Clause 29 - Special rates of tax applicable to trusts
Finance Bill
10:30 am
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
With your leave, Mr. McWilliam, I will briefly touch on the proposed modernisation. The hon. Members for Arundel and South Downs and for Torridge and West Devon know full well that this is a very complicated area of taxation. All manner of arrangements—to put this delicately—can be found in it, ranging from vulnerable trusts, for which all Committee members want the Government to make the necessary arrangements to simplify the provisions, to extremely creative high taxpayers who seek to reduce their tax unreasonably.
That is unfortunate, and it provides a challenge for the Government. I will explain it by addressing the points that were made about the changes in section 677 of the Income and Corporation Taxes Act 1988. The changes in the arrangements that we are seeking to make are designed to ensure that we meet that challenge. With regard to the operation of section 677 and anti-avoidance, we are still dealing with higher rate taxpayers, and we are also reviewing, updating and modernising trust arrangements and the tax system for trusts so that we pick up the points that the hon. Gentlemen are rightly making.
The new system will involve an irrevocable election made jointly by trustees and the vulnerable beneficiary for the tax paid by the trustees to be based on the circumstances of the vulnerable beneficiary. It is difficult to comment on the constituency case of the hon. Member for Arundel and South Downs, but then I always marvel at the complexity of his casework. No one has visited me in Bristol, South inquiring about an offshore trust and the unreasonableness of the 40 per cent. tax rate.