. Of course, the UK needs to continue to be attractive
to people overseas who have the skills we need for our own economy, but
it is also absolutely right that those who have chosen to live and work
in the UK should make a fair contribution through the tax system to
support public services. That is the balance that the new arrangements
were designed to
deliver. However,
the Government are certainly prepared to listen to legitimate concerns
that taxpayers from abroad and their advisers have raised with us, so
my predecessor, my right hon. Friend the Member for Liverpool,
Wavertree,
who was dealing with the Finance Bill a year ago, gave a commitment that
officials from the Treasury and Her Majesty’s Revenue and
Customs would meet interested parties to review the rules, to ensure
that they operated as intended and imposed no unnecessary
administrative obligations on potential
users. Since
the autumn, officials from the Treasury and HMRC have talked with a
wide range of representatives of external bodies, as the hon. Member
for Henley has mentioned—I have met a number of them as well.
They have identified issues that they felt should be addressed so that
the new regime can be implemented as smoothly and effectively as
possible. We have also taken the opportunity to make one or two other
small
adjustments. The
first change introduced by the schedule relates to gift aid tax relief
as it applies to individuals who use the remittance basis. It was
always the intention that the annual charge introduced by the
remittance rules should be treated as a payment of tax for the purposes
of gift aid and available to frank payments to charities. Due to a
drafting error, the legislation does not deliver that result, so the
amendments made by paragraphs 2 and 5 of the schedule ensure that the
rules for gift aid operate as intended.
In the
majority of cases, if somebody wishes to be taxed under the remittance
basis they are required to make a formal claim to do so through the
self-assessment system. An exception is when someone’s
unremitted foreign income and gains are less than £2,000 in any
tax year, when it is assumed that they will have chosen the remittance
basis without any claim being made— the hon. Member for
Fareham asked a question about the £2,000 and I will come to
that in a moment. A case has been made that the legislation is not
sufficiently clear on that point, so paragraph 3 of the schedule seeks
to put beyond doubt the fact that a claim will not be required in those
circumstances. Its effect will be that people in that position will be
taxed on the remittance basis, but they will preserve their right to
file a tax return and to be taxed under the arising basis if they wish
to do
so. The
figure of £2,000 is a general de minimis limit for those who use
the remittance basis. The new £10,000 limit, which is introduced
in the next clause, is a new tax exemption that applies to individuals
from overseas, such as migrant workers who have a job in the UK and
also have overseas employment income in the same year. The exemption
would simply remove the obligation on people in that position to file a
self-assessment return. It is a more generous arrangement for that
group of people, and it applies whether or not the individual chooses
to use the remittance basis; it does not affect whether they are
eligible to pay tax on the remittance
basis.
Mr.
Hoban: Will the Minister clarify that point? I am a little
puzzled by how the provision will work? If there is a £10,000
exemption for employment income but a £2,000 exemption for other
income, how will the circumstances in which each one works be made
clear to people who may be covered by the remittance
basis?
Mr.
Timms: As I said, the £2,000 is a general, de
minimis limit for anyone. The £10,000 figure, which will be
introduced in the next clause, applies specifically to
migrant workers, who frequently will have had some employment in the
same year in another country, and will have gained an income. They will
have a choice about which arrangement to apply to their
circumstances. Paragraph
4 of the schedule removes the obligation to file a self-assessment
return when an individual has total UK income or gains of no more than
£100, which has been taxed in the UK, provided they make no
remittances to the UK in that tax year. At one point, I thought that
the hon. Member for Fareham was referring to trading spouses, but the
appropriate term is “trailing spouses”. HMRC was told
that trailing spouses typically have a bank account in the UK that
earns only a small amount of income, and £100 covers such cases.
The measure has been widely welcomed as a positive
move. Paragraph
9 relates to the rules applying to assets brought into the UK. As the
rules stand, someone who has chosen to use the remittance basis will be
subject to UK tax if they use their foreign income and gains to
purchase property and assets that they bring into the UK. There are
some exceptions to that general rule—for example, when the
assets in question are imported temporarily, or are worth less than
£1,000. In
broad terms, those exemptions are not available when the items are
purchased using overseas employment income, so the exemptions may be
difficult to operate in practice and might give rise to inadvertent
non-compliance. Following representations, the Government decided that
the rules on exempt assets should be extended with effect from the
start of the 2008-09 tax
year. The
hon. Member for Fareham asked why the exemptions were not being
extended to assets that are lost or destroyed. I suggest that
introducing such an exemption could open up significant opportunities
for abuse. We must remain vigilant, and although we have been able to
take on board a number of the suggestions made to us, that one could
give rise to
difficulties. Paragraphs
12 and 13 clarify the interaction between the new remittance regime and
the tax rules that apply to overseas trusts. The remittance regime
includes transitional provisions that prevent certain income arising
before 6 April 2008 from being taxed as a remittance if it is brought
to the UK on or after that date. The point has been made that those
provisions do not work as intended, so we are amending them to ensure
that they
do. The
hon. Member for Fareham asked whether the problem he described with
settlements legislation has been solved—I am sorry, it was the
hon. Member for Henley who asked that. I think that paragraphs 13 and
14 of the schedule cover that point, and people we have talked to have
not only welcomed the change, but told us they think it solves the
problem. 1.15
pm There
follow some provisions that remove ambiguity in the remittance basis
regime and ensure that they are not targeted by those seeking to
sidestep the rules. The hon. Member for Henley, while welcoming the
progress we have made as a result of the discussions, asked whether we
were going to keep the consultative committee going. I can reassure him
that we have agreed to do that. I agree that it has been a useful
forum, and one whose value will continue for a period yet.
Taking the
changes introduced by the schedule together makes the remittance basis
more straightforward to operate in practice. I again express my thanks
for the constructive approach the interested parties and outside
organisations have taken in their consultations with officials from the
Treasury and HMRC, as it has allowed us to make these worthwhile
improvements to the remittance
basis. Question
put and agreed
to. Schedule
27 accordingly agreed
to.
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