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Clause 49 - Gifts to the nation

Finance Bill – in a Public Bill Committee at 3:00 pm on 14th June 2012.

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

Photo of Sir David Amess Sir David Amess Conservative, Southend West

With this it will be convenient to consider that schedule 14 be the Fourteenth schedule to the Bill.

Catherine McKinnell rose—

Photo of Sir David Amess Sir David Amess Conservative, Southend West 3:15 pm, 14th June 2012

I sometimes think the Government might want to set out their position.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I apologise for not having read your mind, Mr Amess, or indeed the procedure more skilfully. I shall be delighted to set out what clause 49 and  schedule 14 do, although I do not know whether you will allow me time to come back if there are questions at the end of the debate.

Clause 49 and schedule 14 set out how a tax reduction will be applied to an individual’s or a company’s tax liability when a pre-eminent object has been successfully donated for the benefit of the nation. This new scheme, the cultural gift scheme, is a step forward towards greater philanthropy and charitable giving by encouraging taxpayers to donate works of art or historical objects during their lifetime rather than following their deaths. This encourages lifetime giving of objects of national importance for the future enjoyment of everybody.

Let me briefly set out some background for hon. Members. At Budget 2011, the Government announced a series of substantial reforms to encourage philanthropy and charitable giving by donors at all life stages. One of these measures was to provide a tax incentive to encourage people to give pre-eminent objects to the nation which will be held, as I said, for the future enjoyment of everyone. The new cultural gift scheme therefore allows individual donors to set off a fixed percentage of the value of an object against some or all of their income tax or capital gains tax liability when they give the object to the nation under the scheme. Similarly, companies will be able to set up a fixed percentage of the value of an object against their corporation tax liability.

Let me explain how the scheme works. When an object is offered as a gift to the nation under the new scheme, a panel of experts assembled by the Department for Culture, Media and Sport will consider whether the object is pre-eminent and, if so, whether the offer should be accepted. The panel will also agree the value of the object with the donor. If the donor decides to proceed with their donation, based on the agreed valuation, they will be entitled to a tax reduction at a fixed rate of the value of the object. For individuals, the rate will be 30% of the value of the object and for companies it will be 20%.

Photo of John Mann John Mann Labour, Bassetlaw

As this relates to taxation, do the experts assembled by the DCMS have to be taxpayers of the United Kingdom? Can they be people who live abroad and do not pay British taxes?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

Does the hon. Gentleman mean those who sit on the panel or the donor?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I do not anticipate there being a problem in that area, but I will be happy to confirm to him within the rules of the scheme what could give satisfaction in that sense. Obviously, we would expect anybody working under the auspices of a British Government Department to follow the highest principles of public service.

Consultation has been undertaken in relation to the scheme. That ran from 29 June to 21 September 2011. There were 54 responses from a number of groups, ranging from museums and galleries to legal and accountancy firms. Responses were also received from the devolved Administrations. Respondents welcomed  the new scheme and recognised the need to keep it simple and also that funding was difficult in the current economic climate.

There were a couple of concerns, naturally, focused on a few key issues. The first was ownership of the objects. Some respondents thought that potential donors could be put off and might not use the scheme if the nation retained ownership of the objects donated. It was also felt that it could prove difficult for the institutions receiving the objects to build up relationships with donors to encourage them to use the scheme or to make other types of charitable donations.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

Is it clear that the object itself has to pass physically from the owner? Are we sure that there will be no loopholes where people can say that they are giving objects to the nation but they may not physically pass from them until their death?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

My hon. Friend raises a sensible point. It is worth noting that the objects themselves could be of a variety of different types, so their physical movement will vary depending in some cases on the type of object in question. But he is right that we need to put in safeguards.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Perhaps the hon. Gentleman referred to past concerns that some donations have been made without necessarily being accessible to the public. Will the Minister reassure us that when the objects are passed over, they will be fully accessible to the public?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

Yes, the intention of the scheme is to make those available for the nation.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

The hon. Lady’s point was a helpful addition. There is the well documented case of Andrew Lloyd Webber who had charitable relief on paintings that were then leased back to his own premises at very low cost. They may ultimately end up with the nation but they are currently used by him, even though he has received large tax relief. That is the kind of scheme we would like to see avoided.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I recognise the concerns around that historical example. To reassure hon. Members, the title of ownership of the object will be initially transferred to the relevant Minister, who will make arrangements for it to be transferred to the receiving institution. I hope that makes it clear that the buck stops with the institution. It is fully expected that the objects will be available to the nation—as it says on the tin, as it were.

Let me continue to cover a few matters raised in the consultation. Points were raised about the introduction of a shared annual funding limit with the inheritance tax acceptance in lieu scheme, which I am sure hon. Members know inside out. Concerns were raised that funding would be stretched and, as a result, important items could be lost to the nation. The consultation had for illustrative purposes set proposed tax reduction at 25%. Most thought that rate too low. However, it was also pointed out that not all owners of pre-eminent objects may have had a high enough income to use the tax reduction in one year. Hon. Members will appreciate  the difference between income and assets. Many suggested there should be an option of rolling unused amounts of tax reduction forwards or backwards. Finally, as has been raised in questions, most respondents felt that the donors should be able to place a binding condition on where the item should be held and displayed.

As a result of that consultation, a number of changes were announced in last year’s autumn statement. We have increased the combined annual funding for the new scheme and the acceptance in lieu scheme from £20 million to £30 million. We have decided that, although the objects will still be gifted to the nation, in most cases ownership will be transferred permanently to the receiving institution, subject to a number of conditions. Donors may state a preference as to where the item should be allocated, although that will not be binding.

We have decided that both individual and corporate donors will be able to participate in the scheme, and that the tax reduction will be set at 30% of the value of the objects for individuals and at 20% for companies. Those rates ensure that the donor’s gift is a real one, and not simply a payment of tax in kind. However, we have decided for the time being against allowing other types of donor—for example, personal representatives and trustees—to participate in the scheme.

Respondents to the consultation were also keen that the scheme should be open to as many types of donor as possible. However, many recognised that that would mean the legislation would be longer, more complicated and potentially very little used. Imagine, Mr Amess, although it is a pleasure to serve under your chairmanship, if I had to take even longer to make an opening statement. As funding is limited and we are uncertain of the demand on the scheme, particularly from those groups, this is an area we can look at again after the scheme has been up and running for a while.

We have also decided that individuals donating under the scheme will be able to spread the tax reduction across up to five years from the year when the offer is registered. In addition, we have made a number of other smaller changes to the scheme to ensure that potential donors are not caught out by unexpected tax charges—for example, an inheritance tax charge on a conditionally exempt object.

In conclusion, we want to stimulate lifetime giving by encouraging taxpayers to donate to the nation. The scheme does just that; it benefits the nation as a whole, because it ensures that pre-eminent objects are saved and made available and, crucially, preserves the UK’s heritage for everyone to enjoy. I will be happy to respond to questions shortly.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

Thank you, Mr Amess, for giving the Economic Secretary the opportunity to set out this case. It is absolutely right that the Government set out the case for the legislation and that members of the Opposition are then given the opportunity to put our questions on it. I thank the Economic Secretary for her thorough explanation of the clause. It is right that we encourage the donation of pre-eminent objects to the country and it is right that, in addition, conditions are placed on that, to ensure, among other things, that they are there for the general public to enjoy. There are benefits to the general public and also benefits to our economy through attracting visitors to the country.

I want, however, to refer to one element contained in paragraph 33 of schedule 14, which introduces the new relief when pre-eminent objects and works of art are gifted to the nation. In the summary of responses to the consultation, it is considered to be a fundamental change to the measure that was initially announced. The change is considered to undermine somewhat the attractiveness of the scheme.

I will again refer to the comments made by the ICAEW—an esteemed commentator on these issues—which expressed its concern that the change announced initially was very different from the change that was eventually put forward in the Bill. The ICAEW said that it was wrong in principle to make changes to previously announced measures, under the cover of

“those measures where draft legislation has been published for consultation and no changes were made as a result or small, technical amendments have been made to the final legislation to be introduced in Finance Bill 2012.”

Its view is that to introduce such a fundamental change under the auspices of a minor technical amendment undermines confidence in the integrity of Her Majesty’s Revenue and Customs and Her Majesty’s Treasury. That is a serious assertion and I would be grateful if the Economic Secretary addressed those concerns in her concluding remarks.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

Mr Amess, thank you for calling me to speak. I certainly will address the points that have just been made. The hon. Member for Newcastle upon Tyne North has cited concerns raised by the ICAEW and I would reject any allegation that these changes are fundamental or dangerous. They are minor and do not affect the fundamental principles behind the scheme, which is to promote philanthropy and encourage lifetime giving.

I make the point that—some may think it controversial —the consultation process has been invaluable in this case for getting the legislation right. At each stage we have endeavoured to respond to suggestions while retaining the core principle behind the scheme of a significant element of philanthropy. As hon. Members may know, the original consultation in June set out that objects with an estate duty charge would not be eligible under the scheme. On further analysis and in the light of the consultation responses, HMRC set out in the notes accompanying the draft Finance Bill that it would look to mirror loosely the inheritance tax conditional exemption charge, but that it was considering waiving the entire estate duty charge and that the donor would not receive a tax reduction.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

The Minister talks about the importance of consultation, but do you think that it is the lack of consultation on tax relief for charitable donations that meant that the Government got it so wrong on that in the Budget?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I do not know what you think, Mr Amess, as the hon. Lady asked you, but I think that it is right to consult and to respond, as HMRC has done in this case, to the responses received during consultation. Respondents stated that the approach was a significant deterrent to donors, as they would feel frustrated at not receiving a reduction where other donors did. I suspect that the hon. Lady feels the same way.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I wonder whether the Minister will answer my earlier question about whether she thinks it was the lack of consultation on tax relief for charitable donations that led to the Government getting that so wrong in the Budget, as well as the mistakes on caravans and pasties. The Minister is discussing the virtues of consultation and perhaps the Treasury could use consultation more often in future to avoid the U-turns and mistakes that have been made.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury 3:30 pm, 14th June 2012

The Treasury, in the care of this Front-Bench team and that of the Chancellor and the Chief Secretary to the Treasury, is delighted to use consultation where it matters and to listen when it is told things. I do not know whether the hon. Lady thinks that pasties are pre-eminent objects, but I shall return to what is in front of us today in order to conclude the Finance Bill with enough time to spare.

I have answered the points on estate duty in broad-brush terms, but let me put some numbers to it and draw out the comparison with inheritance tax to which I have just referred. The first 40% of the estate duty charge will be waived, which is exactly like the inheritance conditional exemption charge that has a flat rate of 40%. Any remaining estate duty, if any, would need to be paid. The donor would, however, receive a 30% tax reduction, which could be used to offset against income tax and capital gains tax liabilities. I hope that that answers the hon. Lady’s question and is sufficient to ensure the clause and schedule will be passed.

Question put and agreed to.

Clause 49accordingly ordered to stand part of the Bill.

Schedule 14 agreed to.