Schedule 20
Finance (No. 2) Bill
12:45 pm
Theresa Villiers (Shadow Chief Secretary To the Treasury, Treasury; Chipping Barnet, Conservative)
I beg to move amendment No. 287, page 111, line 13 [Vol II], leave out
‘settled property (including property settled before 22nd March 2006)'
and insert
‘property settled on or after 22nd March 2006'.
Joe Benton (Bootle, Labour)
With this it will be convenient to discuss the following: Amendment No. 280, page 111, line 30 [Vol II], leave out from beginning to end ofline 7 on page 112 and insert—
‘(a) that the bereaved minor, if he has not done so before attaining the age of 18, will on attaining that age become absolutely entitled to the settled property or to the income arising from it,
(b) that the bereaved minor, if he has not done so before attaining the age of 25, will on attaining that age become absolutely entitled to—
(i) the settled property, and
(ii) any income that has arisen from the property held on the trusts for his benefit and been accumulated before he became beneficially entitled to the property in accordance with paragraph (a) above,
(c) that, for so long as the bereaved minor is living and under the age of 25, if any of the settled property is applied for the benefit of a beneficiary, it is applied for the benefit of the bereaved minor, and
(d) that, for so long as the bereaved minor is living and under the age of 18, either—
(i) the bereaved minor is entitled to all of the income (if there is any) arising from any of the settled property, or
(ii) no such income may be applied for the benefit of any other person.'.
Amendment No. 272, page 111, line 31 [Vol II], leave out ‘18' and insert ‘25'.
Government amendments Nos. 355 and 356.
Amendment No. 281, page 112, line 41 [Vol II], leave out
‘on attaining the age of 18 or becoming, under that age, absolutely entitled as mentioned in'
and insert
‘becoming entitled as mentioned in paragraph (a) or (b) of'.
Amendment No. 273, page 112, line 41 [Vol II], leave out ‘18' and insert ‘25'.
Amendment No. 282, page 112, line 44 [Vol II], leave out ‘that age' and insert
‘the age at which he would have become absolutely entitled as mentioned in paragraph (a) or (b) of section 71A(3) above'.
Amendment No. 288, page 113, line 12 [Vol II], leave out from ‘subsection,' to end of line 23 and insert
‘there were substituted for the reference to 13th March 1975 in subsection 8(b) a reference to 22nd March 2006.'.
Government amendment No. 357.
Amendment No. 274, page 113, line 26 [Vol II], leave out ‘18' and insert ‘25'.
Government amendments Nos. 358 and 384.
Amendment No. 290, page 113 [Vol II], leave out lines 42 to 44.
Amendment No. 291, page 114 [Vol II], leave out lines 9 to 23.
Amendment No. 275, page 114 [Vol II], leave out lines 10 to 14 and insert—
‘For section 71(1) of IHTA 1984 substitute—
“(1) Subject to subsections (1A) to (2) below, this section applies to settled property if—
(a) one or more persons (in this section referred to as “beneficiaries”) will, on or before attaining a specified age not exceeding twenty-five, become absolutely entitled to it, and
(b) until a beneficiary becomes entitled to the settled property or the income arising from it, the settled property and the income from the settled property is to be accumulated so far as not applied for the maintenance, education or benefit of a beneficiary.”.'.
Amendment No. 284, page 114 [Vol II], leave out lines 10 to 14 and insert
‘For section 71(1) of IHTA 1984 substitute—
“(1) Subject to subsections (1A) to (2) below, this section applies to settled property if—
(a) one or more persons (in this section referred to as beneficiaries) will, on or before attaining a specified age not exceeding eighteen, become absolutely entitled to it or to any income arising from it,
(b) where a beneficiary becomes entitled pursuant to paragraph (a) above to the income arising from the settled property rather than to the property itself, that beneficiary subsequently becomes absolutely entitled to the property concerned on or before attaining a specified age not exceeding twenty-five, and
(c) until a beneficiary becomes entitled to the settled property or the income arising from it pursuant to paragraph (a) above, the settled property and the income from the settled property is to be accumulated so far as not applied for the maintenance, education or benefit of a beneficiary.”.'.
Amendment No. 276, page 114, line 14 [Vol II], at end insert—
‘(1A) Section 71(4) shall be replaced with the following provision with effect from 6th April 2008—
“(4) Tax shall not be charged under this section—
(a) on a beneficiary's becoming absolutely entitled to, or to the income arising from, settled property on or before attaining the specified age,
(b) on the death of a beneficiary before attaining the specified age.”.'.
Amendment No. 285, page 114, line 14 [Vol II], at end insert—
‘(1A) Section 71(4) shall be replaced with the following provision with effect from 6th April 2008—
“(4) Tax shall not be charged under this section—
(a) on a beneficiary's becoming absolutely entitled to, or to the income arising from, settled property on or before attaining the age specified for the purposes of paragraph (a) of subsection (1) above or, if later, on the beneficiary becoming absolutely entitled to the settled property on or before the age specified for the purposes of paragraph (b) of subsection (1) above, or
(b) on the death of a beneficiary under the age at which he would have become absolutely entitled to the settled property pursuant to paragraph (a) or (b) of subsection (1) above.”.'.
Amendment No. 286, page 114, line 14 [Vol II], at end insert—
‘(1B) In section 71(6) IHTA 1984 leave out ‘and' after ‘paragraphs (a)' and insert ‘and (c)' after ‘(b)'.'.
Amendment No. 292, page 114, line 38 [Vol II], after ‘section', insert ‘71 or'.
Amendment No. 293, page 115, line 22 [Vol II], after ‘section', insert ‘71 or'.
Amendment No. 294, page 115, line 27 [Vol II], after ‘section', insert ‘71 or'.
Amendment No. 297, page 116, line 35 [Vol II], after ‘section', insert ‘71 or'.
Amendment No. 277, page 119, line 11 [Vol II], after ‘which', insert ‘section 71(1)(a) or'.
Government amendment No. 365.
Amendment No. 278, page 119, line 18 [Vol II], after ‘which', insert ‘section 71(1)(a) or'.
Government amendments Nos. 366 and 367.
Amendment No. 279, page 120, line 42 [Vol II], after ‘end', insert ‘section 71(1)(a) or'.
Government amendments Nos. 369, 371and 372.
Theresa Villiers (Shadow Chief Secretary To the Treasury, Treasury; Chipping Barnet, Conservative)
I shall come to the breakdown of the amendments that I have tabled in due course. In the spirit of compromise I have tabled a number of alternative formulations, which makes the Chairman’s task of reading them out rather complex.
The amendments would alter the schedule’s treatment of accumulation and maintenance trusts and those trusts that vest in children at 25. Such trusts have traditionally enabled parents and grandparents to make long-term financial provision for children. They were devised in the 1970s by a Labour Government, not to help the super-rich shelter their wealth from inheritance tax, but to help parents and grandparents provide prudently and responsibly for children. Until the child is 25, trustees, usually the settlors and a solicitor, can retain control over the income and capital. After the age of 25, the beneficiary gets the right to receive the income. In some cases, the trust will also provide that the capital passes to the beneficiary at age 25, but more often the trustees will retain some control over that capital for a period.
Schedule 20, as drafted, seeks to penalise such trusts by bringing them within the framework of rules for discretionary trusts, unless they fall within the narrow category of “trusts for bereaved minors”. Under the schedule, the beneficiaries under such settlements must be given the property, income and capital outright at 18, if not, a 20 per cent. charge will be made on property transferred into the trust, with a 6 per cent. charge every 10 years thereafter, along with an exit charge on capital advanced out of the trust.
We come now to the highly controversial aspect of schedule 20. The new regime for accumulation and maintenance trusts and bereaved minor trusts thus imposes a tax penalty on those who wish to provide financial support for their children, but wish to restrict the control and access to the money until their children reach 25. The schedule actively encourages the transfer of significant wealth to 18-year-olds. Indeed, where such trusts are already in operation, it more or less forces the trustees to do that. At least for new trusts, the settlor can take a decision about whether to make the gift at all. In the case of existing trusts, the “no transfer” option is no longer available. Either the trustees opt to vest all the property in the 18-year-old or the trust is hit by the unexpected and punitive tax bill. That seems to be contrary to common sense and certainly contrary to the principles of prudence to which the Chancellor used to subscribe.
An ICM poll commissioned by solicitors Brewin Dolphin recently revealed—