I beg to move amendment No. 210, in
schedule 29, page 354, line 16, at end insert—
'(3A) Where any outstanding section 87/89 gains of a settlement are brought into the settlement's Schedule 4C pool by virtue of any provision of this Schedule, they shall thereafter no longer be available for attribution to beneficiaries of that settlement under sections 87(4) or 89(2), nor shall they thereafter be outstanding trust gains of that settlement within the meaning of section 90(2) or (3) on any subsequent occasion to which section 90 might otherwise apply.'.
With this it will be convenient to discuss the following:
Amendment No. 212, in
schedule 29, page 355, line 12, after 'the', insert 'available'.
Amendment No. 211, in
schedule 29, page 356, line 34, at end insert—
'(4) Where in any year gains are attributed under section 87(4) or section 89(2) to beneficiaries who are chargeable to tax within the meaning of paragraph 8(4), the amount so attributed shall in future years thereafter no longer form part of the Schedule 4C pool of any settlement which is a relevant settlement in relation to that pool.'.
At the outset, it may assist the Committee to know that amendments Nos. 210 and 211 are alternatives and that No. 212 is a tidying-up amendment. Amendments Nos. 210 or 211 would prevent double counting of a beneficiary's gains that have been or might become chargeable to tax under existing provisions. Although various provisions in the schedule are designed to prevent double taxation by reference to the same gains or the same capital payments, there seems to be nothing to prevent a liability arising under schedule 4C to the Taxation of Chargeable Gains Act 1992 as amended by reference to the same gains that have already triggered the liability under one of the existing provisions. At the very least, an express provision should be included to remove them from the schedule 4C pool if they are taxed under sections 87 or 89.
I shall just give a brief example for the Committee's benefit. In 2003–04, trust A has a section 87 pool of £2 million, which is also a schedule 4C pool; and trust B is a relevant settlement in relation to the schedule 4C pool, which has no section 87 or section 89 pool of its own. I assume for simplicity that both trusts have substantial funds that remain in cash form and give rise to no further capital gains. Moving to 2005–06, beneficiary C receives a capital payment of £800,000 from trust A. Chargeable gains for that amount are attributed to him by section 87(4) and the section 87 pool is reduced to £1.2 million. Beneficiary C, although domiciled in the UK, is at that time not a UK resident and is therefore not charged to UK tax. For that reason the schedule 4C pool remains at £2 million. In 2007–08 beneficiary C returns to the UK and, because he was not away for five years, is taxed that year under section 10A on the £800,000 capital payment he received in 2005–06. Nothing in the legislation removes that £800,000 from the schedule 4C pool, which remains at £2 million. In 2008–09, beneficiary D, who is UK resident and domiciled, receives a capital payment of £2 million from trust B. That is matched against the £2 million gains in the schedule 4C pool, and beneficiary D is taxed accordingly on £2 million. The schedule 4C pool is extinguished accordingly.
Tax has thus been paid by reference to gains of £2.8 million when only £2 million of gains have been realised between the two trusts. Moreover, trust A still has a section 87 pool of £1.2 million, which could generate further liabilities and the making of further capital payments up to that amount to UK beneficiaries. At the end of the day, tax would have been payable on double the amount of the capital gains actually realised.
I do not believe that that is what the Treasury and the Revenue intend. I believe that our amendments address that, depending on the way in which the Paymaster General wishes to consider the matter. I hope that that has been as clear an explanation as I can give, albeit brief, of what is quite a complex area.
The hon. Gentleman is right. I am grateful to Richard Williams, the chairman of the capital taxes sub-committee of the Law Society. He will be aware that I thought that the summary was particularly helpful. It is important to recognise that my experience in such matters would be much enhanced if I were a beneficiary of anything, let alone one of those trusts. I am not an expert, I have no prospects of being so, and I have had to try to understand the matter in theory. I believe that the example makes sense. I hope that the hon. Gentleman thinks that it makes sense. I thought that the numbers made a useful example. It is relevant to the schedule because it considers the transfers across tax years and the opportunities that that gives, which are by nature
of the flip-flop variety. I found the Law Society briefing helpful. As it happens, I have another six-page note that I wrote out for myself, but after I had put in all the work, I thought that the Law Society's explanation was briefer and better.
Amendment No. 212 is intended as a tidying-up exercise. It too comes from the Law Society. It would create consistency between new paragraph 8B(6) to schedule 4C to the 1992 Act and the closing words revised paragraph 8(2). Revised paragraph 8(2) introduces new paragraphs 8B and 8C and signposts those provisions. The first half of paragraph 8(2) appears to do no more than duplicate in slightly different language new paragraph 8B(6), which would be confusing enough if the language were consistent.
According to the Law Society, it is clear that the paragraph 8B rules are meant to be more detailed. If the first half of paragraph 8(2) is not to be omitted altogether, it should at least be made consistent with the other locations referred to. No doubt the Paymaster General will accept that amendment or give a cogent reason why she believes that the Law Society has not understood. I am sure that that is summary enough for the Paymaster General.
The aim of amendments Nos. 210 and 211 is to prevent the potential for double charging by preventing gains from entering more than one gains pool. I have no objection to that aim in principle—in fact, I agree with it. Of course, it is undesirable for gains to go into more than one pool. However, the amendments are unnecessary because their intended effect is already achieved in the legislation. Subsection (2) of new section 85A of the Taxation of Chargeable Gains Act 1992, and new paragraph 1(2) of schedule 4C to the Act are the relevant provisions. Amendments Nos. 210 and 211 are correct in principle, but would duplicate what the published provisions already achieve and are therefore unnecessary. I ask the Committee to reject them should they be put to a vote.
The aim of amendment No. 212, as the hon. Gentleman explained, is to achieve consistency between the two parts of schedule 29 and to ensure that the capital payments can be charged only once. Again, the Bill already prevents that double charge. Paragraph 8(2) of schedule 4C as amended is meant to point the way to and not to duplicate the rule in paragraph 8B(6) of schedule 4C as amended, which ensures that only available capital payments can be used in attributing chargeable amounts to beneficiaries. The same gain cannot be simultaneously in a section 87 and 89 pool and in a schedule 4C pool. Once a gain goes into a schedule 4C pool, it cannot remain in a section 87 and 89 pool.
On that basis, I hope that the hon. Gentleman will accept that, although I think his aims are entirely laudable and agree with them in principle, the Bill already produces the desired result. I hope that when the Law Society has had time to study what I have said about cross-referencing, it will agree.
I am grateful again to the Paymaster General for setting that out. Those who raised the concern will be able to check it through. I hope that they feel equally satisfied. It would be wholly
inappropriate to push the amendment to a vote, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 29 agreed to.