Schedule 15 - Charge to income tax on benefits received by former owner of property
Finance Bill
3:45 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
The hon. Gentleman seeks to make two points about his amendments. The first is about retrospection. He claims that inheritance tax arrangements made in 1986 should be completely immune from any change anywhere else in the tax system. As he well knows, no taxpayer is ever provided with such reassurance. Taxpayers make plans for the use of their income in the knowledge that the tax system may change. Retrospective measures in tax law seek to make a charge on benefits that have already accrued, but the schedule does no such thing. The bringing into charge occurs from the 2005-06 tax year. Therefore, the benefits that accrue in that tax year will fall within the charge. If the legislation were
retrospective, it would backdate the charge to 1986 for accrued benefits over that entire period, but we do not seek to do that. I absolutely reject the hon. Gentleman's proposition that the proposals are retrospective. They start in 2005 and will assess the benefits at that point.
If the taxpayer does not wish to pay the income tax charge at that time, they make an election. The inheritance tax rules will be deemed to operate, and the property is theirs and will be dealt with at the point at which the estate comes into charge.
The hon. Gentleman's second point is that not only is the provision retrospective but it introduces unnecessary burdens on the individual, including outrageous requirements for record keeping, possibly going back to 1986. I believe that the Committee would agree that it is sensible and reasonable that the record-keeping obligations in this measure should be consistent with those of the inheritance tax system, because that is basically the option open to the taxpayer. That is why the Government have introduced a provision to ensure that the charge will not apply to gifts if seven years have elapsed without the donor enjoying the benefit.
The hon. Gentleman made a point about a father giving x amount some 20 years ago to a son, who invests a proportion of it and uses the rest for property. That is not how this measure operates within the rules on the seven years. Although it is right for the hon. Gentleman to press the Government on the point, I say to him that the provision is not retrospective. We do not seek to cast a charge back into preceding years, as retrospection would. Under the clause, an arrangement gives rise to future tax charges as a result of a change in the tax system that is provided for in schedule 15—no more, no less.
As we progress, hon. Members will see that there are many exceptions and many ways in which people will not be liable under any of the provisions in any of the schedules that we are discussing. Those who are liable have a clear choice between the inheritance tax or an income tax charge; the matter is in their hands.