Clause 121

Finance Bill – in a Public Bill Committee at 1:30 pm on 25th June 2009.

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Inheritance tax: agricultural property and woodlands relief for EEA land

Question proposed, That the clause stand part of the Bill.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The clause extends agricultural property relief and woodlands relief to land held anywhere in the European economic area. There is little in the Budget material or the explanatory notes to the clause to explain the reason for that. The extension is welcome, and I do not intend to divide the Committee on clause stand part, but it would be helpful if the Minister outlined the reason for the clause. We have been advised that it is probably the result of a formal request from the European  Commission following the European Court’s decision in the Hein v. Persche case, but I shall be grateful if the Minister confirms that.

For a few years, the European Commission has steadily pressed member states to eliminate territorial discrimination in estate and gift tax reliefs. Most case law has involved gifts to charities when the donor is a taxpayer in one state and the charity is based in another. Hein v. Persche is a similar case. Until now, whenever it has had a success, the Commission has issued formal requests to member states, but the UK has generally resisted them. The clause seems to mark a shift in attitude.

Will the Minister confirm the reason for the clause, and will he tell the Committee whether there has been a change in attitude? In the past, did the UK tend to resist the elimination of territorial discrimination in estate and gift tax reliefs, whereas now the Government are taking a different approach? Subject to information on those points, we have no objection to the clause.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

My turn now, Mr. Atkinson. It is a pleasure to serve under your chairmanship this afternoon.

I am sure that members of the Committee who own agricultural property or woodlands in the European economic area and who might be thinking of dying soon will be interested in the clause. It ensures that if inheritance tax relating to a property has been paid or was due in the past six years, relief may be available. It will provide greater consistency of treatment for inheritance tax reliefs and bring them more into line with relief for business property.

The hon. Member for South-West Hertfordshire is right in saying that by doing this, the Government will meet their obligations under EC law. He referred to a specific court case, and my understanding is that there was a reasoned opinion, which we considered at official level. We believe that it is right to make the changes proposed in the clause and to ensure that we extend inheritance tax woodlands relief to owners of property in the EEA. I hope that that clarifies the matter.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I do not think the Minister answered my hon. Friend’s question in full. Has there been a change of policy? It is normal to resist EU directives or guidance in this area, so that nation states decide their own taxation policy. We are perhaps seeing another creeping part of the European superstate.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury 1:45 pm, 25th June 2009

It is always a pleasure to hear the views of the hon. Gentleman and confirm that the divisions in the Conservative party over Europe are alive and kicking, despite the efforts to keep them below the surface for many years.

Photo of Adrian Bailey Adrian Bailey Labour, West Bromwich West

In the context of the debate and the views expressed by the hon. Member for Wellingborough, does my hon. Friend think that it is appropriate to describe him as a Tory backwoodsman? [Laughter.]

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. I would be grateful if the Minister did not respond to that intervention.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The key point is that we considered the arguments made by the European Commission in this case. We always look at such matters on a case-by-case basis. Having carefully considered the views of the Commission, we decided to extend the reliefs to the EEA. The measure will be backdated six years and will go forward prospectively.

The cost of woodlands relief is negligible. We estimate the costs of agricultural property relief, on a backdated basis, to be about £5 million a year on a continuing basis. That is not a big sum of money and not many people are affected, but we think it is the right thing to do.

Question put and agreed to.

Clause 121 accordingly ordered to stand part of the Bill.

Clause 122 ordered to stand part of the Bill.