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I shall not accept the amendments tabled by the hon. Member for Arundel and South Downs (Mr. Flight), and shall remind the House of the purpose of heritage maintenance funds and trusts: they are designed to maintain historic buildings and other heritage assets. There are fewer than 150 such trusts in
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the UK, but the Government understand and value their role in preserving the nation's historic buildings and works of art. In his amendments, the hon. Gentleman attempts to tie a beneficial structure with a narrow purpose to the pre-owned assets that we shall discuss later. He is therefore inadvertently allowing some people with access to creative tax planning to reopen their heritage maintenance funds and plan their affairs, following changes introduced by the Bill, so that they are no longer liable for inheritance tax.
As I have said, we accept the need for heritage maintenance funds, which is why the Government continue to provide certain tax privileges for them that are not threatened in any way by the Finance Bill. The hon. Gentleman's amendments would expand those privileges. Property may be transferred into a settlement free of inheritance tax if the income from that property is used for the preservation of land, buildings or objects of artistic or historic interest. Payments made by a heritage maintenance fund and used for the maintenance of a property are not treated as the income of the person occupying that property. Heritage maintenance funds feature in a number of exclusions from capital gains tax anti-avoidance rules. The Government's position is therefore clear: we support the use of these funds for genuine heritage purposes, but we will not agree to amendments that seek to extend those privileges or allow a small number of extremely wealthy peoplethere are only 150 truststo have a vehicle to circumvent the requirement that property and works of art should be subject to inheritance tax or treated as pre-owned assets.
The hon. Gentleman has not explained why the current structure of the heritage maintenance funds does not work or why it should be amended. He has not revealed any flaws in it or a lack of support for the maintenance of historic buildings. His amendments seek to allow greater benefits than is justified, so I shall not support them should he put them to a vote. However, he sought confirmation of something that I confirmed earlier in Committee. Yes, the Inland Revenue has discussions with the Historic Houses Association. We have similar discussions with the Department for Culture, Media and Sport about how to preserve our heritage, works of art and designated property or land while maintaining the principles and the balance of the tax system. I cannot assure the hon. Gentleman that his amendments will eventually be accepted in those discussions, but I can reassure him that the Government will continue to play an active part by engaging with all relevant bodies to ensure the continued preservation of this country's heritage. The taxpayer can play a role in that, whether through tax exemptions or specific structures. On that basis, I ask the hon. Gentleman not to press the amendment to a vote, but if he feels that he needs to do so, I would ask my hon. Friends to oppose the amendment.
The Paymaster General failed to respond to the first and last of the territories that I raised. The first territory has nothing to do with the pre-owned assets charge, and simply concerns the rise in the tax charge on maintenance funds from 34 to 40 per cent.
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The full programme of Government changes to the taxation of trusts makes sense in that a full look through will occur, and taxation will fall to the tax rate of the beneficiary, which seems to be a sensible approach. However, that approach is not relevant to increases to the tax rate on maintenance funds. It is inconsistent for the Government to leave the tax charge on vehicles for the vulnerable at 34 per cent., while increasing the tax charge on vehicles for looking after properties. Although buildings are not as important as individuals, it seems unreasonable not to consider that point.
Dawn Primarolo: The hon. Gentleman misses the point. The income and gains arising in respect of the property and heritage maintenance fund will be taxed either at the marginal tax rate of the person who settled the property into the trust or the trust-applicable rate. The basic rate taxpayer will pay tax at the basic rate, and the higher rate taxpayer will pay tax at the higher rate, which is perfectly reasonable. The hon. Gentleman is asking for the higher rate taxpayer to pay at a lower rate and for the basic rate taxpayer to pay at the basic rate, which cannot be fair.
Mr. Flight: The Paymaster General misses the point that those vehicles are not tax wraps from which individuals benefit, because the money goes into the maintenance of a property rather than into an individual's pocket. The point of maintenance funds is to allow people both to own and to look after an historic property. The situation is not analogous to a trust where an individual is the beneficiary and draws the income for their personal benefit.
The second territory is the technical point that the section 691 election becomes redundant as a result of the changes to the taxation of trusts, and it seems to me that it is technically rather inappropriate to have exemptions continuing that are dependent on tax issues that have gone away.
The Paymaster General does not understand this point as I understand it, but if she were involved in the wretched business of maintaining an historic housenot that I own oneperhaps she would. People structure their affairs in various different ways in order to ensure that their properties are looked after and handed on to the next generation to look after. Those arrangements are not about pulling a fast one on the Revenue, and essentially concern the maintenance of historic houses.
Those who were unwise enough to believe what the Inland Revenue told them and the implication of the Government's actions, which we shall debate shortly, and who chose to structure their arrangements in order to fall into the category that the Government are now attacking with their retrospective pre-owned assets tax, will not have enough money to pay for their properties, which will have to be disposed of. If that is what the Government want, then that is fine.
The issue concerns worthwhile buildings rather than people, and a fairer tax system would provide a transition relief to allow people to choose to alienate themselves from their property, which they could put into a maintenance fund with money to look after it. People might have done that in the past, if they had known that the rules would change retrospectively. The
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situation does not concern people having their cake and eating it, and one must examine who benefits from the individuals involved, who are not individual beneficiaries, alienating the assets.
No. 73, in page 53, line 32, after '76(1)(aa)', insert ', (a), (c) or (ca)'.[Dawn Primarolo.]
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