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'(6)   This paragraph will not apply where the chargeable person occupies the relevant land pursuant to a right or interest granted or acquired at least seven years before the earliest date on which the disposal condition or the contribution condition was met.'.

Amendment No. 5, in page 358, line 36, leave out '17th March 1986' and insert '19th June 2003'.

Amendment No. 47, in page 358, line 36, leave out '17th March 1986' and insert '9th December 2003'.

Amendment No. 6, in page 358, line 44, leave out '17th March 1986' and insert '19th June 2003'.

Amendment No. 48, in page 358, line 44, leave out '17th March 1986' and insert '9th December 2003'.

Amendment No. 7, in page 360, line 17, at beginning insert

'Subject to sub-paragraph (4) below,'.

Amendment No. 8, in page 360, line 30, leave out '17th March 1986' and insert '19th June 2003'.

Amendment No. 49, in page 360, line 30, leave out '17th March 1986' and insert '9th December 2003'.

 
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Amendment No. 9, in page 360, line 34, at end insert—

'(4)   This paragraph shall not apply where—

(a)   the chargeable person has a reversionary interest in the settlement (as defined by section 47 Inheritance Tax Act 1984); or

(b)   the chargeable person's interest in the settlement arises only on the termination of the settlement; or

(c)   in the case of a settlement where there is no subsisting interest in possession, the chargeable person is not currently a member of the class of beneficiaries of the settlement; and

(d)   where the chargeable person has no other interest in the settlement.'.

Amendment No. 225, in page 360, line 40, leave out

'of any income tax or capital gains tax'

and insert

'on which any income tax or capital gains tax is'.

Amendment No. 10, in page 361, line 36, at end insert—

'(f)   it is a sale of an interest in land or an undivided share of an interest in land for full consideration in money or money's worth.'.

Amendment No. 226, in page 361, line 48, leave out from 'and' to the end of line 2 on page 362 and insert

'the gift and the acquisition referred to in the said paragraphs were not associated operations as defined by section 268 of IHTA 1984,'.

Government amendment No. 91.

Amendment No. 227, in page 362, line 44, leave out 'and' and insert 'or'.

Government amendments Nos. 92 and 93.

Amendment No. 44, in page 363, line 45, leave out '£5,000' and insert '£50,000'.

Government amendments Nos. 94 to 108.

Amendment No. 11, in page 366, line 41, at end insert—

'24   (1)   This paragraph applies where—

(a)   the provisions of paragraph 3 (land), paragraph 6 (chattels) or paragraph 8 (intangible property) apply to a person during the year of assessment 2004–05 ("the current year") by reference to any property ("the relevant property"); and

(b)   the relevant property is transferred absolutely to the chargeable person during the current year or during the year of assessment 2005–06 either directly or by "associated operations" (as defined by section 268 of the Inheritance Tax Act 1984).

(2)   Where this paragraph applies, no operation by which the relevant property is so transferred shall—

(a)   be a disposition or transfer of value for the purposes of the Inheritance Tax Act 1984,

(b)   be subject to Inheritance Tax under section 65(1) of the Inheritance Tax Act 1984,

(c)   be a disposal for the purposes of paragraphs 3 and 6 above,

(d)   be subject to Stamp Duty Land Tax; and

(e)   the receipt of the relevant property by the chargeable person shall not be subject to Income Tax.

 
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(3)   If any operation by which the property is so transferred constitutes a disposal for the purposes of the Taxation of Chargeable Gains Act 1992, the person making the disposal and the person acquiring the property shall be treated as if the asset was acquired from the person making the disposal for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the person making the disposal.'.

Mr. Flight: The Government's pre-owned assets measures, which are embodied in clause 84 and schedule 15, have elicited more complaint from constitutional lawyers and others than anything else in the Bill. I have been deluged with letters, e-mails and other communications from eminent lawyers, a group of whom are considering taking the matter to the European Court of Justice. Those complaints are made with good reason. What the Government saw as a clever manoeuvre raises major issues of principle in relation not only to the basis of taxation, but to the rule of law; and all sorts of unfairnesses were not fully remedied by the amendments that were passed in Committee. I accept that the Government have addressed some of the worst effects—unintended, I trust—of the measures, but there is still a lot to be considered.

2.30 pm

One aspect of the provision that has given rise to objections is its application to individuals whom the Inland Revenue has previously accepted as being outside the gifts with reservation rules. Its alleged intent is to recoup the tax and punish people who had avoided the gifts with reservation rules. It also applies to some individuals who fall within statutory gifts with reservation exemptions, which were introduced by this Government.

However, the main objection to the provision is that it is retrospective in principle, even if cleverly designed to be retroactive in method. It undermines the traditions of British tax law because the legitimate and reasonable expectations of taxpayers have been denied. It is clearly a piece of inheritance tax legislation in substance, if not in form. The Government's previous policies on inheritance tax cannot be ignored, and must be examined in relation to these proposals.

Rob Marris (Wolverhampton, South-West) (Lab): Will the hon. Gentleman explain how his intellectual proposition differs from what his party did in government when they tapered off, then completely abolished, mortgage interest relief? When we took out our mortgage in 1984, we got mortgage interest relief—that was the reasonable expectation, to use the hon. Gentleman's words. When that was done away with, I happened to support it, but one could have advanced the same argument about retrospectivity in that case.

Mr. Flight: I ask the hon. Gentleman, whose contributions I greatly respect, to be patient, as I was about to go on to explain just that point. As he is well aware, the issue was raised in Committee.

Amendments Nos. 2, 3, 5, 6 and 8 would restrict the starting date of the measure to 19 June 2003, as that was the date on which the Government last amended the gifts with reservation rules. They gave no indication that those changes should have retrospective effect.
 
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Correspondingly, and perfectly reasonably, any taxpayer who had undertaken planning under previous versions of the gifts with reservation rules would have been led to understand that their planning had achieved its objectives. Indeed, in summer 2000, Mr. Peter Twiddy of the Inland Revenue capital taxes office specifically confirmed to the Society of Trust and Estate Practitioners that that was the case. That differs greatly from what Governments do in relation to various tax reliefs, whether to mortgages or pension savings. Individuals who had completed their planning would have acted accordingly. Many took out life policies on a seven-year-term basis to cover the tax liability were they to die within seven years of their gift, but they could have reduced their whole of life cover. They would not have organised their financial affairs on the basis that they would need to pay a rent to live in their own homes.

If the Government had wished to introduce a new income tax in relation to occupation, it would not, much as one might have generally objected to it, have been seen as retrospective. The issue here is that the provision is concerned in substance with inheritance tax and that it is narrow and penal.

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