(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) - Clause 84 - Charge to income tax by reference to enjoyment of property previously owned
Finance Bill
2:30 pm
Mr Howard Flight (Shadow Chief Secretary To the Treasury, Economic Affairs; Arundel and South Downs, Conservative)
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
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 people—pensioners in particular—whose 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.