New Clause 1 — Inheritance Tax

Orders of the Day — Finance Bill – in the House of Commons at 12:39 pm on 6th July 2005.

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The Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004 (S.I., 2004, No. 2543) are amended as follows:—

"Regulations 6,7,8,9 and 10 shall cease to have effect in respect of a person who dies on or after 31st July 2005.".'.

Brought up, and read the First time.

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Chair, Speaker's Committee on the Electoral Commission

With this, it will be convenient to take new clause 8—Inheritance Tax (No. 2)—

'The Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004 (S.I., 2004, No. 2543) are amended, in Regulation 6, line 4, by omitting "must" and inserting "may".'.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

New clauses 1 and 8 take a slightly different approach to a problem while delivering, in essence, the same outcome. I shall explain during the course of my remarks why we have chosen to table two different solutions to the problem that we have identified.

New clause 8 amends the Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004—a snappily named little piece of secondary legislation—that was made with respect to section 256 of the Inheritance Tax Act 1984. It is designed to amend the provision by omitting "must" and inserting "may", thus making the delivery of a return permissive. New clause 1 adopts a rather more radical approach by disapplying regulations 6 to 10, dispensing with the requirement for returns altogether.

The regulations that the new clauses amend make provision in relation to the delivery of accounts and other information for inheritance tax purposes. As is often the case, the 2004 regulations were presented as a deregulatory measure—and to some extent they are. Prior to the 2004 regulations—[Interruption.] Judging by the noises off, Mr. Speaker, I suspect that we have a result from Singapore. Before those regulations, estates just below the inheritance tax value were required to deliver a full account to the Revenue.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

On a point of order, Mr. Speaker. Please forgive me for interrupting the hon. Gentleman, but I am sure that he would like to know that the successful bid for the Olympics is London. [Hon. Members: "Hooray!"] I should like to take the opportunity, on behalf of the House and the country, to thank all those involved in the preparation and delivery of a fantastic bid. I am sure that all of us look forward to welcoming the Olympics to London, to ensuring that this country represents itself and the Olympic spirit to the very best of our ability, and that it makes us proud.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Further to that point of order, Mr. Speaker. May I associate the Opposition with the right hon. Lady's remarks and pay tribute to everybody who has worked so hard to ensure that this bid was successful? I pay tribute in particular to my noble Friend the Lord Coe—[Hon. Members: "Hear, hear."]—who has done so much to ensure that the bid was successful, and who has worked tirelessly with members of all parties and with members of the Government.

Several hon. Members:


Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Chair, Speaker's Committee on the Electoral Commission

Order. I hate to put a dampener on any celebrations and I am personally delighted, but I cannot take any more points of order on this matter. There will be an opportunity for the appropriate Minister to come before the House and for us to discuss the matter fully. Standing Orders tell me that we must get on with the business in hand.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Thank you, Mr. Speaker. The challenge that the House now faces is how to make the Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulation 2004 seem remotely interesting. But we will do our best.

The regulations that the new clauses seek to amend make provision for the delivery of accounts and other information for inheritance tax purposes. As I have said, the 2004 regulations were presented as deregulatory, and to some extent they are. Before their introduction, estates that were just below the inheritance tax value were required to deliver a full "account" to the Revenue, and were known as "excepted estates". Regulation 3 provides that a person is no longer required to submit an account under the terms of section 216 of the Inheritance Tax Act 1984 if the property is an excepted estate. This is in fact a perfectly sensible measure, reducing the compliance burden on some 30,000 estates valued between £240,000 and £275,000 every year.

However, what was billed as a relieving measure is not so in practice. As so often with this Government, the deregulating instinct has been swamped by the regulating instinct of bureaucracy, and what regulation 3 gives, regulation 4, I am afraid, takes away—in spades. The 2004 regulations provide that all estates below the inheritance tax threshold, and which are valued at more than £5,000, are now classed as excepted estates. Regulation 6 provides that

"a person who by virtue of these regulations is not required to deliver to the Board an account under section 216 of the 1984 Act . . . must produce the information specified in paragraph (2) to the Board in such form as the Board may prescribe."

In other words, the Government have scrapped the requirement to return an account for 30,000 excepted estates on form IHT200, but they have introduced a new requirement for some 300,000 estates per year. All those 300,000 estates are worth less than the IHT threshold and have no tax to pay, and all of them had no requirement whatsoever to make a return of any kind until the 2004 regulations were introduced. A requirement has now been introduced for those estates to make a return

"in such form as the Board may prescribe".

The prescribed form is in fact form IHT205.

I have a copy of form IHT205 in front of me. It is a four-page document in the typical style of a tax return. It is laden with complicated and intrusive questions—so much so that there are 23 pages of accompanying guidance notes and 16 pages of annexes. The information required by the form includes details on the deceased's occupation and that of surviving relatives; gifts given by the deceased over the past seven years; overseas assets; pensions; cash, including money in banks, building societies and national savings; value of household and personal goods; stocks and shares quoted on the stock exchange; stocks and shares not quoted on the stock exchange; insurance policies, including bonuses and mortgage-protection policies; money owed to the deceased; residences; partnerships and business interests; debts of the deceased; and funeral expenses.

That is just what a grieving relative needs! We should remember that this requirement applies to estates below the inheritance tax threshold—to so-called excepted estates. It would be quite interesting to know what the Treasury understands by the term "excepted". In case anyone is tempted not to treat this intrusion with the seriousness it deserves, the document warns that there may be

"financial Penalties if the answers to the questions or figures given are wrong".

So before one completes the form, one must make "full enquiries" as to the value of the deceased's household and personal goods. Estimates are explicitly unacceptable. Gathering this information could take a bereaved relative weeks or even months, and cause quite unnecessary stress at a time of personal grief.

Given the form's complexity and jargon-laden language, and given the difficulty that most lay people will have in distinguishing between the different classes of assets and liabilities that they are required to record in different parts of the form, many—if not most—relatives will seek the help of a solicitor in completing it. However, they will have no choice but to assemble the bulk of that information themselves, as a solicitor would be unable to aggregate it for them. Based on last year's figures, an extra 246,872 estates now have to file a return. Based on an average solicitor's hourly rate, and assuming approximately one hour's-worth only of work and correspondence, this provision will cost the average estate between £150 and £250. That equates to between £37 million and £62 million in legal bills alone each year, and for what? This is not a return of inheritance tax due; it is a regime that applies exclusively to estates below the inheritance tax threshold.

This is a massive and intrusive fishing expedition that involves trawling, collecting and storing information—in minute detail—on those who are supposed to be outside this particular tax net and free of the hassle of compliance. It turns on its head the previously accepted position that the details of an estate below the IHT threshold were not a matter for the Revenue.

New clause 1 removes the regulations requiring reporting of excepted estates on form IHT205 altogether, thus relieving 300,000 bereaved families each year of this insensitive and unnecessary burden. New clause 8 seeks to achieve the same objective by a slightly different route. It leaves the provisions in regulations 6 to 10 in force, but makes compliance with them optional by omitting "must" from line 4 of regulation 6 and inserting "may". Giving taxpayers "permission" to make a return to the Revenue might seem a curious approach, but we are told that in some cases, professional executors, with a view to their own potential liability, might wish to have the comfort of having made a return on IHT205, thus enjoying the Revenue's confirmation—if a notice has not been issued within a certain period under the regulations—that no tax is indeed payable.

So new clause 8 leaves the provision force for the benefit of those professional executors who wish to use it, while removing the element of compulsion for the rest of us. We have no difficulty with a solution to this problem that allows those professionals who want to make use of the provisions to continue to do so. Our purpose today is to ensure that this burden is not imposed on ordinary bereaved families who are seeking to act as executors for the will of a deceased person.

It is our contention that people who are dealing with modest estates—of as little as £7,000 to £10,000, and thus way below the inheritance tax threshold—should not be subjected to this additional burden at a time of bereavement or have to waste time and money completing a form whose only point is to feed the seemingly insatiable desire of the big brother state for information on every aspect of our lives.

The measure is an example of a hugely insensitive invasion of privacy. It is an expensive and heavy-handed exercise that will burden some 300,000 estates every year and achieve nothing of practical value except the storing of huge amounts of personal information on everyone leaving an estate in excess of £5,000. All that is concealed behind what turns out to be a paltry relief for a mere 30,000 estates at the very top end of the exception band.

I hope that the Paymaster General will pledge today that she will end this bureaucratic nonsense, either by accepting the new clauses or by making a definitive promise to introduce something that would have the same effect.

Photo of Susan Kramer Susan Kramer Shadow Minister, Treasury, Shadow Spokesperson (Business, Innovation and Skills), Liberal Democrat Spokesperson (Business, Innovation and Skills) 1:00 pm, 6th July 2005

Today, the Liberal Democrats and the Conservatives are speaking out together on inheritance tax. That must be an event almost as momentous as London's success in winning the Olympic bid. As a former London mayoral candidate, I welcome that success on my party's behalf.

The new clauses address a matter that exercises us very much. The Bill breaks a principle, referred to in the past by my hon. Friend Stephen Williams, that the Revenue should not go on fishing expeditions and seek by intrusive means information that does not apply directly to its ability to levy tax. The new clauses would remove the information requirement in relation to people who the Government do not believe should be subject to inheritance tax. The Bill would require them to fill out extensive forms at a time of great bereavement to prove that no tax should be paid.

The Revenue's fishing expedition will expose almost no evidence of tax avoidance. The Chancellor has said with great pride on many occasions that only about 6 per cent. of the estates left after people die in this country are liable to inheritance tax. The vast majority are not liable, and I am sure that all parties share common cause that that should remain the case. The intrusive search for detailed information required by the Bill is therefore unacceptable.

The concept of "excepted estates" applies to estates worth £275,000 or less, or to transfers to a spouse. That should be the appropriate benchmark, and we therefore associate ourselves with the new clauses.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

I hope that the House will excuse the pun, but I have grave concerns about proposals to increase the powers of the nanny state. Her Majesty's Revenue and Customs has all-seeing powers over British taxpayers from the cradle to the grave, and now in the afterlife as well.

I support new clauses 1 and 8 as a way to restore sanity to families and professionals who have to deal with the immediate effects of the afterlife and sort out estates after people die. That is a very distressing time, and the Government's introduction last year of statutory instrument No. 2543—the Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004—made it immeasurably more distressing. As my hon. Friend Mr. Hammond said, that order extended the requirement to file inheritance tax return form IT205—which he illustrated so eloquently—on all estates worth more than £5,000. Essentially, that requirement applies to every estate that requires probate.

That is a huge extension of bureaucratic form filling. Previously, one could file a nil return for inheritance tax unless one was within £30,000 of the inheritance tax threshold. Now the form will have to be filed in respect of all estates of over £5,000, and very detailed information on the value of assets will be sought. That information will include details of household and personal goods, and so will require the valuation of the furniture and jewellery, for instance, in an estate. All of that information has to be provided after a full inquiry has been made.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I hope that my hon. Friend will forgive me for correcting him, but there was no requirement under the previous regime to file a nil return. People were required simply to swear a declaration that no tax was due.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

I am grateful for that correction, and my hon. Friend is right to say that it was possible for solicitors to swear an affidavit, although they could choose to file a nil return.

The requirement would be reasonable if there was a good prospect that additional revenue would be raised, but my hon. Friend has noted already that most estates will be below the threshold and so will not qualify. As a result, the proposal has no revenue-raising potential.

What is the point of the proposed exhaustive form filling? How many people will be affected? My hon. Friend has given some statistics, but I have some other data that might help Labour Members understand the implications of what is being proposed. About 535,000 people die each year. I learned that statistic in a debate on fallen livestock, when the subject of human death was touched on. Only 35,000 estates pay inheritance tax, so it does not take great mathematical skill to work out that, if all estates were to be affected by probate, a very significant number of people will be affected.

Presumably, a not insignificant number of forms will land in the HMRC's offices, and will need to be checked. Some errors might be detected where there is a possibility that an estate goes over the threshold, but it is most likely that the forms will sit and gather dust after being collected. Therefore, many people in the bureaucracy will do very depressing work to no purpose.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

My hon. Friend mentions bureaucracy, but is not the problem even worse than he sets out? In Committee, the Paymaster General talked several times about the need for anti-avoidance measures and the need to close the tax gap. Would not the money spent on this fishing exercise be better spent on other measures that would close the tax gap?

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

My hon. Friend makes a good point. The HMRC work force is being reduced, so we should look carefully at the tasks that people there are asked to undertake. I hope that the Minister will consider that point.

There is a wider point in respect of the extension of the inheritance tax net. House price inflation means that more and more people in my constituency are falling into its clutches, with estate values reaching the duty threshold despite the increase introduced in the Budget earlier this year. The Land Registry reports that the average price of properties sold in the south Shropshire district in the first quarter of the year was £208,000. In the Bridgnorth district, the average was £214,600. In the same period, the average price of detached houses—that includes most of the village properties in my largely rural constituency—was £264,000 in south Shropshire and more than £307,000 in the Bridgnorth district council area. As a result, the average houseowner in my constituency is likely to be caught by the inheritance tax threshold.

Inheritance tax was originally intended to be a tax for the wealthy. It is increasingly hitting the average householder across the country. That is certainly the case in the Ludlow constituency. It is time that we looked at the tax as a whole, and stopped tinkering with extending it at the edges.

My final point has to do with the direction in which the Government are heading in respect of inheritance tax, which is in stark contrast to the direction that our major economic competitors are taking. I was in Washington DC last month and I discovered that legislation is passing through Congress and they are debating whether the American equivalent of inheritance tax—they call it death tax, rather starkly—should be scrapped or substantially reduced. If our major competitors are planning to scrap inheritance tax, we should think carefully about whether it is appropriate for us to extend the net. Instead, we should perhaps accept the increasingly competitive nature of the global economy in which we all live and consider scrapping inheritance tax.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

It is important to put on the record a few points before responding to the debate. Unfortunately, some of the contributions that we have heard show that hon. Members have failed to appreciate how the system worked under the rules that were in place and how it will work under the rules before us. Mr. Dunne mentioned nil returns, and I shall come back to the issue of excepted estates. We are talking not about the entire inheritance tax system but about a special procedure for very small estates that will remove them from the normal procedure. For some 30,000 estates, it will be necessary to fill in only a very short form instead of the full form, over which—incidentally—the Conservative Government were happy to preside for years and years.

The approach taken in last year's Finance Bill, which was accepted by the House, was for the smaller estates to be subject to the excepted estates procedure. One does not have to be a genius to work out that it is simpler if only a short form needs to be filled out—only four pages, of which the first page and a bit is simple and straightforward stuff such as name and address, followed by yes/no questions and an estimate of the value of the estate, to ensure that it is within the limits of the excepted estates procedure—instead of the full inheritance tax procedure. It is difficult to see why the Opposition have a problem with that.

Nil returns are not needed, because such estates do not require probate. I shall return to that when I address the issue of the Court Service, which is also part of the new procedure and further deregulates the process. All that is being asked of people is to indicate whether they have properly calculated the size of the estate to ensure that it comes under the smaller estates procedure.

Photo of Stephen Hesford Stephen Hesford Labour, Wirral West

I apologise to the House for not being in my place for the contribution by Mr. Hammond, although I did hear the contribution by Mr. Dunne. Based on what he said, does my right hon. Friend agree that the Opposition are really sniping at the fairness agenda? He gave the game away that the Tories' aim is to do away with inheritance tax.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

To be fair to Mr. Hammond, he did not say that he wanted to abolish inheritance tax, but it has been a feature of such debates in the past that Opposition Members have advocated that approach. The fairness that they are attacking is the fairness that says that whether an individual does their own return through the excepted estates procedure or a solicitor does a return on behalf of someone, the information required is the same and they are treated equally.

The Opposition also argue that the Government should enable taxpayers to represent themselves and not force them to have recourse to professional advice if that is not necessary. I suspect that the role of solicitors, and what they will be required to do, is at the heart of the Opposition's objection, rather than the information that has to be provided by the taxpayer.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree 1:15 pm, 6th July 2005

The thrust of the argument made by my hon. Friend Mr. Dunne was the form-filling culture—something that the Government pledged to change and reduce. Why will people be required to fill in forms for estates with a net worth of £5,000, which is a huge difference from the inheritance tax threshold of £275,000? Those forms will also require more and more bureaucrats to assess them.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I hope that when I explain how the process works now, the hon. Gentleman will realise that that question is based on a basic misunderstanding of what is required under the inheritance tax system. I am sure that he would accept that it is not unreasonable for any Government to require people to go through certain steps to ensure that the estate with which they are dealing should go through the excepted estates procedure, rather than the full inheritance tax procedure. That is all that is happening.

I find it odd that the Conservatives did not struggle with this point last year, because all these procedures were in last year's Finance Bill—[Interruption.] I appreciate that the hon. Gentleman is a new Member, but his Front-Bench colleagues are not. There has been wide discussion of the issue and none of the suggestions made have caused any difficulties. Indeed, the connection with the Court Service is a further deregulatory measure that has helped enormously.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

No, because I wish to reply to the points made by Susan Kramer. The hon. Gentleman can reply at the end of the debate.

The hon. Lady suggested that the proposals were fishing trips, but that is not the case. It is careless talk to accuse the tax authorities of that when they are simply requiring people to answer questions to ascertain whether an estate comes under the excepted estates procedure. People had to fill in forms before, so it is not as if that is new. The issue is the length of the forms and the information that is collected. We are talking about small estates, which have always, as I said when I began my remarks, had to show the Revenue that they were entitled to use the excepted estates procedure. Applicants without a solicitor filled in a form that was much like the present form, so it is not true to suggest that there are additional burdens.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

No, I shall not give way to the hon. Gentleman at this point.

New clauses 1 and 8 would both amend the 2004 regulations, known as the excepted estates regulations, which are subject to that procedure. The hon. Member for Runnymede and Weybridge said that the new clauses offered two different solutions. They are interesting solutions. One of his new clauses completely abolishes the procedure and the other gives the Inland Revenue discretion to decide when the procedure would work. As the hon. Member for Richmond Park was so concerned about fishing trips, I should, on her behalf, be a bit worried about supporting new clauses that allowed the Inland Revenue, or Her Majesty's Revenue and Customs, to decide in such cases.

New clause 1 removes the current obligation on executors applying for probate to give details to the Court Service about the deceased person, their assets and values, when using the excepted estates procedure, whereas new clause 8 is apparently designed to give HMRC discretion over which details have to be given in such cases. I would have thought that either solution was rather undesirable. The aim in either case—

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The aim in either case seems to be—

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

On a point of order, Mr. Speaker. I am sorry to have to raise this on a point of order, but the right hon. Lady will not give way to me. She has, I fear, inadvertently misled the House by saying that new clause 8 would provide that the Inland Revenue has the option of requiring a return to be made. In fact, it gives the taxpayer the option of making a return if he chooses to do so, and I should be grateful if she could confirm that that is the case.

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Chair, Speaker's Committee on the Electoral Commission

That is not a point of order. The hon. Gentleman knows that he will have an opportunity to reply to the Paymaster General and he can then put the record straight, if he so wishes.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Thank you, Mr. Speaker. What the hon. Member for Runnymede and Weybridge thinks his new clause may do and what I am advised by my officials that it will do, on which basis I advise the House, is always a matter for debate when amendments are proposed, but I shall repeat what I have said.

New clause 8 is apparently designed to give HMRC discretion over which details have to be given in those cases. The aim of both new clauses seems to be to reverse or modify the changes that the Government made last year, and to go back to the previous system whereby personal applicants—those not represented by a solicitor—had to fill in forms about the estate, whereas legally represented estates did not have to do so.

The House may find it helpful if I provide some details about the administrative arrangements for such estates. The excepted estates procedure is a streamlined process for estates that are relatively small and relatively simple. If the estate qualifies, the executors are allowed to fill in a simple form and get probate immediately. Delivery of the form to the Court Service also satisfies their inheritance tax obligations, so they need have no direct contact with HMRC—so how having no direct contact with HMRC empowers HMRC to go on a fishing trip beggars belief. Executors otherwise have to fill in a much more comprehensive form and send it to HMRC before they can get probate. The process thus provides links with probate, which ensures that it would be speedy for small estates, and relates exactly to the point that the hon. Gentleman made about the importance of speed in such cases.

The excepted estates procedure has always been restricted to estates that satisfy tests of size and complexity as set out in HMRC regulations. I think that we would all agree that eligibility should be limited in that way, as there is always a risk that large estates might slip through untaxed. We are getting the balance right by ensuring that there is speed for excepted estates, especially at probate, and that there is one point of delivery to the Court Service, with the ability to monitor the proper use of that process through HMRC.

The questions for this afternoon relate to how executors should establish that they qualify for the excepted estates procedure and what they have to tell HMRC about their workings. Before I move on to the detail of the changes that the Government made last year, it may help the House if I briefly describe the probate and IHT reporting system as it stood before the changes made in 2004.

Estates fell into three broad categories for reporting purposes. If the estate was worth more than £240,000, a full IHT return was required—not the short form in use at present. If the estate was worth less than £240,000 and the executor was a personal applicant, they had to fill in a short form very much like the one in use now. If the estate was worth less than £240,000 but a solicitor was acting for the executor, the executor simply had to swear an oath that the estate was worth £X,000 to demonstrate that it qualified for the excepted estates procedure. Under the old rules many executors had to fill in a full IHT return even though the estate paid no tax. The Government changed the rules last year primarily to bring most of those cases—about 30,000—into the excepted estates procedure, thereby reducing their compliance costs whether or not they were represented by solicitors. We moved them from the more complicated system to the excepted estates procedure. However, extending that procedure to bring in many more cases, many of them much bigger than those that were previously clearly eligible, increases the risk of non-compliance; so in striking the right balance, the Government took the opportunity to streamline the detailed procedure, improve co-ordination between HMRC and the Court Service, and update IHT protection against non-compliance.

As part of that process, the Government unified the two existing procedures for executors using the excepted estates procedure, so that they all now fill in the same short form whether or not they are advised by a solicitor. As I said, the form contains the minimum number of questions needed to show that the estate is entitled to use the excepted estates procedure and to allow HMRC to make a risk assessment.

The new clauses seem intended to reverse all those changes, so that some or all executors would be entitled to claim access to the excepted estates procedure without giving even basic information about the facts that would justify their using it. The Government's view is that that is misconceived. To qualify for the excepted estates procedure, executors have always been required to know the total value of the estate and key points about what it contains, and solicitors will always have to establish those basic facts.

The form that executors must now fill in only sets out systematically the questions that solicitors have been asking their clients already, before putting them through the excepted estates procedure. They are already collecting such information to satisfy themselves that their clients could use the excepted estates procedure. To be fair to solicitors, the overwhelmingly majority of them clearly took those obligations seriously. However, there have been indications that there were issues on different occasions, but none has been demonstrated with the new procedure.

To sum up, the uniformity that the Government built into the system in 2004 strikes the right balance. It is deregulatory. It unifies processes. It treats people equally. It ensures that the returns give the pertinent information only and are not excessive. It is fair to all taxpayers and to the Exchequer. It encourages executors to apply the same accuracy when completing the short form as they have done when filling out the full IHT return. On that basis, I suggest that hon. Members have no grounds to pursue the issue of fairness. I hope that, having heard the explanation of last year's changes and what they are achieving in the system, the hon. Gentleman will consider withdrawing the motion, but if he feels unable to do so, I will urge my hon. Friends to oppose the new clause.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 1:30 pm, 6th July 2005

I can assure the right hon. Lady that I feel unable to do any such thing, having heard no such thing.

Let me deal with a couple of specific points. The right hon. Lady suggested that it was bizarre that such issues were being raised now and asked why they had not been raised in greater depth during the consideration of the Finance Act 2004. She will have information to hand, but I understand that form IHT205 and the guidance notes for completing it were published only in November 2004, after the Finance Act 2004 had completed its passage. On the basis of what we have seen published, what we have seen in practice and what practitioners and, indeed, non-professional executors are reporting, we have sought to raise the issue today.

The right hon. Lady told the House that new clause 8 would give the Revenue the option to require a return. In response to my attempt at a point of order, Mr. Speaker advised me that I should address this question in my closing remarks. Perhaps the best thing that I can do is to read out the opening paragraph of regulation 6 of the Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004, as it would be amended by new clause 8, and let the House decide whether or not she is correct. Paragraph (1) would say:

"Subject to paragraph (3), a person who by virtue of these Regulations is not required to deliver to the Board an account under section 216 of the 1984 Act of the property comprised in an excepted estate, may produce the information specified in paragraph (2) to the Board in such form as the Board may prescribe."

That does not suggest any doubt at all to me that the option lies with the taxpayer, not with the Revenue.

The right hon. Lady has confused the question of the change to treatment for what were approximately 30,000 excepted estates under the old rules—those estates that fell just below the inheritance tax threshold of between £240,000 and £275,000. I acknowledged quite readily in my opening remarks that the compliance burden on those estates has been reduced, by allowing them to complete the shorter—everything in terms of Inland Revenue forms is relative—form, IHT205, rather than the full return form, which is IHT200.

The right hon. Lady has deliberately ignored the fact that the definition of an excepted estate has been widened to include all estates above £5,000, which require probate. The practical effect is that, while 30,000 estates will enjoy a reduction in the compliance burden, some 270,000 estates, according to the most recent year's figures, will suffer an increase in the burden by having to make a return using IHT200.

Contrary to what the right hon. Lady says, the minimum number of questions required is not set out. I have already listed the questions that must be answered: details of the deceased's occupation and surviving relatives; gifts that the deceased has made; pensions; assets overseas; cash, including money in the bank, building society and national savings; value of household and personal goods; quoted and unquoted stocks and shares; insurance policies; bonuses; mortgage protection policies; money owed to the person who has died; residences; partnerships and business interests; debts of the deceased; and funeral expenses. That is not the minimum information required.

We understand the need for a return of information for estates that are just below the margin, but in broadening the scope of excepted estates under the 2004 regulations to include all estates that require probate which are below the inheritance tax threshold, the right hon. Lady has, deliberately or otherwise, swept into the net hundreds of thousands of very small estates and created a huge new burden, however she seeks to dress it up today.

By interchanging the old definition of an excepted estate, which refers only to the 30,000 estates just below the IHT threshold, and the new definition, which includes some 300,000 estates that require probate and are below the IHT threshold, the right hon. Lady has effectively thrown up smoke around the debate, but she has not answered the challenge that we have put to her.

The right hon. Lady says that all that is being asked is that people make a return to show they have done the calculation. Of course people must do the calculation before asserting that an estate is not chargeable to tax—a prudent person would always expect to do so—but sadly, for many small estates people will not have to spend very long computing whether the estate is worth £275,000; the question will be whether the estate is worth £10,000 or £12,000. In those cases, the imposition of completing such a form is an unnecessary and onerous burden at what will be a very difficult time for bereaved families dealing with these matters. I intend to ask my hon. Friends to support the new clause in the Division Lobby.

Question put, That the clause be read a Second time—

The House divided: Ayes 181, Noes 276.

Division number 30 Orders of the Day — Finance Bill — New Clause 1 — Inheritance Tax

Aye: 181 MPs

No: 276 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Question accordingly negatived.