Taxation: Inheritance Tax and Capital Taxation

– in the House of Lords at 3:29 pm on 10th October 2007.

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Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative 3:29 pm, 10th October 2007

asked Her Majesty's Government:

What plans they have for reforming inheritance tax and simplifying capital taxation.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, in yesterday's Pre-Budget Report, the Chancellor of the Exchequer announced a change to the inheritance tax rules that will ensure that married couples and civil partners benefit from both partners' tax-free allowances. The Chancellor also announced a new single rate of capital gains tax of 18 per cent from 2008-09 that will ensure a more sustainable system that is straightforward for taxpayers.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative

My Lords, I welcome the Chancellor's announcements yesterday on capital taxes, but would it not have been fairer to raise the inheritance tax threshold to £600,000 for everyone, rather than discriminating against people such as the two sisters who have gone to the European Court, single parents, and couples who have been co-habiting for many years and perhaps brought up a family? Why are the Government imposing on them an additional tax liability of £120,000 rather than treating everyone the same, as my right honourable friend the shadow Chancellor had proposed?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the House will recognise, as the noble Lord suggested, that such individuals will be penalised only if they fall within the framework of this level of taxation. Let us be clear that we are talking about substantial resources. The noble Lord is shaking his head. The Government, being responsible and in power, have to balance tax cuts, which they can propose and will become effective and reduce revenue, with the expenditure that we need to provide for the goods which the nation demands of us. The noble Lord will therefore appreciate that we cannot be cavalier in quite the way that the Opposition have been.

Noble Lords:

Oh!

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, when I say "cavalier", consider the obvious fact that £1 billion of revenue would be lost to people whose assets are over £900,000. That looks to me like a poor trade-off, as that money could be used beneficially for the wider community.

Photo of Lord Wedderburn of Charlton Lord Wedderburn of Charlton Labour

My Lords, will the Government consider publishing an official guide for those who do not have the resources to consult very highly paid—properly paid—lawyers for their advice? It would be an official document headed: "How to avoid paying inheritance tax".

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, although my noble friend would be intellectually equipped to deal with such a document, the problem is that ordinary citizens, like the rest of us, have the greatest difficult in wrestling with these concepts. He will also be well aware that when attempts are made to offer householders ways of avoiding this tax, those attempts often do not withstand the test of subsequent legal judgment. That is why we have to be absolutely rock secure that any advice given is accurate and effective for the citizen.

Photo of Baroness O'Cathain Baroness O'Cathain Conservative

My Lords, does the Minister realise that, under the measure discussed yesterday, the Government will create yet more discrimination against elderly sisters looking after elderly parents and against people with family homes? It is disgraceful that nothing was done for those people in yesterday's Statement.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I hear what the noble Baroness says. Whenever a tax judgment is formed there are bound to be those on the other side who are not beneficiaries of the reform although they have a very similar case to that of those who are. We recognise the case which the noble Baroness puts forward and shall continue to look at that problem. However, she will appreciate that it is much more important to look at the issue that confronts a wider section of the population and which the Chancellor dealt with admirably yesterday.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury

My Lords, I congratulate the Government on adopting the Liberal Democrat policy of abolishing capital gains tax taper relief. At the same time, may I offer them a suggestion that might help to achieve one of the Chancellor's other declared aims yesterday, of simplifying business taxation? It is to abolish the capital allowances system and to replace it with a system based on company accounts.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the second point raises issues that deserve more intensive consideration. On this occasion, however, I am prepared to recognise that the noble Lord has advocated the issue of capital gains tax for some time. He will therefore take delight, as all Labour supporters do, in the constructive action that the Government have taken.

Photo of Viscount Bledisloe Viscount Bledisloe Crossbench

My Lords, surely the problem that was concerning people was their ability to pass their family home on to their children. Why does it matter, if one wants to pass one's family home on to one's children, whether one is still married or—and I declare an interest—divorced?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

The answer, my Lords, is that we are concerned. As the noble Lord will recognise, we have made special arrangements so that those who have been widowed should fall within the framework and are beneficiaries. However, he will also recognise that taxation cut-off points must be made on a clear judgment about the percentage of the population whom we can afford to assist in these terms. He will also appreciate that the Chancellor has addressed the issue, benefiting 97 per cent of households.

Noble Lords:

This side!