Schedule 15 - Charge to income tax on benefits received by former owner of property
Finance Bill
3:45 pm
Mr Howard Flight (Shadow Chief Secretary To the Treasury, Economic Affairs; Arundel and South Downs, Conservative)
All these amendments replace the effective date of 17 March 1986 with 9 December 2003 to counteract the retrospective nature of the proposals. The Low Incomes Tax Reform Group and others have given broad examples of the potential impact of retrospective legislation. People who have given away assets or cash to their children and have fewer resources behind them risk an income tax charge if they are helped in their final years by their children. The later Government amendments do not necessarily avoid that.
There are a multitude of arrangements surrounding the use of the family home, including granny flats, which enable older people to remain within the family community. Such arrangements could become liable to an income tax charge, and that must be wrong in principle. The provisions are so widely drawn that in
many cases it is impossible for a taxpayer to know whether they will apply to them. If a person had made a cash gift to his child in 1986, how could he possibly know whether cash used by the child 20 years later to buy a property for occupation by his elderly parents indirectly derived from the cash that was initially given?
The Paymaster General will be aware of the specific example in the representations made by the Institute of Chartered Accountants. It states:
''Let us assume that someone gives his son £10,000. Seven years later the son buys a house for £50,000. Seven years after that the father, being elderly, moves into a granny annex at the house which is now worth £150,000. Under the current proposals, it appears that the father will be liable to the new income tax charge'',
and that includes the de minimis extensions. By making the new rules prospective, rather than retrospective, the possibility of such unfair situations would be removed. By removing the retrospective nature of the provisions we would necessarily not require the tracing provisions, which have attracted considerable criticism and which the Paymaster General has not satisfied me are adequately removed by some of the Government's amendments.
The Law Society uses the following example, asking us to assume
''a gift of a holiday cottage in 1987. The donee sold it in 1990 and used half of the proceeds to start a business, adding the other half to his quoted investment portfolio. In 2004 the original donee sells his business, liquidates his investment portfolio (to and from which there have been various additions and withdrawals in the meantime but which overall has grown significantly) and buys a large country house, allowing the original donor to occupy a cottage in its grounds; or buys a work of art at auction which he leaves with the original donor while he goes to work in an unstable part of the world. The donor will have no right to obtain information—if indeed it is still extant—which would enable him or anyone to assess how far, if at all, his original gift of the holiday cottage can be traced through into the value of the cottage . . . or of the work of art,''
as required under the provisions of the schedule. The Government have not introduced any amendments to change the effective date from March 1986, as my amendments propose, although I accept that certain Government amendments do broaden the reliefs and exemptions from the charge.
The Paymaster General will no doubt talk about the impact being retroactive rather than retrospective, but I remain of the view that the retrospective nature of the legislation as it falls on individuals is wrong and leaves uncertainty about all sorts of potential situations.