Clause 207 - Gifts to charities etc

Part of Finance Bill – in a Public Bill Committee at 11:30 am on 26 June 2012.

Alert me about debates like this

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury 11:30, 26 June 2012

If I may, I will come to that question in due course. I have a number of technical points that I need to address about what the clause does and some of the protections around it, but I will return to the hon. Gentleman’s point.

Continuing with the broad background, IHT—inheritance tax—is currently charged at a single rate of 40% on the net value of an estate above the inheritance tax threshold, after deducting all available reliefs and exemptions. Gifts made to charity and charitable legacies are already exempt from inheritance tax. The intention behind this measure is that reducing the inheritance tax rate to 36% on chargeable estate assets will provide an additional incentive for individuals to leave charitable legacies or to increase the amount that they already leave to charity.

Let me answer at least two of the questions from the hon. Member for Newcastle upon Tyne North. She asked whether the provision was a tax measure for large-scale giving. My answer is yes. This Government wish to encourage giving, as I laid out in our objectives. The Government are keen to help the charitable sector and I can tell the hon. Lady that the additional revenue for charities is expected to build up gradually over the period to 2016-17 to an estimated £95 million. That clearly answers her question about whether the clause brings additional benefit.

The changes were consulted upon over the summer and broadly welcomed. Even though a relatively small proportion of estates pay inheritance tax, it is encouraging that respondents felt that the incentive would encourage charitable legacies from a broad range of estates. It would also provide an opportunity for charities and advisers to discuss charitable legacies with people who are, or are considering making a will.

Respondents were also keen to see a balance between simplicity, so as not to discourage potential donors—a point made by others this morning—and flexibility, for example, to maximise the chances of charitable legacies from more complex estates. So the provisions in schedule 32, which have been amended since that exposure as part of the draft Bill, provide some additional flexibility. I believe those provisions achieve that balance.

Schedule 32 sets out conditions to be met for an estate to qualify for the lower inheritance tax rate. The provisions take account of the different classes of assets that are charged for inheritance tax when someone dies; assets they might own outright or jointly and, indeed, in interest in trusts. If the amount left to charity from one or more parts of the estate is at least 10%, after taking account of any reliefs and exemptions made due, those parts will be eligible for the lower inheritance tax rate of 36%. To answer a question from the hon. Member for Newcastle upon Tyne North, to provide a greater encouragement for charitable legacies, there is an option for various parts of the estate to be merged. So a larger legacy from one part of the estate can be offset against a smaller legacy from another part to achieve the reduced inheritance tax rate from the estate as a whole, if the overall legacy is at least 10% of the estate. She asks how I or the Government reached that conclusion. It is absolutely clear that the intention is to encourage that a legacy should be 10% or more of the estate. That incentive and intention clearly come through that part of the Bill.

Schedule 32 also amends the provisions relating to the instruments of variation, which allow assets left in a will to be redirected to other beneficiaries. Unlike wills, these are not public documents and charities do not have access to them, so schedule 32 provides that charities must be notified of the instrument if a redirection is made to charity. For clarity, the changes set out in the schedule and clause will apply to deaths on or after 6 April 2012.

Let me answer a few more of the questions that were posed. On overseas trusts in particular, the gift will qualify if it is a charitable legacy that already qualifies for charitable exemption from inheritance tax. I can confirm that legacies are valid only if they are given to charities that are or would be charities under the law of England and Wales. So they must meet the public benefit test that the Charity Commission for England and Wales would apply. In line with my comments at the beginning, it is also important to say that this Government are keen to encourage giving at all stages of life and from all walks of life. There is a simple way to check if a charity is eligible and that is to ring HMRC or the Charity Commission, though I shall not read out the telephone number into the record.