Finance (No. 3) Bill (Eighth sitting)

Mel Stride Excerpts

Thursday 6th December 2018 Public Bill Committees

[The Chair]

I hope that the Minister is not anticipating the tumbrels rolling at the end of his speech, as in the French revolution.

[The Financial Secretary to the Treasury (Mel Stride)]

Very good. There will be no singing of “The Red Flag” on this side, Mr Howarth.

[Bim Afolami (Hitchin and Harpenden) (Con)]

“La Marseillaise”?

[Mel Stride]

Maybe. It is a pleasure to serve under your chairmanship, Mr Howarth. I will turn briefly to points raised by the hon. Member for Stalybridge and Hyde.

[Sir Robert Syms (Poole) (Con)]

Will my hon. Friend give way?

[Sir Robert Syms]

There is a sort of revolution going on in Paris as a result of high fuel duties, which of course the Opposition want.

[Mel Stride]

As my hon. Friend pointed out in his remarks on earlier clauses, we have frozen fuel duty for nine successive years—but perhaps we had better get back to the matter in hand, revolutions and fuel not featuring particularly in clause 65.

First, the hon. Member for Stalybridge and Hyde feels that this tax is seen as one of the least fair. It is certainly true that it is one of the least popular taxes; I would accept that. However, it only typically applies to about 4% or 5% of estates, although the public generally assume that it applies much more widely. That, of course, is a consequence of the policies we brought in to extend the thresholds, which we have been discussing. As the hon. Gentleman suggests, it brings in about £5 billion a year and, in terms of its fairness across the range of different wealth levels, I can inform him that 70% of inheritance tax is raised from those with estates valued at over £2 million, so the vast bulk of it comes from those who are significantly wealthy.

The hon. Gentleman quite rightly raises the general question of keeping taxes under review and looking at inheritance tax. He gave various examples of the work of others in that respect and made various suggestions. He will be aware that the Office of Tax Simplification is reviewing inheritance tax, and has already reported on the administration and guidance relating to it, with which there are various issues. In the spring of next year, it will also report on the policy area itself, and we will look with great interest at the report when it comes out. [Interruption.] May I correct something I have just said? Perhaps I am bad at reading handwriting here. The 70% relates to those with an estate of over £1 million, rather than £2 million.

The hon. Gentleman raises perfectly legitimate questions that we should be asking about the reliefs associated with agricultural land and woodlands, and the different approaches that those who can afford advisers and so on may seek to take to lower their inheritance tax. All those things will make for interesting debate and consideration when the OTS reports back in spring.

The Government are introducing these changes to clarify the working of the downsizing rules, and to provide certainty about when a person is treated as inheriting property. The residence nil-rate band reduces the burden of inheritance tax for families by making it easier to pass on the family home to children or grandchildren, and the band is an additional threshold available when a residence is being passed to a direct descendant. As the hon. Gentleman set out, the value in 2018-19 is £125,000. That will rise to £175,000 by 2020-21. Any unused threshold can be transferred to a surviving spouse or civil partner. The unused threshold is also available when a person has downsized to a less valuable property and passes on the proceeds from selling their home, instead of the property itself, to their children or grandchildren.

The Government announced those reforms in 2015 to ensure there would be an inheritance tax threshold of up to £1 million for married couples and civil partners by the end of this Parliament. That was a manifesto commitment, which I am pleased we have delivered, but it is right that we make changes to the legislation where necessary to ensure that the policy works as intended.

The changes made by clause 65 will correct two areas of the residence nil-rate band. First, the downsizing provisions were introduced to ensure that people would not lose access to this additional nil-rate band by, for example, moving house to meet their long-term care needs. However, the wording in the current legislation means that these provisions could apply in an upsizing scenario. That was never the intention and the changes will correct it.

Secondly, we believe that the additional threshold should be available only when the family home passes directly from an individual to their direct descendant on death. The changes will correct an anomaly in the legislation whereby the threshold could be available for a family home passed into a trust, where the direct descendants do not inherit the property. While the changes are important for revenue protection, we expect them to affect very few estates.

There has been one amendment proposed to this clause, which proposes reviewing and laying a report on the revenue effects of the changes. Amendment 122, however, is not necessary. The clause corrects the working of the residence nil-rate band and has no impact on wider inheritance tax policy. Consequently, there will be no revenue effects as a result of the clause. I therefore ask that the amendment be withdrawn and commend the clause to the Committee.

[Jonathan Reynolds]

I wish to press the amendment to the vote.

Question put, That the amendment be made.