Finance Bill (Second sitting)

Harriet Cross Excerpts

Committee stage
Tuesday 28th January 2025 Public Bill Committees

[Gareth Davies]

I am afraid I have not taken the time to read the academic reports, but I greatly value and emphasise the work of the OBR, which the Conservatives established in government. The new Government have taken it forward and are already seeking to bolster its impact on the Treasury’s work. If the hon. Lady will forgive me, it is the OBR’s work that I look at, and that work says that this budgetary measure is highly uncertain. As I was pointing out, that leaves questions for markets and for the Labour parliamentary party when it comes to which taxation will have to go up and what spending will be cut if that figure is not met. I will leave that to the Minister to address.

[Harriet Cross (Gordon and Buchan) (Con)]

Regardless of the uncertainty, we know from the projections that, although the tax intake should peak at about £6 billion, it tails off by the end of the period to £95 million—a huge difference. By the time this spending and the costs have been worked into the system, no matter what happens in terms of uncertainty, at the end of that tax period there will be a huge amount of money that was in the system, but which now has to be filled. This policy, if implemented, will mean that there is a hole in the system at the end of the ’29 period that will need to be filled in some way.

[Gareth Davies]

That is a very good point—if only I had included it in my speech. That is a classic example of an intervention that adds to the content of the debate on behalf of all those who will be impacted by this measure. It is important to look at the projections over the five-year period on a year-by-year basis. It will be no surprise to the Minister that I look at them very carefully. I look at the timing of when the measures generate revenue, and when they do not. I could provide lots of examples of places where questions need to be asked of this Budget—indeed, we have been asking them today.

In claiming the 100% relief on foreign income and gains, an individual forfeits their eligibility for a whole host of allowances available to normal UK taxpayers, including the personal allowance'; yet even those who were previously taxed on a remittance basis for non-UK income and gains would still pay tax on their UK earnings, just like everybody else. That was surely an uncontroversial element of the old regime, which did not require any attention, so why have the Government taken it upon themselves to make the tax treatment of UK income less favourable as a condition of claiming the new 100% relief—which we of course welcome?

The biggest concern that has been raised with me regarding these new reliefs by the likes of the now-famous Chartered Institute of Taxation, which many of us have referred to, is the requirement to itemise and actively claim each income and gain. As far as I can recall, the technical note that we produced alongside our proposals in March 2024 did not insist on that level of specificity and detail, which is quite onerous on those applying. As a basic matter of fairness, it seems wrong that the window for making a claim is so much less than the 12 years available to HMRC to issue a compliance check, and even more so when the ability to make a consequential claim to correct an error is restricted.

The Budget claims to introduce a regime that is simpler and internationally competitive, as the Minister outlined in his speech, but those two requirements are neither of those things. I would be very grateful if the Minister can explain what exactly the benefit of doing things in that way are.

The main departure from our proposals comes with clause 38 and schedule 8, which introduce financial limitations for overseas workday relief. Is that to compensate for the additional year in which the relief will now be claimable? How significant does the Treasury expect the impact of the alteration to be? I would be grateful if the Minister can indulge me by outlining an explanation on those points.

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[James Murray]

These clauses and schedules also relate to the non-dom reform, which we just discussing in relation to the previous group of clauses. Clauses 40 to 42 and schedules 9 to 11 make changes to ensure that the remittance basis of taxation will no longer apply from 6 April this year. For previous users of the remittance basis, a temporary repatriation facility will be introduced, which we just discussed under the previous group of clauses. Individuals will be able to rebase their foreign assets to their value on 5 April 2017.

As we know well, the Government are removing the outdated concept of domicile status from the tax system and replacing it with a new, internationally competitive residence-based regime from April this year. Currently, where a non-UK-domiciled individual moves to the UK, they are able to access the remittance basis of taxation, under which foreign income and gains are not taxable unless they are brought to the UK. These arrangements can create a disincentive to invest in the UK.

The changes made by clause 40 and schedule 9 will remove the remittance basis of taxation from being claimed after 6 April 2025, and this clause clarifies how this legislation operates. Although no new claims can be made, foreign income and gains that have arisen through a remittance basis prior to 6 April 2025 will continue to be taxed at the prevailing tax rates if remitted to the UK on or after this date.

Clause 41 and schedule 10 will introduce the new temporary repatriation facility for individuals who had previously claimed a remittance basis, through which they will be able to designate and remit foreign income and gains that arose prior to 6 April 2025 at a reduced rate of tax. That will include unattributed foreign income and gains held within trust structures. That facility, as we discussed in relation to the previous group of clauses, will be available for a limited time period of three years from April 2025, with a rate of 12% for the first two years, rising to 15% in the final year.

Clause 42 and schedule 11 introduce a transitional arrangement for capital gains tax purposes. That will allow those who have previously claimed a remittance basis to rebase foreign assets they held on 5 April 2017 to the value at that date, when they dispose of them on or after 6 April 2025.

Government amendments 55 and 56 amend the wording of sections 56, 61G and 61R of the Income Tax (Earnings and Pensions) Act 2003 to ensure that those sections, which cover chargeability to tax in respect of deemed employment payment, no longer make reference to domicile, which has become redundant in light of the current reforms.

Government amendment 57 amends section 22 of the Finance (No. 2) Act 1931, section 154 of the Finance Act 1996 and section 174 of the Finance Act 1993 to ensure that an individual’s domicile is no longer a relevant consideration for Treasury securities issued with free of tax for residents abroad conditions. Government amendment 58 removes references to domicile in section 614 of the Income and Corporation Taxes Act 1988, relating to relief on income for investments of certain pension schemes, which have become redundant in light of the current reforms.

Finally, Government amendment 59 corrects an incorrect reference in schedule 10. Amendments have also been made to the associated explanatory notes to accurately reflect the legislation. The Government are committed to making the tax system fairer so that everyone who is long-term resident in the UK pays their taxes here.

[Harriet Cross]

I thank the Minister for listing the amendments before the Committee. At Davos last week, the Chancellor announced other amendments that will be made to non-dom status. It is disappointing that they have not been put before the Committee, where they can be scrutinised line by line. Why is that not the case, and when will either a Committee or the House get to see those amendments?

[James Murray]

I am glad that the hon. Lady was paying good attention to what the Chancellor was saying at Davos. The Government will introduce, as the Chancellor set out, a number of amendments to the Finance Bill on Report, to make the temporary repatriation facility simpler to use and more attractive to those who want to benefit from it, while retaining the structure announced at the Budget.

More broadly, the new regime is more attractive than the current approach, because individuals will be able to bring income and gains into the UK without attracting an additional tax charge. That will encourage people to bring funds into the UK and spend and invest them here. That is good for the UK in terms of investment and spending coming into the UK, and in terms of the tax revenue, which we spoke about in relation to the previous set of clauses. I therefore commend clauses 40 to 42, schedules 9 to 11 and Government amendments 55 to 59 to the Committee.

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[James Murray]

The clause makes changes to the inheritance tax thresholds so that they continue at the current levels in 2028-29 and 2029-30. Subject to reliefs and exemptions, inheritance tax is payable if the net value of an estate exceeds the respective thresholds for two bands: the nil-rate band, for which the threshold has been £325,000 since 2009-10, and the residence nil-rate band, for which the threshold has been £175,000 since 2021. Those thresholds rise with the consumer price index each year, but have in recent years been frozen until April 2028, by the previous Government.

The changes made by clause 57 will fix the threshold at current levels for a further two years, until April 2030. This will raise £355 million in 2029-30.

[Harriet Cross]

We heard earlier that the thresholds for income tax will be unfrozen as of 2028; why will the thresholds for inheritance tax not be? What impact will that have on, for example, agriculture and business property reliefs? Have the Government done an assessment of the number of additional estates that will be brought into inheritance tax beyond 2028, and how many of those will be family farms?

[James Murray]

Broadly speaking, the reason why we have had to take a number of decisions, including some of the more difficult decisions in the Budget, is the fiscal inheritance from the previous Government. I do not need to spend time in Committee rehearsing the arguments on that, because they are well known and widely accepted. We inherited a mess from the previous Government and had to take difficult decisions at the autumn Budget to fix that problem, put the public finances back on an even footing and get public services back on their feet. Extending the freeze for inheritance tax thresholds is one of many difficult decisions we had to take.

On the number of estates that will pay inheritance tax as a result of the freeze, fixing the nil-rate bands is forecast to increase the number of tax-paying estates by 1,400 in 2028-29 and by 2,900 in 2029-30. That means the proportion of all UK deaths subject to inheritance tax will rise by 0.2 and 0.4 percentage points in ’28-29 and ’29-30 respectively, when compared with the thresholds rising with CPI. If we look at all inheritance tax measures, the latest forecast indicates that 37,700 estates will have an inheritance tax liability in ’24-25, which equates to 5.8% of all estates. That will increase to 66,600 estates in ’29-30, which equates to 9.5% of estates. I hope that helps to put the measures in context.

We have debated the specific changes to agricultural and business property reliefs several times, and I have shared with the hon. Member for Gordon and Buchan the data on that, which shows the limited impact of the freeze in terms of the number of estates affected. Most estates will not be subject to any inheritance tax because of the way we have designed the reforms to agricultural property relief and business property relief. We have had several other debates on that issue in this place.