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Finance (No. 2) Bill

The forecast in the Budget will remain the same if and when the Government amendments are made. The right hon. Gentleman has a great deal of experience, so he will know that work can be drummed up for lawyers and accountants in many ways including, regrettably, the use of scare tactics. I shall deal briefly with the Government amendments in this group, which make the technical changes necessary to correct errors in the drafting of the Bill, before turning to the Opposition amendments. Government amendments Nos. 78 to 81 and 83 to 87 make minor technical changes to the operation of the rules for trusts for disabled persons and trusts established by someone who expects to become disabled in future. I hope that they will all be welcomed. Government amendment No. 78 makes provision for an interest in possession—IIP—for a disabled person to qualify as a disabled person’s interest when the property was put into a trust before 22 March 2006 but the disabled person only became beneficially entitled to it on or after that date. Without the amendment, that treatment would be available only to property put into trust on or after 21 March 2006. Government amendment No. 79 is a drafting amendment to ensure that no inheritance tax arises when someone with a condition that is expected to lead to a disability settles property on themselves. Some Members have asked whether the existing provision risks a double charge, but the amendment makes it completely clear that such a settlement is not treated as a potentially exempt transfer. Government amendment No. 80 extends the rules in schedule 20 that apply when an IIP ends on or after 22 March 2006 to IIPs of which a disabled person is the beneficiary. Government amendment No. 81 deals with the rules in section 59 of the Inheritance Tax Act 1984—IHTA—that exclude a qualifying IIP from the inheritance tax charges on a relevant property. It modifies the definition concerning a company that is beneficially entitled to an IIP to include interests that were previously disabled persons’ interests. Government amendments Nos. 83 to 87 modify section 88 of the IHTA so that special treatment given to pre-22 March 2006 protective trusts is available, too, to trusts created on or after 22 March 2006, where the underlying interest is a disabled person’s interest. Schedule 20 makes arrangements for IIP trusts set up before 22 March 2006, and Government amendment No. 75 is the core amendment in a series dealing with the transitional serial interest. It provides that a pre-Budget IIP to which someone becomes entitled on the death of their spouse or civil partner on or after 6 April 2008 will qualify as a transitional serial interest, and thus continue to be treated as owned by the surviving spouse or civil partner for inheritance tax purposes. Government amendments Nos. 71 to 74 restructure the existing provisions dealing with transitional serial interests in the light of that change, while Government amendments Nos. 76 and 77 make consequential changes elsewhere in schedule 20. The hon. Member for Chipping Barnet (Mrs. Villiers) made a similar point in Committee, although the amendments that she tabled did not address the precise issue that we have tackled. Opposition amendment No. 59 returns to the matter and would enable the benefit under the trust to be passed between spouses and civil partners while they are both living. The Government amendments, however, provide that that can happen only as a result of the death of one partner. The Opposition’s approach is open to exploitation through the use of lifetime transfers, so I cannot accept it. Nevertheless, I hope the hon. Lady will agree that the Government’s amendments address the core concerns in this area, and I hope that she will support them. Government amendment No. 82 is a minor correction to the transitional serial interest rules which provides for disabled person’s interests created for the settlor or their spouse to be disregarded when charging other trusts created by the same settlor. Opposition amendment No. 57 covers similar ground, but I am advised that there is a technical reason why it fails to hit the right target. Given the technicality of the subject, I hope the hon. Lady will agree that her amendment is not necessary. I assure the House that my officials will be happy to discuss the details with interested parties if necessary. The matter was debated at some length in Committee, and the hon. Lady and I agreed that it needed further consideration. I hope she will acknowledge that that has taken place. Government amendment No. 70 deals with who should be able to set up a trust for a bereaved minor. That returns to the point that the hon. Members for Falmouth and Camborne (Julia Goldsworthy) and for Dundee, East (Stewart Hosie) raised in Committee regarding legal guardians being able to set up trusts for bereaved minors. As I mentioned then, people other than parents can still set up such trusts. All that schedule 20 does is apply tax charges to amounts in excess of the £285,000 which is the current inheritance tax threshold. I asked my officials to consider whether a wider definition of ““parent”” could safely be put within the scope of schedule 20, and to examine the technical and legal difficulties associated with guardianships and the various definitions. Government amendment No. 70 deals with that point. It extends the meaning of ““parent”” for these purposes to cover individuals who, immediately before they died, had parental responsibility for a child under the relevant legislation for England, Wales and Northern Ireland. For Scotland, the amendment refers to parental responsibilities under Scottish law. I am informed that the amendment provides the security that will allow the provision to operate. That means that anyone with parental responsibility will be able to create trusts that are exempt from IHT charges in the event of their death, in exactly the same way as parents can. I hope that hon. Members will welcome the change. I am grateful to those who raised the matter and debated it in such a constructive way in Committee. Government amendments Nos. 90 to 96 deal with consequential changes to the capital gains tax regime. Amendment No. 93 alters a Taxation of Chargeable Gains Act 1992 reference, and amendment No. 96 extends holdover relief to property leaving age 18-to-25 trusts when the beneficiary attains or is under the age of 18. Government amendments Nos. 88 and 89 make a small change to the way in which the new rules interact with section 144 of the Inheritance Tax Act. Amendment No. 89 allows a two-year period in which a will can effectively be rewritten to cover deaths that took place before Budget day, but where the rewriting takes place after Budget day. Amendment No. 88 is a straightforward drafting correction. In Committee the hon. Member for Chipping Barnet tabled amendments with a similar intention. She will recall that I noted at the time that the Opposition amendments were technically deficient, but I undertook to give the matter further consideration. I have done that. The hon. Lady has returned to the same point in her amendments Nos. 54 and 55, but I hope she will accept that the Government amendments deal with the point. New clause 2, the consequential amendments and the Opposition amendments to schedule 20 are simply not necessary. New clause 2 seems to be intended to carve out special IHT treatment for trusts that are set up on divorce in relation to life insurance protection policies and for some disabled people. It starts by saying:"““The provisions of Schedule 20 shall not operate so as to discourage, impede or prevent the use of trusts which are set up””—" for those purposes. That begs the question of who would judge whether the test was satisfied. There is no justification for special treatment for life insurance protection policies. The Government are not denying that insurance is important, we are merely saying that this particular asset does not require special provision in the tax regime for trusts. Secondly, on relationship breakdown settlements, I can only repeat what I have said on previous occasions. HMRC is advised that trusts are rarely used in divorce cases, and their use is certainly not necessary. There has been some discussion of that this afternoon. Where they are used, the balance will often have been tipped by the additional IHT advantages that a trust can bring. I referred at the beginning of my remarks to the importance of tax neutrality as one of the issues that the Government were addressing here in relation to trusts.