---

Finance (No. 2) Bill

I know that the hon. Gentleman is keen to crack down on tax avoidance, but it is harsh to accuse parents who set up trusts to provide for their disabled children of doing that for motives of tax dodging. Let us take, for example, a situation in which the parents of a disabled child are becoming elderly. They may find it difficult to continue to manage the financial affairs as their own capacity starts to diminish. It is an entirely understandable wish on the part of a parent to get things sorted out, set up and finalised well before they die. There is a real social need to sort out and secure the future of one’s children, even before one’s death. The definition in the 2005 Act is much broader than in the 1983 Act and will more easily cover the people with partial, variable and fluctuating levels of capacity to which I referred earlier in the quote from James Kessler, QC. Moreover, the definition in the 2005 Act is more up to date—many of the relevant provisions of the 1983 Act are soon to be repealed. That Act is geared towards determining whether compulsory treatment is required. The background to its operation is the question whether someone is a risk to themselves or others—that is, whether they should be sectioned. In contrast, the 2005 Act focuses on whether someone has the capacity to manage their own affairs and considers their ability to make decisions about their own lives. It is much more empowering. It focuses more closely on the situation that we are considering, whereby a disabled person may wish to use a trust to assist them in managing their property. Our amendment is focused specifically on capacity in relation to financial matters. The key problem is that many people who need trusts to help them to tackle the serious difficulty that they may have in managing their finances fall short of the degree of mental illness required to bring them within in the definition in the 1983 Act. For example, many people who have a diagnosis of manic depression or schizophrenia will not be ill enough to fall within that definition, yet they may be the very people who need trusts most of all. As the charity, Rethink, points out on its website, people with manic conditions often believe that they are richer than they are and go on irrational spending sprees. One family wrote to me about the trust that it had set up for their daughter, whose bipolar disorder, more commonly known as manic depression, leads to such irrational spending. They said:"““We are not wealthy and we imagine our assets are probably about average or less for families that live in this part””—" of the country."““We know that other parents in Scotland of modest means whose children suffer manic depression or problems such as drug addiction, alcoholism etc. have also set up IIP trusts. We need flexibility from limited funds to care for the surviving spouse as well as for a mentally sick (but not disabled) offspring. We write to ask you to seek to influence the legislation. We are concerned that trusts that have no tax avoidance intention or action will suffer unfairly large taxation…Our sole intention is to provide trustees to regulate my daughter’s income so that she does not make herself destitute by claiming her legal share of assets if they are not protected by an existing IIP trust.””" I hardly think that people in that position can be accused of engaging in a tax dodge, as the hon. Member for Wolverhampton, South-West (Rob Marris) suggested. Unless amended, the Bill will impose a 20 per cent. tax charge on capital plus a 6 per cent. tax charge every 10 years on a trust of this nature set up for a vulnerable person. The definition in the 2005 Act was subject to 12 years of consultation. It has a wide range of support among groups working with people with mental health difficulties, and I appeal to the Government to accept its incorporation into the Bill. Turning to the second limb of the section 89 definition, the Low Incomes Tax Reform Group and its influential coalition point out that the benefits-related test is a very blunt instrument. In many cases, people with serious disabilities will not qualify for the middle or highest rate care components of disability living allowance as required by section 89. To qualify even for the middle rate—here I respond to the intervention by the hon. Member for Wolverhampton, South-West—someone must be so severely disabled that they require frequent attention or continual supervision throughout the day or night. In particular, the provision excludes beneficiaries under trusts set up for personal injury damages or to cover money from disaster funds, who may have a high mobility component and a lower care component of DLA—in other words, they may need an hour’s care a day or more but not frequent or continuous care. Surely such cases, where for example personal injury damages have been obtained, are exactly the type of situation in which a trust can be most useful, in that a large cash sum is received that has to be managed carefully to provide for the rest of the beneficiary’s life. Again, the Government want to slap a 20 per cent. up-front charge on those damages and a 6 per cent. charge on capital every 10 years. As the Society of Trust and Estate Practitioners points out, such people can ill afford to pay those new charges since the quantum of damages awarded to them has been carefully assessed to meet their needs for the rest of their life. We should remember that the sums involved in such damages settlements and court cases are likely to be very significant. As they are intended to cover the rest of the claimant’s life, with the high cost of living with disability factored in, they may well exceed the inheritance tax thresholds. The Opposition have tabled cautious amendments to extend the scope of section 89 as regards those who can claim the lower rate of the care component. That would embrace many more disabled people. We urge the Government to accept those amendments in order to seize this last opportunity to prevent schedule 20 from penalising some of the most vulnerable and disadvantaged people in our community.