Finance Bill (Third sitting)

Debate between James Murray and Harriet Cross

Committee stage
Thursday 30th January 2025 Public Bill Committees

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

It is of course welcome that more land is to be brought under the scope of agricultural property relief, but given the introduction of the £1 million cap on agricultural property, is it not somewhat redundant? I know the Government use different numbers, but the industry believes that the majority of farms will be over that threshold anyway, so bringing more land within the scope of APR does not actually make much difference to the bill they will have to pay at the end.

[James Murray]

As the hon. Lady knows, because we have debated this many times, the data that we have published, based on His Majesty’s Revenue and Customs data, shows that the large majority of small farms will not be affected. I am sure she knows well the statistics on the 530 farms affected by the reforms to APR and business property relief in ’26-27, because she will have seen them in the Chancellor’s letter to the Treasury Committee and we have discussed them many times in this place.

Clause 61 relates specifically to land managed under certain environmental agreements, and was a measure proposed by the last Government. If the hon. Lady allows me to continue explaining why the clause is important, she might feel able to support it, given the benefits it will bring. The clause was welcomed by the sector, and the Government agree with the approach. I can confirm that there have been no changes to the design outlined by the previous Government in March 2024, which is why I hope to get the Opposition’s support for the clause.

As a result of the changes made by clause 61, from 6 April 2025 APR will be available for land managed under an environmental agreement with or on behalf of the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies. This includes but is not limited to the environmental land management schemes in England and equivalent schemes elsewhere in the UK, as well as any agreement that was live on or after 6 March 2024.

The Government are fully committed to increasing the uptake of environmental land management schemes in England, and we are providing the largest ever budget of £1.8 billion for this in 2025-26. The changes made by clause 61 will ensure that the tax system is not a barrier to uptake, thereby supporting farmers and land managers to deliver, alongside food production, significant and important outcomes for the climate and environment. I commend the clause to the Committee.

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[James Murray]

As I was saying, the clause also increases the relative value of small producer relief for both draught and non-draught products, and clause 64 ends the alcohol duty stamps scheme. To reassure Members, in consideration of what position to take at the autumn Budget, I had meetings and officials had further meetings with representatives from the wine, beer, spirits and cider industries, as well as with public health people, to understand the full range of opinions and how we could carefully calibrate our policy response.

[Harriet Cross]

The Scotch Whisky Association is not on the list of people the Minister met. Can he confirm whether he did meet the association?

[James Murray]

The association is included under “spirits”.

As we know, alcohol duty is frozen until 1 February. The OBR’s baseline, reflected in its forecast, is that alcohol duty will be uprated by RPI inflation each year. The Government have decided to maintain the value of alcohol duty for non-draught products by uprating it from 1 February. At the same time we are recognising the social and economic importance of pubs, as well as the fact that they promote more responsible drinking, by cutting duty for draught products, which account for the majority of alcohol sold in pubs.

A progressive strength-based duty system was introduced on 1 August 2023 by the previous Government following the alcohol duty review. The reforms introduced two new reliefs: a draught relief to reduce the duty burden on draught products sold in on-trade venues, and small producer relief that replaced the previous small brewers relief. The clause increases the generosity of both reliefs.

The alcohol duty stamps scheme is an anti-fraud measure applied to larger containers of high-strength alcoholic products, typically spirits. It requires the mandatory stamping of certain retail containers with a duty stamp. In 2022, HMRC was commissioned to review the effectiveness of the scheme. It found that it is outdated, susceptible to being undermined and now plays a diminished compliance role, and concluded that the cost and administrative burdens imposed on the spirits industry could no longer be justified. The previous Government announced the end of the scheme at spring Budget 2024. That is a decision that this Government will implement from 1 May 2025. That date was chosen after consultation with businesses, which requested sufficient time to prepare.

Clause 63 makes four changes. First, it increases the rates of alcohol duty for non-draught products to reflect RPI inflation. Secondly, it reduces the rates of alcohol duty on draught products by 1.7%. Thirdly, it amends the tables in schedule 9 to the Finance (No. 2) Act 2023 that are used by small producers to calculate their duty discount under small producer relief. This increases the value of small producer relief for both draught and non-draught products in relation to the main rates for these products.

In cash terms, the current cash discount given to small producers for draught products is maintained, while the discount provided to small producers for non-draught products is increased. Small producer relief provides the same relative discount, irrespective of whether a product also qualifies for draught relief. As a consequence of the RPI increase in non-draught rates, it increases the simplified rates in schedule 2 to the Travellers’ Allowances Order 1994, which is used for calculating duty on alcoholic products brought into Great Britain.

Some hon. Members raised questions about the impact of these measures on pubs and the hospitality industry. To support the hospitality industry, particularly recognising the role that pubs play in local communities, the Government have announced a reduction in the alcohol duty rates paid on draught products. This reduces businesses’ total duty bill by up to £100 million a year and increases the duty differential between draught and non-draught products from 9.2% to 13.9% for qualifying beer and cider.

As we have mentioned a couple of times in this debate, the reduction to draught relief rates will also result in the average alcoholic strength pint at 4.58% ABV paying 1% less in duty. Draught relief provides a reduced rate of duty on draught products below 8.5% ABV packaged in containers of at least 20 litres designed to connect to a qualifying system for dispensing drinks.

Clause 64 ends the alcohol duty stamps scheme from 1 May this year, removing the provisions in the Finance (No. 2) Act 2023 and the secondary legislation in the Duty Stamps Regulations 2006. It also makes consequential changes and removes references to the scheme where they appear elsewhere in legislation.

Amendment 66 would freeze alcohol duty for alcoholic products above 22% ABV. That is contrary to the Chancellor’s decision at the autumn Budget to increase those duty rates to reflect inflation, and would cost the Exchequer £150 million a year.

Specifically in relation to the Scotch whisky industry, I would like to set out that the overall alcohol package balances commercial pressures on the alcohol industry with the need to raise revenue for our vital public services and reduce alcohol-related harms. Consumers and brewers in Scotland will benefit in line with the rest of the UK, with consumption and production patterns roughly equal nationwide. Of course, 90% of Scotch whisky is exported, which means it pays no duty. The Scotch Whisky Association’s own figures show the health of the industry. The Budget offers support to the Scotch whisky industry by removing the alcohol duty stamps scheme, which we have just considered, and through investment in the spirit drinks verification scheme by reducing fees for geographical verification.

New clauses 2 and 4, which were also tabled by Opposition Members, would require the Chancellor to make additional statements about the impact of the alcohol duty measures. The Government do not believe further statements to be necessary. As usual, a tax information and impact note was published at the autumn Budget, outlining the anticipated impacts of the measures on alcohol producers and the hospitality sector. Alcohol duty, like other taxes, will be reviewed in future Budgets.

New clause 2 also requires a review of the impact on trade, but UK alcohol duty is, of course, not charged on exports. Some hon. Members raised the impact of the changes to business rates on the hospitality sector in Scotland, but business rates are, of course, devolved. The Scottish Government are accountable to the Scottish Parliament on devolved areas.

Hon. Members also raised questions around the wine easement and why it had not been extended or made permanent. I remind them that the wine easement was intended as a transitional arrangement to give the wine industry time to adapt to the strength-based duty calculation for wine. The revised alcohol duty system simplified and reduced differences between categories of alcohol. Making the wine easement permanent would introduce a new differential into the system and add to the complexity of that system. It would further lead to a duty regime in which stronger ABV wines pay less in proportion to their alcohol content than lower ABV wines. Making the wine easement permanent would, therefore, undermine the simplification and public health objectives of the revised alcohol duty system.

In conclusion, the changes to the alcohol duty balance public health objectives, fiscal pressures, cost of living pressures and the economic and social importance of pubs, while also supporting small producers by increasing the generosity of small producer relief. Furthermore, the end of the alcohol duty stamps scheme will simplify procedures for approximately 3,500 registered alcohol importers and producers, reducing overall costs on the spirits industry by an estimated £7 million a year. I therefore commend the clause to the Committee, and urge it to reject amendment 66 and new clauses 2 and 4.

Finance Bill (First sitting)

Debate between James Murray and Harriet Cross

Committee stage
Tuesday 28th January 2025 Public Bill Committees

[James Murray]

Clauses 5 and 6 make changes to ensure long-term certainty on company car tax by setting the rates for 2028-29 and 2029-30. The increases in the appropriate percentages will help to ensure that the tax system contributes to supporting the sustainability of the public finances. The effect of the clauses is to gradually narrow the differential between zero emission and electric vehicles and their petrol and diesel counterparts, while ensuring that significant incentives to support the take-up of EVs remain in place. The provisions also increase rates for hybrid vehicles.

Company car tax applies when a company car is made available to an employee or their family member for private use. Company car tax rates were confirmed by the previous Government up until 2027-28. In the 2024 autumn Budget, the Government set out the rates for 2028-29 and 2029-30, to provide certainty.

The Government recognise that the company car tax regime continues to play an important role in the EV transition by supporting the take-up of EVs and their entry into the second-hand car market. Although it is important to maintain strong incentives to encourage the take-up of EVs, the Government need to balance that against the responsible management of the public finances by gradually withdrawing them over time, as EVs become more normalised. That is why we have committed to raising the company car tax rates—or appropriate percentages—for EVs, hybrids, and petrol and diesel vehicles in 2028-29 and 2029-30, gradually narrowing the differential between EVs and other vehicle types, and bringing the treatment of hybrids closer to that of petrol and diesel cars.

The changes made by clauses 5 and 6 will set the company car tax appropriate percentages for the tax years 2028-29 and 2029-30. Appropriate percentages for EVs will rise by two percentage points per year, rising to 9% by 2029-30. Meanwhile, the appropriate percentages for cars with emissions of 51 grams of carbon dioxide per kilometre or over will rise by one percentage point per annum. By 2029-30, the appropriate percentages for petrol and diesel cars will rise to between 20% and 39%, depending on the car’s specific emissions. Together, the measures will gradually narrow the gap between EVs and their petrol and diesel counterparts, while maintaining a generous incentive for EVs.

On the changes to the hybrid appropriate percentages, I draw the Committee’s attention to recent research from the European Commission that has shown that the real-world emissions of hybrid vehicles are in fact three and a half times higher than previously thought. Consequently, the Government have announced that they will align the treatment of hybrids more closely with that of petrol and diesel cars.

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

On aligning hybrid cars more closely with petrol and diesel cars, what assessment has been made of the impact on the hybrid car market and the take-up of hybrid cars, if we are ultimately looking to move away from petrol and diesel in the long term?

[James Murray]

Over the coming years we need to make the transition to electric vehicles. Hybrid cars obviously play an important part in the car market and car manufacturing in the UK. The clauses are about a plan over the next five years or so regarding what will happen to the appropriate percentages. This is not an overnight change. Actually, one of the important principles of our setting out the appropriate percentages now for some years in advance is to give car manufacturers and everyone interested in the car industry certainty about what will happen. That is why, as I have been setting out, the appropriate percentages for EVs will rise, thereby narrowing the gap between them and petrol and diesel vehicles, but there will still be a generous incentive to help to shift people towards purchasing EVs.

Hybrid vehicles obviously fit within the general scheme of appropriate percentages. However, as I was setting out, European Commission research shows that emissions from hybrid vehicles are in fact three and a half times higher than previously thought, so in setting the rates for 2028-29 and 2029-30, we have decided to reflect that fact in the appropriate percentages that we are legislating for. That means all cars with emissions between 1 gram and 50 grams of carbon dioxide per kilometre—those that largely fall in the hybrid category—will see their appropriate percentages rise to 18% in 2028-29 and to 19% in 2029-30. As I outlined to the hon. Member for Gordon and Buchan, by setting out the rates until 2029-30 we will give the industry and consumers certainty about the future rates.

The company car tax system offers generous incentives to encourage EV take-up and makes an important contribution to the EV transition. The Government, however, must balance incentives against responsible management of the public finances. We are announcing the rates for 2028-29 and 2029-30 to start to narrow the differentials between EVs, hybrids, and petrol and diesel vehicles. I therefore commend clauses 5 and 6 to the Committee.

--- Later in debate ---

[James Murray]

I listened to the shadow Minister’s comments, and he must have a different definition of “overnight” from me. Legislating now for changes that will come in in 2028 does not feel like overnight. Some Budget changes come in on the day of the Budget—had he called one of those overnight, I might have had some sympathy with the description, but not for legislating now for changes that will come in in 2028, toward the end of this decade. Part of the point of legislating now for changes that will happen some years down the line is precisely to give that signal to consumers and manufacturers, to ensure that the consumers are aware of what is to happen and manufacturers know what is planned.

[Harriet Cross]

People might be buying cars now—that is, overnight—that they still have in ’28-29, when the changes come in. They will be making decisions now that will be caught up in future changes.

[James Murray]

The hon. Lady makes a similar point to that made by the hon. Member for Grantham and Bourne, which is that the changes will come in further down the line, but they are critical of the fact that we are pre-announcing the changes now so that we give greater certainty and stability. I cannot understand that criticism, because I thought that giving as much forecasting, certainty and stability as possible would be welcomed by the industry and consumers. People expect taxes to change over time, and the greater the forecasting and advance notice they have, the better for consumers and for manufacturers. Without making this too political, I know that the Opposition were not a great fan of certainty and stability when they were in office, but we are rather different. That is why we are setting out the changes now.

The shadow Minister referred to the DFT consultation, and of course, he is right that I would not pre-empt its outcome. In combination, our giving information about what the appropriate percentages will be towards the end of the decade, thereby providing certainty and stability, will help us to work closely with other Departments to ensure that consumers are well informed about what is likely to happen towards the end of the decade and manufacturers have the certainty and stability that were so desperately lacking under the previous Administration.

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

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[James Murray]

I was expecting a series of amendments from the Opposition; I was not expecting the shadow Minister to quote back at me an amendment I tabled several years ago. It is a new, although interesting, approach to opposition to rely on what I tabled in opposition and quote that back at me. I am sure it was an excellent amendment, although I cannot remember its exact detail.

On the hon. Gentleman’s questions about corporation tax rates, I am sure he will remember from his time in the Treasury that it is standard practice to legislate the charge to corporation tax on an annual basis, even when the rates remain unchanged. That is a long-standing convention that applies to income tax as well. However, because we were so determined to give businesses stability and certainty, we published the corporate tax road map alongside the Budget. In that road map, we made clear our commitment to maintaining the main rate—or, indeed, to capping it—at 25% for the duration of the Parliament.

The small profits rate and marginal relief will also be maintained at their current rates and thresholds. Full expensing and the annual investment allowance are also guaranteed for this Parliament. When it comes to corporation tax, full expensing and the annual investment allowance, the various Finance Bills in this Parliament will be quite a different experience compared with those in the previous Parliament.

[Harriet Cross]

Although we of course welcome a road map as a way to give businesses confidence on corporation tax, we should not get mixed up in the smoke and mirrors of what business taxes are. Because of the Budget, businesses now face many taxes and the uncertainty that they bring. Will we also see road maps for things such as the national insurance rises, the increase in business rates, minimum wage increases and measures in the Employment Rights Bill, all of which have an impact on business?

[James Murray]

The hon. Lady mentions business rates. I do not know whether she has read the discussion paper “Transforming Business Rates”.

[Harriet Cross]

indicated assent.

[James Murray]

I am glad the hon. Lady has read it, because it sets out our approach to business rates in the coming year, from April 2026, and what we want to do over this Parliament. Businesses want stability and certainty from Government; they recognise that, over a five-year period, things will happen that cannot be predicted on day one, but they want that certainty and predictability. That is why, in the corporate tax road map, we give certainty on capping the main rate and on the small profits rate, marginal relief, full expensing and the annual investment allowance—everything on which we can give full certainty. However, where there are areas that we seek to explore or consult on, we are also clear about that. We developed that approach in partnership with business to make sure that we give as much certainty up front as we can, while also signposting those areas that we want to discuss.

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[James Murray]

The clause and the schedule abolish the furnished holiday lettings tax regime from April 2025, removing the tax advantages that landlords who offer short-term holiday lets have over those who provide standard residential properties. Furnished holiday let owners benefit from a more generous tax regime than landlords of other property types, such as standard residential properties. The advantages of that tax regime include capital gains tax reliefs: FHLs can qualify for gains to be charged at 10%, unlike buy-to-let properties and second homes. FHLs also benefit from unrestricted income tax relief on their mortgage interest, rather than the 20% restriction on relief for standard lettings, and from capital allowance on furniture and furnishings. FHL profits are also counted as earned income for pension purposes.

The previous Government announced at the spring Budget 2024 that they would abolish the FHL tax regime to level the playing field with landlords of standard residential properties. We are now legislating for that measure and abolishing the FHL tax regime from April 2025, which will raise around £190 million a year by 2029-30 and thereby support the vital public services we all rely on. The changes made by clause 25 and schedule 5 mean that FHL landlords will be treated the same as other residential landlords for the purposes of income tax, corporation tax and capital gains tax.

[Harriet Cross]

Does the Minister recognise the difference between properties with a use clause compelling them to be used for holiday let accommodation and houses that do not, and that can therefore be used as residential properties? Those two things do not necessarily line up in terms of what the owner can use the property for.

[James Murray]

If I understand the hon. Member’s question correctly, it might relate to clauses in the lease of the property, but I am not quite sure what her point was. I will come back to this if I have misunderstood her question, but clause 5 relates specifically to the tax treatment of these properties. It is about how FHLs, which can still operate in the same way as they have previously in terms of lettings, will be treated by the tax system to bring them in line with standard residential property tax treatment. This is about equalising the tax treatment of FHL landlords and standard landlords, rather than seeking broader changes, which may be what she was alluding to, but I am happy to return to it later in the debate if I have misunderstood her question.

This measure does not penalise the provision of FHLs; it simply brings their tax treatment more in line with long-term lets. It does that to remove the tax advantages that FHL landlords have received over other property businesses in four key areas. First, finance cost relief will apply in the same way as for long-term lettings, with income tax relief on their mortgage interest restricted to the basic rate. Secondly, it will remove the capital allowances rule for new expenditure and allow replacement of domestic items relief. Thirdly, it will withdraw access to reliefs from taxes on chargeable gains for trading business assets. Fourthly, FHL income will no longer count as earned income for pension purposes. After repeal, former FHL properties will form part of a person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.

However, the Bill does not equalise tax treatment entirely. Holiday lets, whether they qualify as FHLs or not, are subject to VAT, whereas longer-term, private rented sector accommodation is not. Withdrawal of finance cost relief will mainly affect higher rate and additional rate taxpayers, with basic rate payers largely unaffected. The Government have also introduced transitional arrangements. FHL properties will become part of a person’s overall property business and past FHL losses can be relieved against profits of that business in future years. Existing capital allowance claims can be continued, but new capital expenditure will be dealt with under the rules for standard residential let properties. The legislation also confirms that where a business has ceased prior to April 2025, business asset disposal relief may continue to apply to a disposal that occurs within the normal three-year period following cessation, which is in line with current rules.

Agricultural and Business Property Reliefs: OBR Costing

Debate between James Murray and Harriet Cross

Thursday 23rd January 2025 Commons Chamber

[James Murray]

The Government are committed to delivering the reforms announced in the Budget. We have carefully considered their impact, and designed the policy to provide generous exemptions from inheritance tax for small family farms and businesses, while ensuring that we balance the public finances as fairly as possible.

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

In the light of the uncertainty in the OBR’s report; the fact that the policy will hit elderly farmers the hardest and put food security at risk; and the fact that rural communities will suffer the most, given the impact on tenants and young farmers, and the wider agricultural sector, does the Minister really still believe in this policy?

[James Murray]

The OBR’s allusion yesterday to a degree of uncertainty is exactly the same as what it said at the time of the Budget. The costing is exactly the same as what it published at the time of the Budget. Yesterday, the OBR published more information about how the costing was arrived at, but the costing itself, the degree of uncertainty and the calculations remain exactly the same as at the time of the Budget.

Agricultural and Business Property Relief

Debate between James Murray and Harriet Cross

Tuesday 14th January 2025 Westminster Hall

[James Murray]

I have only a few moments, so I will make progress.

The Leader of the Opposition has made it clear that she would prioritise that tax break within the public finances, but we do not believe it is fair or sustainable to maintain such a large tax break for such a small number of the wealthiest claimants, given the wider pressures on the public finances. It is for those reasons that the Government are changing how we target agricultural property relief and business property relief from April 2026. We are doing so in a way that maintains a significant tax relief for estates, including for small farms and businesses, while repairing the public finances fairly.

Let me be clear that individuals will still benefit from 100% relief for the first £1 million of combined business and agricultural assets. On top of that, as we know, there will be a 50% relief, which means that inheritance tax will be paid at a reduced effective rate of up to 20%, rather than the standard 40%. Importantly, those reliefs sit on top of the existing spousal exemptions and nil-rate bands. Depending on individual circumstances, a couple can pass on up to £3 million to their children or grandchildren free of inheritance tax.

[Harriet Cross]

At the Oxford farming conference, the Secretary of State suggested that farms should diversify to be more profitable, but diversification has become a lot less incentivised because that all gets wrapped up into the BPR, as well as the APR. Does that not completely negate the Secretary of State’s argument for diversification if it will all be taken away in tax?

[James Murray]

My right hon. Friend the Secretary of State made an important point about diversification, but whatever category the assets fall into, a couple can pass on up to £3 million to their children or grandchildren free of inheritance tax; that applies across agricultural and business property relief. The point I was making is that the agricultural and business property relief sit on top of the existing transfers and nil-rate bands, so when considering individual circumstances, we must look at the details of the situation that an individual or couple face.

I have a minute left, so I will be brief. Some hon. Members questioned the statistics about how many estates will be affected. We are very clear—we have published the data, and the Chancellor has written to the Treasury Committee about it—that up to 520 estates claiming agricultural property relief, including those claiming business property relief too, will be affected by these reforms to some degree. That means that about three quarters of estates claiming agricultural property relief, including those also claiming business property relief, will not pay any more tax as a result of these changes in the year they are introduced. All estates making claims through these reliefs will continue to receive generous support at a total cost of £1.1 billion to the Exchequer. The Office for Budget Responsibility has been clear that it does not expect this measure to have any significant macroeconomic impacts.

I thank all hon. Members who have contributed today, and I am grateful to the right hon. Member for Beverley and Holderness for securing this debate.

Motion lapsed (Standing Order No. 10(6)).

Finance Bill

Debate between James Murray and Harriet Cross

Committee of the whole House
Tuesday 10th December 2024 Commons Chamber

[The Exchequer Secretary to the Treasury (James Murray)]

At the Budget in October, the Chancellor set out the decisions that we are taking to restore economic stability, put the public finances on a firm footing, and embed fiscal responsibility in the work of Government. Having wiped the slate clean of the mess we inherited, our Government can now focus on boosting the public and private investment that is essential for sustainable long-term growth. It is through sustainable economic growth across the UK that we will create wealth and provide security, making people across the country better off.

That goal of raising living standards in every part of the UK so that working people have more money in their pocket is at the heart of the Government’s plan for change that the Prime Minister set out last week. That plan also set out the Government’s commitment to securing home-grown energy, and to protecting bill payers by putting us on track to secure at least 95% clean power by 2030. Making the transition to home-grown energy has required us to take immediate action to unblock investment, including deciding to reverse the de facto ban on onshore wind. The Government have their part to play, alongside the private sector, in making sure that investment happens on the scale and at the pace that we need. That is why the clauses that we are debating are so important—they are a key mechanism for raising the funding that is needed for that investment to be delivered.

We are taking a responsible approach that recognises the role of businesses and their employees in the energy industries of today and tomorrow. Since we formed a Government, my colleagues and I have been working closely with the sector affected by the energy profits levy to make sure that the transition is managed in a way that supports jobs in existing and future industries. Our approach recognises that oil and gas will have a role to play in the energy mix for many years to come, during the transition, and it balances that with ensuring that oil and gas help to raise the revenue that we need to drive investment towards the energy transition. Our legislation delivers that approach, and I welcome the chance to set out the details of how it does so.

The clauses that we are debating concern the energy profits levy, a temporary additional tax on profits from oil and gas exploration and production in the UK and on the UK continental shelf. The levy was introduced by the previous Government in response to the extraordinary profits being made by oil and gas companies—and, it is fair to say, in response to substantial political pressure from Labour Members.

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

Does the Minister believe that oil and gas companies are still making extraordinary profits?

[James Murray]

I believe that it is fair that the oil and gas industry makes a reasonable contribution to the energy transition. We need to ensure that during the transition from oil and gas, which will play a key role in our energy mix for years to come, the industry contributes to the new, clean energy of the future. The way to have a responsible, managed transition is to work with the industry and make sure that it makes a fair contribution, but to not shy away from making that transition at the scale and pace needed.

Farming and Inheritance Tax

Debate between James Murray and Harriet Cross

Wednesday 4th December 2024 Commons Chamber

[James Murray]

I am going to make some progress.

I just set out some statistics that show how this tax relief is very concentrated in a small number of claims. In the context of the dire fiscal situation we inherited and the critical need to fix the public finances and get public services back on their feet, it cannot be right to maintain such a significant level of relief for a very small number of claimants. That is why, from 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property. Above that amount, there will be an unlimited 50% relief, so inheritance tax will be paid at a reduced effective rate of up to 20%, rather than the standard 40%.

The new system, it should be noted, remains more generous than in the past. As I mentioned, the rate of relief prior to 1992 was a maximum of 50% on all agricultural and business assets, including the first £1 million. The reliefs we are providing will be on top of all the other exemptions and nil-rate bands that people can access for inheritance tax. Taken in combination, this means that a couple with farmland will typically be able to pass on up to £3 million-worth of assets to their descendants without paying any inheritance tax.

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

I thank the Minister for giving way. The CAAV calls the £3 million figure “unrealistic” and “unreasonable”. Does he not agree?

[James Murray]

The £3 million figure is what a typical couple could expect to pass on to their direct descendants using the various nil-rate bands and inheritance tax reliefs. I would advise any specific family to get advice from an accountant or financial adviser. In terms of the scale of reliefs, when we combine the inheritance tax relief to agricultural and business property relief, along with the nil-rate bands, nil-rate residence bands and the transferability between spouses, that is how we come to the figure of £3 million.

--- Later in debate ---

[James Murray]

I am going to make some progress. I have given way many times already.

Looking at the HMRC data, which relates to estates making claims for agricultural and business property relief, is the correct way to understand inheritance tax liabilities. That data shows that our reforms are expected to result in up to 520 estates claiming agricultural property relief, including those that also claim business property relief, paying some more inheritance tax in 2026-27. Let me put that in context. It means that nearly three quarters of estates claiming agricultural property relief, including those that also claim business property relief, will not pay any more tax as a result of these measures.

As this change is introduced, we expect people to respond in a number of ways to reduce their inheritance tax liabilities, and the costings by the Office for Budget Responsibility assume that that will be the case. People may change ownership structures, plan for their succession differently, and make greater use of gifting provisions and insurance.

[Harriet Cross]

I thank the Minister for giving way; he is being generous. He has mentioned claims for agricultural property relief and business property relief, but what about claims for business property relief alone? Have they been included in his figures?

[James Murray]

I thank the hon. Lady for her intervention. As we know, any farmer who is renting out land or farming it themselves will typically have an estate that includes an element that is eligible for agricultural property relief. The figures I set out include those who claim for business property relief as well, and those figures are set out in the Chancellor’s letter to the Treasury Committee.

Finance Bill

Debate between James Murray and Harriet Cross

2nd reading
Wednesday 27th November 2024 Commons Chamber

[James Murray]

We know that other countries tax in different ways. Norway has a high headline rate, although it has a different set of structures of allowances and so on. It is important for us that we calibrate the headline rate and the allowances in the right way. That is why we have taken the measured decision to increase the rate as I described, to remove the investment allowance but at the same time to retain the 100% first-year allowances and the level of relief available for decarbonisation investment.

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

Does the Minister think that that is the right balance, given that Offshore Energies UK suggests that the changes will cost £12 billion in tax revenues?

[James Murray]

I am absolutely confident, through all my engagement with OEUK and many firms that work in the oil and gas sector, that our approach strikes the right balance, as needed in our economy. It recognises that oil and gas producers will have a role in the energy mix for years to come, while also being clear that it is crucial we raise money for the energy transition. The energy profits levy seeks to achieve that by providing the money for that transition while also supporting jobs and investment in the sector, as exists at the moment.

Fifthly, the Bill delivers on our manifesto commitment around carried interest by increasing to 32% the capital gains tax rates that apply as an interim measure from 6 April next year, ahead of reforming carried interest more fully in a future Finance Bill. The reforms, which will have effect from April 2026, will ensure that the reward is taxed in line with economic characteristics. They put the tax treatment of carried interest on a fairer and more stable footing for the long term, while preserving the UK’s competitive position as a global asset management hub.

As the Chancellor set out both in July and again at the Budget, the fiscal situation we inherited was far worse than we had expected. We know that the previous Government left us with a £22 billion black hole and so we have had to take tough decisions to fix the public finances and get public services back on their feet. Some of those decisions are outside the scope of this Finance Bill and will be debated during the passage of other Bills. However, this Bill includes a number of those decisions, which we have sought to take in as fair a way as possible.

The Bill makes changes to the main rates of capital gains tax by increasing them to 18% and 24% from 30 October 2024. That decision will raise revenue while ensuring that the UK tax system remains internationally competitive. We are supporting businesses through that transition by maintaining business asset disposal relief, with its million-pound lifetime limit, and by phasing in the increase to that relief’s CGT rate, in line with the changes to investors’ relief, to 14% in April 2025 and then to 18% in April 2026.

The Bill maintains inheritance tax thresholds at their current levels for a further two years to 5 April 2030. It also legislates for air passenger duty rates for 2025-26 and for those announced in the Budget for 2026-27. From 2026-27, all rates of air passenger duty will be adjusted to partially account for previous high inflation, and that change will help maintain the value of air passenger duty rates in real terms.