I beg to move amendment 30, page 6, leave out lines 13 to 16 and insert-
'(3) The rate of capital gains tax in respect of gains accruing in a tax year to-
(a) the trustees of a settlement is 28%, and
(b) The personal representatives of a deceased person is 18% for the first £10,000 of gains and 28% thereafter.'.
The Government have decided to raise the rate of capital gains tax for people paying higher rate income tax. We are not going to object to that; indeed, we are interested to know why a higher rate has not been adopted. The rate will be left at 18% for people paying basic rate tax, but the higher rate of 28% will apply to all trusts. Some people with low incomes have their interests represented by trusts, and there is a case that it would be unfair for them to pay the higher rate. However, it has been agreed that the rate of income tax on discretionary trusts will be 50%, so I accept that it is logical to apply the higher rate of capital gains tax to them as well, although I have no doubt that that this is a question to which the House will want to return in future debates.
Amendment 30 applies to one specific situation that has been drawn to our attention by the Low Incomes Tax Reform Group-that is, the position of so-called estates in course of administration, to which the Bill as drafted would apply, in every case, a capital gains tax rate of 28%. In the case of the majority of estates of people who have died and who paid basic rate income tax prior to their death, those people, had they still been alive, would have been entitled to realise at least some capital gains at the lower rate of 18%. The Bill, however, applies a rate of 28% to any taxable gain.
The most common problem that the Low Incomes Tax Reform Group had in mind was a case in which a house increases in value between the point of the owner's death and the point at which it is sold. Under the Bill as drafted, the whole of any such gain would be taxed at 28%, even if there was no other income or capital gain accruing to the estate at all.
I acknowledge that this is a relatively straightforward problem to identify but rather more difficult to solve. The amendment suggests that to remedy pragmatically what could, as I hope I have set out, otherwise be unfair, the first £10,000 of gains in a year should always be charged at 18%, rather than 28%, with gains above £10,000 being charged at 28%. I accept that that is not an ideal solution, because wealthy estates would benefit as well as the estates of people with low incomes. If the Exchequer Secretary has a better solution, I would be interested and eager to hear it, but I hope that he will recognise that there is a potential unfairness in relation to the estates of people with low incomes that realise capital gains after the individual's death, typically when the estate includes a property.
If the Exchequer Secretary feels unable to accept the amendment, will he agree to reflect on the matter and consider whether it might be possible to address what would certainly be an unfairness in some cases in the next Finance Bill later in the year?
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The amendment would set the capital gains tax rate at 18% for personal representatives of the deceased for the first £10,000 of gains, while retaining the 28% rate for gains above that level and for trustees. I am grateful to the shadow Minister for the explanation of the thinking behind it. As he said, the matter was raised by the Low Incomes Tax Reform Group. The Institute of Chartered Accountants in England and Wales made a similar point, stating that it would be appropriate to tax the personal representatives of a deceased person in the same way as basic rate taxpayers because it is a completely different situation to that of a trust.
We believe that the treatment of personal representatives in the Bill is appropriate. The amendment would add complexity and could give rise to unfair results or avoidance opportunities. The function of personal representatives is very similar to that of trustees. They have a duty to realise the assets of the deceased person on behalf of the heirs or legatees, and it should be their primary objective to complete their duties as quickly as possible so that the assets of the estate are distributed to those people without undue delay.
The amendment could provide an incentive for personal representatives to hold on to an asset while it appreciated, so that they could sell the asset and pay tax at 18% on the gain, rather than passing the asset directly on to an heir or legatee with a potential liability of 28%. There is no reason to give that sort of incentive to increase the value of a legatee's inheritance by reducing the capital gains tax due.
I appreciate the manner in which the shadow Minister raised the matter and identified the problem. Quite fairly, he was somewhat tentative about the potential solution set out in the amendment, which I appreciate was of a probing nature. As I understand it, it is possible for personal representatives to pass assets to the heirs, so they could pay at 18% on the gains if appropriate. I will reflect further on the right hon. Gentleman's points, but as I believe he recognises, amendment 30 has its weaknesses. It could give rise to avoidance opportunities and some unfair results, and consequently I urge him to withdraw it. However, I am grateful for his comments on the amendment.
I am happy not to force a vote, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
With this it will be convenient to discuss the following: amendment 32, page 6, line 20, leave out '28%' and insert '25%'.
Amendment 33, page 6, line 25, leave out '28%' and insert '25%'.
Amendment 10, page 9, line 29, at end insert-
Schedule 1 stand part.
The amendments are probing amendments. We are keen to understand the thinking that led to the figure of 28% as the rate of capital gains tax. We will not vote against the Government's proposal or for the lower figure proposed in the three amendments.
I noted that some of my hon. Friends, including some who are in the Chamber, tabled an amendment calling for a higher rate at 40%. I understand why, in accordance with convention, it was not selected for debate. However, I am puzzled that no Liberal Democrat Members put their names to that amendment because it appears to reflect the proposal in their manifesto.
The Liberal Democrat manifesto, which is always an interesting read, sets out, under the slogan, "Change that Works for You", a series of tax-raising measures, including,
"taxing capital gains at the same rate as income, so that all the money you make is taxed in the same way."
The document, "Liberal Democrat Tax Plans", went into more detail. It states:
"We propose to tax capital as income in order to remove this anomaly."
That presumably means applying a 50% rate to those on the highest income, as well as a 40% rate to those on the higher rate tax. The Liberal Democrat document claims that that would raise £3.2 billion a year. It also argues for reducing the annual tax exempt allowance from the current figure of just over £10,000 to £2,000, thereby raising a further £0.9 billion a year. That is more than £4 billion a year-a significant contribution to avoiding the unfair VAT rise, which is at the heart of the Budget and against which the Liberal Democrats campaigned. If more than £4 billion had been raised in that way, one percentage point of the 2.5% VAT rise could have been avoided.
Some of the thinking in the Liberal Democrat documents survived in the coalition agreement, which states:
"We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income."
The Liberal Democrats were therefore successful in at least getting the idea into the coalition agreement, but they signally failed to get it into the Bill. The Chancellor in his Budget speech flatly rejected the suggestion of reducing the annual exempt allowance. He said he would leave it at £10,000 and, far from reducing it to £2,000, would continue to uprate it in line with inflation in future.
I am encouraged to see the hon. Member for St Ives in his place, together with some of his hon. Friends. He has tabled an amendment, about which he will speak shortly, and he may seek to pursue the ideas in the Liberal Democrat manifesto. It would be interesting to know whether Liberal Democrats really supported those proposals when they campaigned on them. Have they been persuaded by their coalition partners that they were naive or unrealistic, or that the proposals were damaging? Have most Liberal Democrats just given up, smothered in the embrace of their new partners and no longer capable of defending the policies on which they were elected?
I am very much looking forward to what the hon. Member for St Ives has to say on that. He has already described himself as a free-ranging Back Bencher, although he was not quite free enough to range into the Aye Lobby with the Opposition earlier this evening. I am keen to hear from him and perhaps from other Liberal Democrats, who appeared to have such distinctive views on capital gains tax during the election campaign but who have since seemingly abandoned them, choosing instead to support what is traditionally the Conservatives' favourite tax-raising device, namely an increase in VAT.
We also need an explanation from the Minister, because, as I said, the coalition agreement states:
"We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income".
It is a bit hard to see how 28% can be described as
"similar or close to"
40%, let alone to 50%, and I hope the Minister can offer some explanation for the adoption of 28%, which seems to be at variance with the agreement. Perhaps he could shed some light on how vigorously-behind the scenes within the Government-Liberal Democrat members of the coalition fought for the position that they succeeded in negotiating into the agreement. Alternatively, is the truth that having got that into the agreement, they simply gave up, vacated the field and meekly accepted 28% as the best that the Conservatives were going to offer them? It would be of great interest to many of us if the Minister could shed light on those discussions.
Why was the figure of 28% chosen? It somewhat narrows the differential between tax on income and tax on capital gains, but it does not narrow it any further than the position before the introduction of the 50p rate, and nowhere near abolishes it. Indeed, increasing the rate by just 10 percentage points means that somebody on the 50p rate of income tax has exactly the same incentive to convert their income into capital gains as when they paid tax at 40p in the pound. For those people-the highest earners-there has been no reduction in the incentive, but as I understand it, reducing the incentive was the whole reason for the change.
There was one hint in the Chancellor's Budget speech on the reason for choosing 28%. He said:
"I asked the Treasury to examine what would have happened if we had increased the rate much further beyond 28%, and its dynamic analysis showed that that would have resulted in smaller total revenues."-[ Hansard, 22 June 2010; Vol. 512, c. 178.]
I would be grateful if the Minister could confirm whether the Government's view is that 28% is close to the revenue-maximising rate. Is 28% the rate at which proceeds from capital gains tax are maximised? Is he willing to place in the Library the "dynamic analysis" to which the Chancellor referred that shows how proceeds would decline if the rate were set at higher than 28%, more in keeping with the proposal in the Liberal Democrats' manifesto?
The Red Book tells us that that change will generate £725 million next year. That is certainly a handy and significant sum, but it is only about one sixth of the amount that the Liberal Democrats wanted to raise from increasing capital gains tax. Can the Minister tell us how much of that £725 million will be raised in capital gains tax, and how much of it will raised in income tax that would otherwise have been avoided by switching to capital gains?
I pay tribute to the right hon. Gentleman. It is good to see him in Committee. As a new Member, I was appalled by the dreadful event that afflicted him and it is good to see him in good health and good temper.
From my experience of the working of capital gains tax, and from speaking to constituents, it is a tax that is at the discretion of the individual investor. If prudent investors accrued a capital sum over a period of time, under the old system of indexation they would hold it for a long time and then realise the gains, often paying a minimal amount of capital gains tax. He will remember the 1970s, when CGT was very high and private investors would often ask "Why materialise this asset and pay the tax?" The 28% rate strikes a fair deal, and those of us on the Conservative Benches who come from a real business background understand and appreciate that a deal has to be struck with private investors and business.
I am grateful to the hon. Gentleman for his kind remarks, and to the Minister for his generous remarks earlier.
Of course taxpayers have opportunities, for example, to defer payment of capital gains tax and I shall come to such instances in a moment. The hon. Gentleman suggests that 28% is a compromise, but the Chancellor suggested that it might be-or is at least close to-the rate at which revenue is maximised. The Treasury has carried out some dynamic analysis to illustrate that, and it would be welcome if it could be placed in the Library so that hon. Members can see it. We need to know more about the reasons for the choice of rate, and I hope that the Minister will be able to provide us and some of his Liberal Democrat partners with some much needed enlightenment.
I wish to press the Minister on two further aspects of the proposed change-the timing of the change and, on the change to entrepreneurs relief, the reason for the increase in its generosity and the change to the way the amount relieved will be calculated. First, on the timing point, the Minister will be very familiar with the arguments against changing tax rates mid-year. Indeed, when our positions were reversed, he used to rehearse regularly the arguments against the kinds of complexities caused by changing rates mid-year. Indeed, some of his hon. Friends said earlier that they were looking forward to the Government simplifying the tax system. This is their first Bill and they have introduced a new and unprecedented complexity. What is it that persuaded the Minister that this particular complication was worth introducing? I am told that there has never been a mid-year change of rate in CGT since it was introduced in the mid-1960s. Will he acknowledge that this should not be the norm-that sudden and unannounced lurches in tax rates, in the middle of a tax year, are damaging and undermine people's confidence in the tax system? Can he assure us that the Government will do their utmost to avoid a repetition in future?
The Institute of Chartered Accountants in England and Wales says that there are likely to be a number of practical problems, in particular with changes to the supplementary pages for capital gains for the self-assessment tax return and for filing online. Are the Government aware of those problems, and is the Minister able to tell us how they will be addressed? ICAEW also makes the point that the transitional provisions for the current financial year are insufficient from a technical standpoint. Is it intended to make further transitional arrangements in the third Finance Bill of this year-the one to be brought forward in the autumn? Is the Minister able to confirm that these matters will be discussed with the experts of the CGT liaison group, ensuring through a collaborative approach that the final legislation later this year covers all the issues raised by a mid-year change?
At the moment, there is free HMRC software to deal with capital gains tax calculations in the tax return. The Institute of Chartered Accountants points out the importance of HMRC modifying that software, testing it fully and having it available to handle the complications created by a mid-year change in time for the beginning of the 2011-12 financial year, so can the Minister confirm that it will be? Can he also confirm that HMRC will work with commercial providers to ensure that third-party software products are also modified in time for the new financial year? If they are not, there will be some serious practical problems next year as a result of the change, as the Minister will appreciate.
That raises the question: why is the change being made now? Why was it not left until the new financial year? I can see that leaving it would create a problem of forestalling, with people rushing to realise their capital gains in this financial year rather than next. However, a puzzling question is: why does the Red Book say that there will be no revenue at all in the current financial year as a result of the change? The Red Book says that making the change will generate £725 million next year and £825 million the year after, but nothing at all this year, even though it has been made less than a quarter of the way through the financial year. With capital gains tax having been increased on
Secondly-and lastly-I want to ask some questions about entrepreneurs relief. The previous Government introduced entrepreneurs relief when the rate of capital gains tax was raised to 18%. We believe it right that entrepreneurship should be well rewarded, and we support the role of entrepreneurs relief for that purpose. However, I wonder whether the Minister can explain to us the thinking behind the increase in the value of gains relievable from £2 million to £5 million. To what extent does that reduce the take of £725 million expected as a result of the overall change next year?
However, the Bill does not just increase the amount of the relief; it changes the way in which it is calculated. That has raised a number of quite difficult technical issues, which I hope the Minister will comment on. When the rate of capital gains tax was 18% and the rate payable for amounts relievable under entrepreneurs relief was 10%-a difference of eight percentage points-it was important that it should be clear precisely when the higher rate was payable and when the lower rate was. However, now that the high rate is 28%, the importance of that point is made that much greater, and there will certainly be strenuous and ingenious efforts to re-classify gains as relievable under entrepreneurs relief in cases where it might not have been worth bothering in the past.
It has been recognised in previous Finance Bill debates that at some point a review of the rules around entrepreneurs relief would be needed. With the increased differential between the rates, would the Minister accept that the case for a review is now more pressing? Prior to the change, someone making an entrepreneurial capital gain could defer payment of capital gains tax by investing it as a qualifying investment in an enterprise investment scheme company. Then, when they sold the EIS shares, they could still pay capital gains tax on the original gain that they invested at the 10% rate. As I understand how things will work under the schedule, that will no longer be the case. Entrepreneurs relief will not be available when deferral relief has been claimed. That will mean a significant reduction in the incentives for investment in enterprise investment scheme companies. Is that what the Government intended? It might be an accident arising from the different way of applying the relief introduced by the schedule. If so, will the Government bring forward changes in the autumn to correct it?
We do not propose to divide the Committee on this schedule, but the Minister will recognise that we have identified some pressing concerns in this debate. I hope that he will be able to provide both some answers and some reassurance about the Government's intentions.
Following on from my right hon. Friend's exposition, I want to speak briefly to amendment 10, which stands in my name. Amendment 10 simply calls for a report on the implications of aligning the rates of capital gains tax with those of income tax. I drafted amendments that were not in order, which calls into question the ability of Back Benchers to amend the Finance Bill and is perhaps something that can be discussed at a later date.
When capital gains tax was introduced in 1965, it was an attempt to get some equivalence between income tax and taxation on gains through capital investments. There has been reform since then. It is interesting that, under Conservative Chancellors, capital gains tax was aligned with income tax rates. Then, in the late 1990s, the Labour Government introduced the tapers and the link to the time that an asset was held. In 2007, there was further need for reform when it was discovered that executives of hedge funds were determining carried interest-their bonuses, that is-as part of their capital gains tax relief. As a result, they were effectively paying 10% tax on their income-less than their own cleaners. All parties in the House acknowledged that that was a scandal and recognised the need for reform.
It is accepted that there is an element of compromise between, on the one hand, an equitable tax relationship between income tax and capital gains tax, and, on the other, an arrangement that will support genuine entrepreneurs and business. There has always been an element of fudge, but there was a view that we would try to address the issue in this Finance Bill, whoever was in Government. The previous Government were considering capital gains tax reform, and that was widely supported by the Institute for Fiscal Studies and the Institute of Chartered Accountants. Indeed, Lord Lawson himself made statements about the need for a more equitable relationship between the two, in order to tackle tax avoidance. Such reform was also included in the Liberal Democrats' manifesto. I do not want to bait the Lib Dems tonight. This is too important an issue for that, although it can be quite entertaining.
"I think everyone recognises there is a problem. When you have a capital gains tax rate of 18% and a top rate of income tax at 50%, you'll find people finding all sorts of ways to treat income as capital gains."
He went on to say that the new Government would look at taking a different route to help what he described as the fairness agenda. The problem is exacerbated by the 50% increase. With income tax at 50%, even the 28% rate of capital gains tax proposed in the Bill will still leave a 22% differential to encourage further tax avoidance as people designate their income as capital gains.
My amendment simply asks for a report to be produced that will examine afresh the implications of the alignment between income tax and capital gains tax. I believe that we shall return to this issue in further Finance Bills, because I do not believe that this compromise will hold, or that it will be seen to be equitable or fair. I believe that tax avoidance will continue, certainly among the highest paid, who will re-determine their income as capital gains in order to pay the lower rate of 28%. I accept that an increase of 10% is significant, but it is not significant enough to implement the fairness agenda that the incoming Government have proposed.
It is a pleasure to follow John McDonnell. I am pleased that, unlike Stephen Timms, he chose not to bait the Liberal Democrats tonight. At this late hour, it would perhaps not be a good idea to respond to the rather combative approach taken by the right hon. Gentleman in his opening remarks. I shall merely point out that the Labour party, which claims to be the champion of the working poor, created a capital gains tax environment in which the cleaners of wealthy bankers were paying a higher marginal rate of tax than the bankers themselves. That is no doubt a cause of great embarrassment to the previous Government, so I do not think the Liberal Democrats need take any lectures from Labour Members on this issue.
Reducing the capital gains tax rate from 40% to 18% had many unintended consequences for communities across the country, including my own, which sucked in a lot more second home ownership. The more advantageous tax environment enabled more people to purchase second homes, and this made the housing environment, particularly for affordable homes, a great deal worse in many parts of the country. It is worth responding to the right hon. Gentleman: if he wishes to bait, we can certainly fight back. As for the questions he asked, most were directed at those on the Treasury Bench. The intention behind the starred amendments-I cannot refer to those standing in my name-was to probe the Government about the purpose of and background to the decision to set the capital gains tax rate at 28%.
The Exchequer Secretary has done an excellent job of responding to the issues raised this evening. I previously put questions to him-about his Department's economic modelling to determine the level of capital gains tax; what research or impact assessments he undertook before deciding to roll forward with the capital gains tax proposals; and the Department's estimates of the revenue accruing to the Exchequer from capital gains tax if the income tax rates for those with an income above the higher rate threshold were set at a range of different levels-which he answered on
I put questions to my right hon. Friend the Business Secretary in the Budget debate-on
Partly in response to the right hon. Member for East Ham, who commented on the Liberal Democrat manifesto commitments in the context of the level at which the threshold should be set, we have to address ourselves to the lack of evidence and information that the previous Government provided. The information on which many policy decisions were taken might well have been unreliable Treasury estimates at the time.
In conclusion, I urge the Exchequer Secretary to provide a little more information in response to my previous questions, which I think would help us all to understand rather better why the capital gains tax rate has been set at 28% and not at some other level. That would help to reassure us that it is not going to attract those who would have had to pay income tax at a much higher level if they had not simply transferred their assets into capital.
Clause 2 and schedule 1 introduce the changes to capital gains tax from
Within the Treasury team, we looked at various options as to how best to achieve that. The conclusion we reached, however, was that contained in the schedule. For individuals, the rate remains 18% when their income and gains for the tax year do not exceed their income tax basic rate band. Above that level, the rate is increased to 28%. Therefore, someone who is already paying income tax at the 40% or 50% rates will pay 28% on all their gains. As was mentioned in an earlier debate, the 28% rate applies to trustees and personal representatives, who will pay capital gains tax at that rate on all their gains. That ensures that trusts are not used to shelter personal gains from the higher rate of capital gains tax.
The changes come into effect from
The right hon. Member for East Ham raised the concerns of some professional groups that the transitional provisions are not fully adequate. We do not accept that. A number of capital gains tax rules do not specify the exact time at which a gain arises, but they do not create difficulties in relation to the change of rate in June 2010. In such cases the facts will determine whether the gain arose before or after
The right hon. Gentleman and my hon. Friend Andrew George, whom I thank for his kind remarks, raised the key issue of why a rate of 28% was chosen. As the right hon. Gentleman suggested, the answer is that it is close to the revenue-maximising point, as several of my right hon. and hon. Friends have said in recent weeks. There was some discussion about the methodology and how we worked that out, and the right hon. Gentleman requested that we put a copy in the Library. At the time of the Budget, we produced policy costings, which set out in greater detail than ever before how these matters are worked out. I advise him to look at pages 26 and 27 of the document in particular. For the benefit of the House, however, I will comment briefly on the thinking involved.
We start with a static costing for the additional tax that would be raised as a consequence of raising the CGT rate. Two post-behavioural factors then need to be taken into account. The first is the increase in the lock-in effect. As was suggested by my hon. Friend Paul Uppal, fewer gains will be realised if a CGT rate goes up. That finding is based on extensive research, including research in the United States. According to the Treasury's assessment-based on the evidence of a considerable number of studies-
"a 1 percentage point increase in the CGT rate would reduce gains realised in the UK on average by 2.75 per cent. As a result, the 10 percentage points increase in the CGT rate for higher rate taxpayers is estimated to reduce their gains realised by 27.5 per cent. It is assumed that this reduces the pre-behavioural yield"- of £925 million-
"by around £800 million in 2011-12... over the period."
The second behavioural impact involves the movement from income to capital. That was raised by several Members. It was also very much behind the thinking in the Liberal Democrat manifesto, which raised the perfectly fair point that the size of the differential was such that it would result in a behavioural change, whether it be tax avoidance or tax planning. The Treasury has concluded that for every 1% reduction in the gap between the CGT rate and the higher rate of income tax, there is an increase in income tax yield of about £60 million. That increases the 2011-12 income tax yield by £600 million. I think that that answers explicitly one of the questions asked by the shadow Minister. The ultimate Exchequer impact of those two changes is that £725 million will be raised in 2011-12.
I know that the Members are anxious to hear me produce the same analysis of the figures for 2012-13, 2013-14 and 2014-15, but I am afraid that they will just have to have a look at the costings, which are available.
I believe that the overall effects for this period balance out, but I shall write to the right hon. Gentleman to confirm that.
The right hon. Gentleman asked about the self-assessment return and guidance notes to help people to work out their final liability. For the tax year 2010-11, HMRC has worked to automate more of the online self-assessment processes in order to help customers with the changes. The software will be available for customers to use from
May I return the Exchequer Secretary to the subject of the "composition of income" behavioural impact that he described earlier? He referred to the tax yield in forthcoming years. Is the tax yield for every reduction of one percentage point assumed as a continuing line beyond the 28%? What happens to the behavioural change after that?
The assumption is that there is an ongoing gain-that we will gain more in income tax as a consequence of the rise in the CGT rate.
The reason why there is no yield this year has suddenly dawned on me. We do not get the receipts for capital gains tax through self-assessment immediately; it is only in future that CGT will be paid through the self-assessment process.
The Minister has made the point, however, that most of the gain is in fact income tax, which surely would score in the coming year?
I think we will see more of that behavioural effect as time goes by, but I am not sure that that will come through immediately. In some cases, it will depend on when the additional income will be crystallised or realised. I think that is the explanation, but if I have anything to add I will write to the right hon. Gentleman.
There is a time lag, which is why the receipts are not shown for this year. There is also a bringing forward of benefit because, as opposed to the lock-in, there is an advance disposal of the assets which would not otherwise have taken place. Also, of course, there will be a release of income tax, rather than a waiting for a capital tax and putting off the delay that would come from the capital gain.
I will write to my hon. Friend to explain further why there is no yield in the current year, but I am very grateful for his expertise in this matter.
Questions were also asked about serial entrepreneurs who cannot claim entrepreneur's relief and defer gains under the enterprise investment scheme. People can now choose between claiming entrepreneur's relief and paying capital gains tax at 10% or deferring a tax charge by reinvesting under the EIS and paying 18% or 28% when the postponed gain comes into charge. If they claim entrepreneur's relief they can still invest in EIS companies. The CGT deferral relief will not be available, but income tax relief under the EIS could still be available if the conditions are met. Serial entrepreneurs who have used up their lifetime limit of entrepreneur's relief will be able to claim the EIS deferral relief on gains above the limit. Allowing individuals to claim both entrepreneur's relief and deferred gains will be highly complex and is inconsistent with the aim of simplifying the tax system.
The right hon. Member for East Ham also asked whether Her Majesty's Revenue and Customs is planning any extra education about the changes for customers and their advisers. HMRC will talk to representative bodies about what extra guidance is required. It will see what practical help it can give to agents generally through the "working together" agent network, and it will look at working with the media and interest groups to raise awareness among individuals who may be affected by the changes.
This is a reform that protects the Exchequer while ensuring that those on lower incomes are protected and the recovery is safeguarded. We have acted in a way that is in the spirit of the coalition agreement. I do not think any Member on the Government Benches would want to raise taxes beyond a level that would maximise revenue-revenue that is, after all, used to fund a substantial increase in the income tax threshold, taking 880,000 people out of income tax. If we had raised the level further, or if we had raised it by less, we would not have been able to do so much in that particular area. Consequently, we believe that 28% is the right level. We do not intend to return to this matter, and I ask that schedule 1 be agreed.
I do not propose to press this to a vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 1 agreed to.
To report progress and ask leave to sit again.- (Mr Newmark.)
The Deputy Speaker resumed the Chair.
Progress reported; Committee to sit again tomorrow.