With this it will be convenient to take the following amendments: No. 208, in page 72, line 18, leave out 'land' and insert 'property'.
No. 91, in page 72, line 18, at end insert
(f) a qualifying work of art'.
No. 209, in page 72, line 23, at end insert—
'(9AA) In this section a ''qualifying interest in property'' means—
(a) a qualifying interest in land, or
(b) tangible moveable property.'.
No. 92, in page 72, line 32, at end insert—
'(9D) In this section ''qualifying work of art'' shall mean any object or group of objects designated by the Secretary of State, either specifically or as a class, and the provisions of section 31(1)(a), (aa), and (e) of the Inheritance Tax Act 1984 shall apply for the purposes of determining the category or class of object to be so specified as they apply for the purposes of that Act.'.
No. 210, in page 72, line 36, leave out 'real' and insert 'other'.
No. 207, in page 74, line 8, leave out 'land' and insert 'property'.
The Conservative party greatly welcomed the introduction of tax relief on gifts of listed securities. I believe that the measure was based on the success of the experience in the United States, and we argued that if Britain was following that, there was a powerful logic for including property and art treasures. Therefore, we are pleased that the Government have now added property. If they do not accept our arguments for including art treasures this year, we look forward to a clause in next year's Finance Bill that adds art treasures and unlisted securities.
Amendment No. 91 would allow a gift of a qualifying work of art by adding a new category to the existing list of qualifying assets in section 587B, in which land is now included under clause 96. Amendment No. 92 would give effect to that by defining a qualifying work of art by reference to existing criteria that apply to certain designated works of art and that are applied for the purposes of exemption from inheritance tax. The intention is not to limit the relief to the same items but to introduce a process whereby the Secretary of State for Culture, Media and Sport could designate individual works of art, or works of art as a class, qualifying works of art.
Art galleries and charitable organisations have widely welcomed the amendment. Alex Beard, a director of the Tate, has said that it would
''encourage lifetime donations of works of art to galleries and to national collections.''
I shall say more on that in a moment. James Evelyn of the Charities Tax Reform Group has rightly pointed out that other assets that do not fit into the broad categories of listed securities, property and works of art would also be incredibly valuable if they were
gifted under the scheme to charities; for example, computers, motor vehicles, intellectual property and, as mentioned earlier, unlisted securities.
Under existing rules, the owner of a valuable work of art who wishes to donate the asset to a charity cannot benefit from gift aid unless the asset is sold and the cash donated to a charity. That expensive and inefficient approach results in works of art not ending up in a national collection. The existence of a relief from inheritance tax through the assets in lieu of tax scheme creates a perverse incentive to retain works of art until death. In practice, few major works of art are donated during the owner's lifetime.
Extending tax relief to such gifts in kind would constitute a major step forward in helping public museums and galleries to expand their holdings. It would provide an additional impetus to encourage donations of valuable assets to other charities. In a rather circular business, at present deals are done over inheritance tax on works of art. There is a scramble to collect the money to purchase the work and keep it in the country. In one way or another, Government agencies put up most of the money. In the round, extending the measure to works of art would actually be modest in cost terms, because it would provide a simple, reasonably attractive mechanism for gifting works of art.
I anticipate that the Government do not want to do that yet, and that their principal objection to it will be based on the costs and risks to the Exchequer. They will argue that no ready market exists for many works of art, as it does for quoted shares or, less arguably, for land, and that both the donor and those receiving donations have an incentive to maximise the value and increase the tax relief available. The amendment addresses that objection. It would not extend relief to all works of art because that could give rise to difficulties of definition. It would adopt the provisions of the Inheritance Tax Act 1984, which allows the Treasury to designate the works of art that benefit. That allows negotiation of agreement in relation to works of art of national importance and provides reasonable protection to the Treasury against abuse. Parallel arrangements work extremely satisfactorily in the United States; there, equivalent relief for tax purposes relies on the evaluations by an expert panel of gifts of works of art.
The anticipated objections are therefore dealt with by case-study experience in the United States and by the amendment's provisions. We should like to know the Government's reasons for adding land but not biting the bullet and adding works of art. The Government may not accept our argument this year, but we think that it will be on the agenda next year.
I rise not only to support the hon. Gentleman's amendments, but to speak to the amendments in my name and that of my hon. Friend the Member for Torridge and West Devon (Mr. Burnett). Our amendments, Nos. 207 to 210, are somewhat broader than the amendments of the hon. Member for Arundel and South Downs, which focus primarily on works of art. Ours were suggested
by the Charity Tax Reform Group and would go further by granting relief to donations to charities for a range of chattels.
The amendments follow the same lines as the Government's moves in this and previous Finance Bills. The Government are to be congratulated on expanding tax relief for charitable donations and, as the hon. Member for Arundel and South Downs said, on what they are trying to do in the Bill. In reforming the tax system for charities, they want to focus on income by achieving greater levels of new giving. To a certain extent, they have been successful in doing that in the new tax relief for donations of securities, which is presumably why they are taking it a step further today. However, I should like them to pursue the total logic of their policy by including all the chattels that could be tax relievable under to the amendments.
Given that the amendments are along the same lines as Government thinking, why would the Government not accept the amendments? The hon. Member for Arundel and South Downs suggested that cost might be the answer. However, whether the cost were £5 million or greater, I do not think that that is at the back of the Government's mind because they have shown themselves to be extremely generous, over many Finance Bills, in encouraging new giving to charities—I make no bones about that. Compared with the Government's previous generosity, the extra provisions in the amendments are small. The Government must explain why they will not go the whole hog and give relief to the many variants of donations to charities.
In trying to answer that question, I wondered whether the Government were worried about administrative costs. Perhaps there are difficulties in making valuations of all the different assets that could be donated to charities. The hon. Gentleman talked about computers and vehicles. We could mention furniture, antiques, or a range of different items that could be gifted to charities, and tax relief could be granted on them. Perhaps the Government are concerned that lots of official time would be tied up in working out the value of those items to determine what the tax relief should be. I should be surprised if that argument would withstand much scrutiny, because in many other areas of tax administration, tax officials produce such evaluations, and they do so according to guidelines and standards. Therefore, I cannot see why that should be an overriding objection. Perhaps it would take a bit of extra work to find out how new evaluation techniques could be applied in this area, but I suggest that the work would be worth while.
There are added advantages of extending tax relief for such donations. Many assets that I mentioned—computers, scientific equipment, motor vehicles and so on—could be of great value to charities if they were donated, and if the number of donations increased. The route currently open to people—realising the asset, getting the cash and donating it on—would not be as valuable as giving the gift in kind. If one went down the route of realising the assets, capital gains tax might be payable, the administrative costs and hassle involved would be a significant barrier and the value of
the cash might mean less to the charity in terms of benefits than the asset itself. The second-hand value of the asset might be more beneficial to the charity.
I urge the Government to consider carefully the development of this interesting series of tax reliefs for charitable donations. They have heritage importance, as the hon. Member for Arundel and South Downs pointed out, in respect of works of art. There are many other gifts in kind, such as antiques, which would have heritage value for the nation. Moreover, by encouraging donations and the reuse of assets, there is an environmental benefit: the assets are not thrown away; they are given to voluntary bodies and charities that can make good use of them for the wider community. Thus an environmental benefit underlies the proposals.
If the Minister does not accept the amendments, which I somehow doubt he will, it would be nice if he could assure the Committee that the Government will think carefully about the amendments tabled by the hon. Member for Arundel and South Downs and by my hon. Friends, and see whether in future Finance Bills, they might seek to widen this generous tax relief a little further.
It is interesting that both the hon. Member for Arundel and South Downs and the hon. Member for Kingston and Surbiton drew on the United States model to support the proposals made by their two groups of amendments. In a sense, the first point made by the hon. Member for Arundel and South Downs was correct. We did learn from the US experience in framing some of our new charity taxation legislation, but we adapted and applied it to particular British circumstances, which in some respects are different. His group of amendments would take us a step closer towards the US system. The second group of amendments spoken to by the hon. Member for Kingston and Surbiton would take us still closer towards it.
I particularly welcome the strong recognition that the hon. Member for Kingston and Surbiton gave to the changes in the support that we have given to charities since 1997. He asked about the cost of the amendments. We have an estimated cost, which is fairly provisional, of £5 million. [Laughter.] Particularly with works of art, it would only need one very large donation under that regime significantly to increase the estimate. Cost is categorically not the reason why I recommend to my hon. Friends that they do not support the amendment, as our track record over the past few years in providing generous provision to boost charities suggests.
I shall briefly explain the purpose of the clause and deal with the problems with the amendment. Clause 96 will extend the relief, which we introduced in the Finance Act 2000, for gifts to charity of listed shares, land or buildings. From April 2002, individuals and companies giving a freehold or leasehold property to charity will be able to claim relief on its market value in computing their income or profits for tax purposes.
The extension of the relief has been welcomed by charities.
Amendments Nos. 90 to 92 seek to extend the relief for gifts of listed shares and real property to ''qualifying works of art'', and amendments Nos. 207 to 210 seek to extend the relief to all moveable property. The existing types of asset that come within the relief are relatively easily valued for claiming the relief in the first place and are readily realisable, which means that a charity has an option to hold or sell a gift to draw its benefit. Extending the relief to all moveable property could lead to charities receiving assets that have no investment value or are not readily convertible into money. The difficulties in valuing such a wide range of assets would add significant complexity to the working of the relief for both donors and the Inland Revenue. The hon. Gentleman significantly down played the potential problem of complexity in his remarks.
Where does the Economic Secretary's logic, which I hope I have followed correctly, lead for somebody who set up a charity to collect individual items, which they might have been offered under the amendment? Effectively, they could not accept such items because of the line that he is taking. He puts the complexity of the use of an asset to a charity as a reason for not accepting the amendment. If, for example, somebody had a prize collection of motor-cars in a motor museum and had set up a charity for the purpose of collecting a particular mark of car, why should they not have the benefit of the provision if they were offered such a car?
Quite simply, the provision that we are trying to make here is to give a boost to charities right across the field, irrespective of the particular activities that they undertake. The example that the right hon. Gentleman suggests is, if not singular, relatively uncommon. Most charities are not geared up specifically to collect items, and the problems caused by the impact of the amendments should not be underestimated.
There is another check on the types of donations that would be likely to flow if the Economic Secretary were minded to accept the amendment, which is that a charity has to want to receive them. Unless he is suggesting that a charity might receive a whole series of gifts for which it has no use but which need storage space, incur collection costs and so on, he is implying that the proposal would help an individual corporation to reduce its tax liability although the mechanism would not be in the charity's interest. I do not understand the Government's reasoning. The necessary check is in the clause.
I am completely unconvinced by the hon. Gentleman's argument. It does not take much to imagine charities being badgered by all sorts of people to accept all sorts of gifts under the amendments he tabled. That is likely to be a source of aggravation and unnecessary activity and I am not convinced that the amendments would have the beneficial impact that he wants to achieve.
I have in mind several charities that do excellent work collecting old computers and so on which are often donated by companies. It would be a nightmare to make valuations of old computers.
I agree with my hon. Friend who anticipated the second part of my reply to the hon. Member for Kingston and Surbiton. His amendments would impose complex activities on the charity and also the complication of having to obtain valuations of a wide range of gifts to draw down the relief.
I just wonder how the Economic Secretary's argument about the difficulty of valuation, the problem for donors and the Inland Revenue, and the huge complexity that might arise from the treatment of moveable assets relates back to other clauses in the Bill. Clause 54 refers to gifts of medical supplies and equipment. Surely the valuation issue he raises applies equally to that clause, which the Government put in the Bill.
The hon. Gentleman cites an example of goods that are tightly defined and relatively easily valued and realised, unlike those that might be covered by the amendments tabled by the hon. Member for Kingston and Surbiton.
I am afraid that the Economic Secretary's argument was not very good. One of the assets to which the Charities' Tax Reform Group refers as potentially falling within the scope of the amendments tabled by the hon. Member for Kingston and Surbiton is scientific equipment, which is very close to medical equipment and must be relatively easy to value. His argument is not as robust as he makes out.
It strikes me that the hon. Gentleman is making my argument for me in that medical goods have a market value that is readily identifiable. They are a defined set of goods and relatively easy to manage compared with the scope of the goods suggested by the hon. Member for Kingston and Surbiton.
The value and benefit of wanting to extend the existing provisions to land and property is that valuation is relatively easily undertaken and if a charity does not wish to accept a gift and use it for its own purposes, it is relatively easy for it to realise its value and to gain the benefit of the donation.
In my reference to other potential assets, I sought deliberately to restrict them to items that were reasonably valuable. The valuation point is understood, for better or worse, but a second point arises. Charities want a category of assets wider than quoted shares, land and works of art for which valuation is not a major issue to qualify and I shall be interested to hear the argument concerning those categories for which valuation is not a great problem.
In respect of our previous discussion, qualifying works of art is a category for which there may be other problems, but not specific valuation problems. The hon. Gentleman will appreciate that I
am trying to deal with all the amendments grouped together. I shall return to his points.
The clause will extend the relief for shares under Budget 2000 to real property. The purpose is to incentivise new sources of giving to charity. Amendments Nos. 207 to 210 would extend relief to everything from rare works of art to second-hand clothes and household goods. We are not convinced that a further incentive is needed at either end of that range. There is certainly no evidence that the second-hand clothes and goods markets need stimulation in relation to charities. At the other end of the range, there are sufficient incentives in the inheritance and capital gains tax regimes to encourage gifts of works of art and to protect that heritage. As the hon. Gentleman knows, there are extremely generous reliefs from inheritance tax and capital gains tax for such gifts, including for private treaty sales of pre-eminent works of art and other heritage assets to museums and galleries. There is no capital gains tax or inheritance tax on a gift to a qualifying museum or gallery.
If the right hon. Gentleman will forgive me, I will make some progress. There is a particular difficulty with the valuation of works of art, but it is not the general one that we are discussing.
Would it not be possible to deal with the problems that the Economic Secretary suggests are contained in the amendments by introducing a value below which tax relief would not be possible? That would move us away from the idea that people could seek tax relief on second-hand clothes and books. Surely, it would be simple to introduce such a figure. We could then be clear that assets only above a certain amount would be deemed to qualify. The Minister is right: along any high street in Britain, one can see that people readily donate their second-hand clothes and books. Charities that advocate the measure, however, do not have such assets in mind.
Charities may not have those assets in mind, but the provisions in the hon. Gentleman's amendment cover exactly those assets. That is the problem with the amendments that I am trying to address.
I apologise for further interrupting the Economic Secretary before he leaves this territory. The point about tax benefits that relate to works of art is that they do not operate in favour of art galleries. Generous inheritance tax benefits exist for people who keep works of art in their homes, but the cri de coeur of art galleries, which I sought earlier to articulate, is to put works of art in the same category as property and quoted shares. That should stimulate a much bigger flow out of private control into art galleries to the greater benefit of the public at large.
Essentially, our concern to secure works of art for the United Kingdom collections and public is dealt with through private treaty arrangements that, in our experience, work perfectly effectively. Such arrangements are used to secure
works of art that are heritage assets to museums and galleries. There is no capital gains or inheritance tax liability on a private treaty sale, and the terms of the deal include what is called the douceur, so that some of the tax break goes to the vendor. Furthermore, living artists who donate their works to a museum, gallery or any other charity can get income tax relief for the gift through the relief for gifts of trading stock.
The right hon. Member for Fylde (Mr. Jack) asked about gifts and private treaty sales. In private treaty sales, valuation questions generally do not arise, because the value is agreed between the two parties. It is a differently structured process of valuation than would be the case if the scope of the provision were widened by both sets of amendments.
Therefore, it is difficult to see how an income tax relief for gifts of works of art, on top of the existing tax breaks, would have a significant effect in increasing gifts of such assets. The hon. Member for Arundel and South Downs made it clear that he is concerned about works of art not ending up in the national collection. I share the sentiment, but the operation of his amendments may actually work counter to what he is trying to achieve. In some cases, his proposal may work against the interests of the UK's heritage.
The taxpayer's favoured charity would be under the usual obligation to maximise the benefit of the gift in the furtherance of its charitable objectives, so it might have no option but to arrange for the work of art to be auctioned. If a foreign museum bought it, the work would be lost to the UK. By comparison, an aim of the inheritance and capital gains tax reliefs for gifts and private treaty sales to qualifying UK institutions—not just museums and galleries but university libraries, heritage bodies and others—is to keep assets in the UK for the benefit of the public.
The hon. Gentleman rightly anticipated my response to his amendments, although he was not entirely right in anticipating my arguments and concerns. If he returns to the matter in future years, as he promised, perhaps he might examine my comments to determine whether there are good grounds for his concerns.
The generous reliefs that are already in place provide adequate incentive for donors to give assets of a kind that charities can retain or easily liquidate. The reliefs are simple, straightforward and well defined. Therefore, I encourage the hon. Members for Kingston and Surbiton and for Arundel and South Downs to withdraw their amendments. If they are not prepared to do so, I ask my hon. Friends to reject the amendments.
I thank the Economic Secretary for his full, well-considered comments and responses. However, our amendments have been discussed and drafted with the help of representatives of the country's main art galleries. Their view is that, although it sounds great, they do not get much from private treaty sales. They believe that the incentive of the gift scheme has the potential to result in many more works of art for the national collection.
If such measures did not apply only to art galleries and the like, but across the board of charities, which I think would be only fair, I accept that it could result in charities having a large number of works of art to sell, which would then give the galleries a problem in raising the money to purchase them. I think that that is a fair issue of which to take account.
However, notwithstanding the wider practical issues that were touched upon, I do not think that the valuation of major works of art is a major issue. It is already dealt with in different ways. There is an issue of principle, which is where we started. In general, for better or worse, wealth is held predominantly in securities, land and works of art, and if one is going to permit that principle, as in the United States, the arguments for excluding art are somewhat—I will not say contrived—very particular to the territory of works of art. I remain of the view that next year we are likely to be focusing on an extension to works of art when the particular issues to which the Economic Secretary has referred have been thought through. I think that it is quite difficult logically not to go down the US road more fully than we have embarked upon at present.
There is not much point in voting on the issue. The Government have made their stance very clear, and there are some practical issues to address. In begging leave to withdraw, I would make the point that there is a logical inconsistency where we now are, which will need to be addressed. It is better to do that one stage at a time each year, than not to go forward at all. I beg to ask leave to withdraw the amendment.
I wish to seek leave to withdraw the amendment.
Should the Committee agree to the hon. Gentleman's request to withdraw his amendments, I would not seek to move the amendment on the amendment paper in my name and those of my hon. Friends. I think that the Government are making progress, which should be recognised. As the debate has developed, the case made on the Opposition Benches has been strong, and follows the strong logic of the Government's own position. Although we are not going to vote on the amendments, I would urge the Government to reflect on the debate, and I hope that next year we might have total agreement in the Committee on further, more progressive amendments.
Amendment, by leave, withdrawn.
Amendment No. 98 is designed to extend the relief to land held outside the UK. We cannot see any reason why UK charities should not be able to benefit from non-UK land. It is certainly the sort of matter that is likely to run contrary to European Union principles in the near future. To give a different tax treatment to an asset in one EU state from another may be a problem. Aside from that, what is the logic of excluding non-UK land? The Government seem not to have worried about certain other aspects of their tax legislation dealing with UK assets. We do not envisage any particular valuation problem, because land is an asset that many charities sell if they are given it. What is the difference between land in Kent and land in Calais?
I am sure that you would not wish me to be drawn into speculation about the development of the European Union, Mr. Gale. I was interested to hear the case that the hon. Gentleman was looking to put for the amendment, the essence of which seems to be, ''This is a logical extension, so why not?'' The principal reason why not is that extending the relief to property situated anywhere in the world would make it complicated to administer and virtually impossible to police.
Limiting relief to properties in the UK means that a UK charity accepting a gift, which needs a certificate of acceptance, can readily access a property to ensure that it is suitable for its purposes. The certificate is an important protection for charities to prevent unwanted properties from being gifted to them. The Inland Revenue can also, in most cases, easily confirm a donor's interest in a property and agree a valuation for the purposes of the donor's relief.
It is not hard to foresee the problems that would be caused by properties that could be anywhere in the world. If the relief were extended to include non-UK properties, charities would be faced with taking decisions on whether to accept a property with little or no first-hand knowledge of its utility. The Inland Revenue would find it difficult to confirm whether a donor's interest in a property under foreign law met the requirements for the relief, and it could be extremely difficult to agree a value for a property. The relief, as it stands, is relatively simple for donors, charities and the Inland Revenue. Amendment No. 98 would only complicate that, and I urge the Committee to reject it if it is pressed to a vote.
I want to probe the Economic Secretary about his remarks. To some extent I can understand his line of argument, but in a world of double tax treaties the internationalisation of tax and other matters that we have discussed, such as valuations, are part and parcel of the issue. If, for example, a children's charity were offered a holiday home in sunnier climes that would enhance its ability to give a good quality holiday to UK children, then, by virtue of the restriction, which the amendment seeks to address, it would be unable to take control to show that that particular property was of worth to it. That would inhibit its ability to be of service to UK children.
The Economic Secretary may have reservations about the amendment moved by my hon. Friend the
Member for Arundel and South Downs. Nevertheless, if a charity were offered a property or land abroad and said, ''Yes, we think that it would be a useful adjunct to what we are doing,'' and could demonstrate that that relationship clearly fulfilled the point, which my hon. Friend made, that the property or land was not being deposited on it as an ineffective asset, surely in an increasingly mobile world there is a good case to be made for a procedure to allow such a donation to take place. It would not be beyond the wit of man to sanction such useful donations on an exceptional basis.
I can see the very attractive picture that the right hon. Gentleman paints of a large property in sunny climes. In practice, we are concerned with producing legislation with a general application, not with framing it for the sort of exception that he posits. The aim is to create a legislative framework that will bring the biggest benefit and boost to income for charities, to increase donations, and to do so in a way that is as simple to administer as possible for charities, donors and the Inland Revenue. We are engaged in creating legislation for the general, not the exceptional, case.
I take the point that the right hon. Member for Fylde made about a home for a charity in sunnier climes. However, that could cause a nightmare in other circumstances. Many of my constituents have land in India and I anticipate that they might wish, from honourable and generous motives, to give six acres in the Punjab to a charity, perhaps to a religious one, on which tax relief could be claimed. I am sure that the right hon. Gentleman knows how valuable land is in the Punjab, but it may not be so valuable in UK terms, and it could be awkward in terms of the charity's honour to refuse such a donation. That situation can arise now, but it could be greatly exacerbated were tax relief available.
The hon. Gentleman makes a powerful point and I am grateful for his constructive observations. He has highlighted the reason why I suggested to the Economic Secretary that there could be a mechanism—if not now, in future—for dealing with exceptional circumstances. I take the point of the hon. Member for Wolverhampton, South-West (Rob Marris) that to decline a gift could cause tremendous problems, but on the other hand, there may be examples—I thought only of the children's home—of ways in which a beneficial donation of an asset could help a UK-based charity or charities. My suggestion is that the proposal, instead of being ruled out, should be examined and if necessary a mechanism could be derived for exceptional circumstances to avoid some of the problems that we have identified. There are plenty of examples in UK legislation—for example, child support legislation—of exceptional circumstances being catered for by the departure mechanism, which takes into account things that do not neatly fit into an agreed national formula.
Although I accept some of the Economic Secretary's points, I believe that the issue has been greatly overstated. I should think that a Sikh temple in England would be extremely pleased to be given 10 acres of land in the Punjab, which is worth
about three times more per acre than land here—it would be a valuable asset. The task of disposing of it is not difficult, so what is the problem with something that sounds as exotic as that?
The issues of valuation and the claiming of rights would not cause great problems either, because until a charity has certified that a donation has value it might not get tax relief. I feel that bigger problems are being created than those that exist. I see a different argument for ring-fencing UK taxation, with which, from many other perspectives, I agree. There is an issue in terms of the EU because, through the measure, the Government will attach different tax rights to UK land from those attached to the land of other EU countries. It may well be illegal to do that.
We will not press the amendment. The Government can think about it until next year. However, there will not be great problems if they show the will to take the view that a land gift should be viewed on an international basis. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
I beg to move amendment No. 198, in page 72, line 23, at end insert—
'This subsection is subject to subsections (9AA) to (9B) below.
(9AA) Where a person makes a disposal to a charity of—
(a) the whole of his beneficial interest in such freehold or leasehold interest in land as is described in subsection (9A)(a) or (b) above, and
(b) any easement, servitude, right or privilege so far as benefiting that land,
the disposal falling within paragraph (b) above is to be regarded for the purposes of this section as a disposal by the person of the whole of his beneficial interest in a qualifying interest in land.
(9AB) Where a person, who has a freehold or leasehold interest in land in the United Kingdom, grants a lease for a term of years absolute (or, in the case of land in Scotland, grants a lease) to a charity of the whole or part of that land, the grant of that lease is to be regarded for the purposes of this section as a disposal by the person of the whole of the beneficial interest in the leasehold interest so granted.'.
These amendments clarify the position of easements that are included as part of a gift of land and ensure that the provision correctly reflects the position in Scottish law.
Amendment No. 198 makes it clear that when a person makes a disposal to a charity of freehold or leasehold property, including any easement benefiting that land such as a right of access, that easement is included in the definition of the disposal of the whole of a beneficial interest in a qualifying interest in land. It also tidies up the drafting by inserting what was subsection (2) of proposed new section 587C of the Taxes Act 1988 into section 587B as new subsection (9AB). Amendment No. 202 consequently removes subsection (2) of proposed new section 587C. I am delighted that the hon. Member for Mid-Worcestershire (Mr. Luff) is with me on those points.
Amendments Nos. 199, 200 and 201 make some small changes to proposed new subsection (9C), which deals with the application of the provision to Scotland. They provide specific Scottish translations of the English and Welsh terminology concerning Scottish tenancies and clarify the position of Scottish missives of let.
Amendments Nos. 203 and 204 deal with the transitional provisions covering the position prior to the changes to Scottish land law to be introduced by the Abolition of Feudal Tenure etc. (Scotland) Act 2000. The existing subsection (7) is deleted because Scottish Ministers will not be able to effect the end of feudal tenure before Royal Assent of the Finance Bill. There is also a minor amendment to the wording in subsection (9) more closely to reflect the wording used in the Abolition of Feudal Tenure etc. (Scotland) Act 2000.
The amendments simply clarify some points in the clause and I ask the Committee to support them.
Amendment agreed to.
Amendments made: No. 199, in page 72, line 29, leave out 'and'.
No. 200 in page 72, line 31, leave out
'the interest of a tenant'
'a tenant's right over or interest'.
No. 201, in page 72, line 32, at end insert
(c) references to an agreement for a lease do not include references to missives of let that constitute an actual lease.''.'.—[John Healey.]
I beg to move amendment No. 81, in page 72, line 37, at end insert—
'(4B) At the end of subsection (2)(f) of section 25 of the Finance Act 1990 insert '', but this paragraph shall not apply where, had such property been transferred to the charity by way of gift, relief would have been allowed under section 587B of the Taxes Act 1988.''
(4C) At the end of subsection (3E) of section 339 of the Taxes Act 1988 insert '', but this subsection shall not apply where, had such property been transferred to the charity by way of gift, relief would have been allowed under section 587B of the Taxes Act 1988.''.'.
There is a problem with the clause, in that quoted shares or land that a donor wishes to give to a charity may be standing at a capital gains tax loss, particularly in the case of shares since the measures were introduced. If the donor makes a gift of the shares or land, thereby obtaining income tax relief under section 587B of the Taxes Act 1988, the shares or land will be transferred at a zero gain, zero loss consideration under that Act and the loss will not be available.
If the donor were to sell the shares or land to the charity and then gift the cash proceeds of the sale to the same charity, he would remain entitled to the capital gains tax loss on the sale but would be denied the income tax relief for the cash gift because of the anti-avoidance rules in section 252F of the Finance Act 1990 for individuals and the relevant section for companies, which deny gift aid relief unless the cash
gift is not conditional or associated with or part of an arrangement involving the acquisition of property by the charity otherwise than by way of gift from the donor to a person connected with him.
The purpose of the amendment is to address that situation and to clarify that it applies to shares as well as to land.
The provisions in section 25 of the Finance Act 1990 and section 339 of the Taxes Act 1988 are concerned solely with gifts of money. Effectively, the restriction that the amendment seeks to modify is intended to prevent the relief being used to make non-monetary gifts under gift aid. The amendment seeks to disapply the restriction in cases in which the property could have been gifted under section 587B of the 1988 Act, which gives relief to donors on the market value of gifts of listed shares—as the hon. Gentleman pointed out—and, with the extension introduced in the clause, land and buildings.
Relief is given under gift aid on readily identifiable cash sums. Relief under section 587B is given on the market value of the gift of the qualifying investment. Our aim with reliefs for charitable giving is to give sufficient incentive to donors to maximise the benefits that flow to charities. Removing the restriction in the gift aid provisions would open up opportunities to manipulate the relief so that the benefits of the relief flowed to the donor rather than, as intended, the charity.
I am aware that one of the representative bodies suggested that section 25 prevents a donor from selling a property to a charity and then donating the proceeds under gift aid. For the sake of clarity, I confirm that that is not a problem, provided the sale is at arm's length and there is no prior condition or arrangement to the effect that the donor will give all or part of the proceeds of the sale to the charity. The restriction is not intended to prevent innocent transactions but manipulation of the reliefs.
It is right that gift aid should continue to apply to unconditional gifts of money and not be opened up to conditional payments that are not pure gifts. Therefore, I hope that the hon. Gentleman will withdraw the amendment. If he will not, I ask the Committee to reject it.
May I seek further elucidation? I believe that the Economic Secretary understands my basic point. Because of the way that the process works, one would not be able to use a loss if it was gifted; selling the asset and then giving the charity cash to buy it—going around the houses—is designed to obviate that. However, the Economic Secretary made it clear that that route would not work because, under the present arrangements, the transaction would not be deemed to be at arm's length. What other mechanism can the Minister suggest to address the problem? There will be a lack of incentive for people to gift assets that happen to have capital losses attaching to them, as opposed to assets that happen to have capital gains attaching to them. I cannot believe that that is the overall intent of the gift aid package. If the Government do not want to address the problem in the way that the amendment
proposes, do not they see a need to address it in some other way?
I am not as convinced as the hon. Gentleman seems to be about the nature or extent of the problem that he identifies, but I shall consider the matter further and give him my thoughts in writing.
I thank the Economic Secretary for his reasonable response. As the matter will be given further consideration, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 202, in page 73, line 1, leave out subsection (2).
No. 203, in page 74, line 14, leave out from beginning to second 'subsection' in line 16.
No. 204, in page 74, line 22, leave out 'coming into force' and insert 'purposes'.—[John Healey.]
I have listened to what the hon. Member for Torridge and West Devon said about the clause stand part debate. Significant parts of the clause have already been thoroughly debated. However, other issues in what is a fairly lengthy clause have not been debated. I am therefore prepared to permit a stand part debate on the basis that we do not go over ground that has already been covered.
Question proposed, That the clause, as amended, stand part of the Bill.
I am extremely grateful to you, Mr. Gale. Two problems have been raised with me and with other Committee members by the Law Society. I do not believe that they have been debated before. They relate to technical problems with the provisions. The danger of recapture of tax relief will be a considerable disincentive for those making gifts of real property to a charity and will defeat the purposes of clause 96. I refer particularly to subsequent innocent, bona fide transactions that could lead to a claim for repayment of tax relief.
The first point relates to clause 96(5), which contains supplementary provisions for gifts of real property. Proposed new section 587C(9) defines a disqualifying event and, accordingly, a clawback of relief given under section 587B, where the person who made the disposal, or any person connected with him,
''becomes entitled to an interest or right in relation to all or part of the land to which the disposal relates . . . otherwise than for full consideration in money or money's worth.''
That is an extremely wide provision. It could catch a number of sets of circumstances in which the spirit of the rules is not breached. For example, if a person grants a lease to a charity and obtains tax relief, it would appear that that tax relief will be withdrawn if the person subsequently makes a gift of the freehold reversion to a relative. Given that example, the charity will still retain the benefit of the property given to it.
My second point concerns a gift that is given to a charity on condition, for example, that the property be used for charitable purposes, which is an eminently sensible provision. If, later, the condition is no longer satisfied, arguably a disqualifying event arises. That could occur many years later and it would not seem
appropriate to recapture the tax relief if the arrangements were genuinely undertaken.
The first problem could be overcome if subsection (9)(a) were limited to the donor or a connected person becoming entitled to the interest acquired by the charity or an interest derived from that interest. The second set of circumstances that I have posited would appear to require a specific saving provision in the legislation.
I hope that the Minister will give some thought to those points. Those of us who advise donors to charity, or who have considered making gifts to charity, will not want to have the original tax relief recaptured or to receive demands for repayment if, in future, a bona fide incident occurs that could give rise to a charge to tax.
I welcome the fact that the hon. Gentleman has raised the Law Society's technical concerns about the provision. We always take seriously the points that it makes on legislation. The difficulties that the hon. Gentleman has mentioned are to do with clawback provisions. The recapture provisions are clear. Donors would go into any transaction with their eyes open. The provision is there to prevent avoidance. The clawback is time-limited to six years. The donor has the option to delay innocent transactions. In addition, a subjective decision of what was innocent would be difficult to make.
I appreciate that, but the problem arises when the donor has divested himself of the property and the charity or whoever has the property might subsequently make arrangements with the property that defeat the tax relief provisions.
I fail to see the cause of the concern that the hon. Gentleman expresses so strongly. The provision is there to prevent avoidance. It is a proper and major consideration for the Government. I cannot understand the hon. Gentleman's argument and I, therefore, find it difficult to accept.
I appreciate that it is important to prevent avoidance. The Economic Secretary stated that the clawback provision lasts for only six years. It is possible that a condition on use may be innocently broken within that six-year period, and in such circumstances a clawback could technically happen. Would the Revenue consider mitigation in such a case?
Considering the hour, Mr. Gale, and the doggedness within which the hon. Gentleman is pursuing the point, I shall give the matter further consideration and look at the technical concerns raised by the Law Society. If he will allow me, I shall write to him.
I shall be brief. The comments of the hon. Member for Torridge and West Devon lead me to consider the public policy review of charity law that will be reporting in the autumn. It may, for example, propose that certain bodies could lose charitable status more easily than at present, and that they will be required to meet criteria to maintain their charitable status that do not exist at present. The thought occurs to me that someone could give to a charity in good faith, but that the charity could lose its charitable status shortly afterwards because it did not meet the new criteria anticipated by charity lawyers. Would the donor lose the property and then lose his tax relief because the charity had ceased to qualify, or is the requirement merely that the charity should be a charitable body at the time of giving?
The body needs to be a charity at the point of donation. I hope that answers directly the hon. Gentleman's question. The review that he mentioned underlines the importance that the Government attach to charitable giving. It would be wrong of me to pre-empt any judgments or recommendations that the report might make.
The clause is a further manifestation of how important charities are to the Government. It is a further step in our efforts to boost the incomes of charities and the level of giving to aid their purposes. It adds substantially to already substantial incentives for giving to charity that we have put in place. I commend the clause to the Committee.
Question put and agreed to.
Clause 96, as amended, ordered to stand part of the Bill.