I will try to address the hon. Lady’s points. First, on inheritance tax and non-domiciled spouses, she correctly mentioned the costs of the policy, which are largely due to an increase in the lifetime limit set out in the Budget documents. Clause 176 increases that limit from £55,000 to £325,000—it has not been increased since 1982, and we wanted to address that to be fair to non-domiciled spouses. That is the reason for the cost.
The yield from measures in clause 134 and schedule 34 comes from two main types of avoidance scheme that will be closed by these provisions. The main impact on one will be relatively short-lived. The hon. Lady is right to point out that we expect tax agents providing tax avoidance schemes to move on to new schemes in other parts of the tax code, and that will have a behavioural impact. That explains the peak in one year—2014-15—and the £15 million yield for subsequent years.
The hon. Lady mentioned the impact on business and I refer her to my earlier remarks—as you will have noted, Mr Deputy Speaker, I covered quite a lot of ground in a fairly lengthy speech. Estates will continue to get a deduction for loans or liabilities, provided they are not used to acquire assets that are not chargeable to inheritance tax and are repaid after death, unless there are genuine commercial reasons for non-repayment. Business and investment decisions are made on a range of factors, including tax. One of the Government’s key principles for good taxation is that the tax system should be efficient. It should neither favour nor penalise one form of lending or security over another. The new provisions will ensure that this is the case.
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The hon. Lady referred to a point raised by the Chartered Institute of Taxation that debts not discharged directly out of the estate will not be IHT deductable. The definition of “out of estate” will be extended by amendment 45 to include indirect assets not normally included in the estate, such as excluded property. Otherwise, no deduction will be due, but this reflects the economic consequence of incurring a liability and repaying it. It would disadvantage the Exchequer to provide for relief where debts are not repaid and do not reduce the inheritance tax being passed on.
On whether that will harm business, and whether the amendments deal with concerns that have been raised, it is worth pointing out that independent research published in the SME Finance Monitor suggests that the majority of business overdrafts and loans are unsecured. Where security is provided, it is typically in the form of a charge on business property, such as commercial mortgages. That is supported by a review of recent IHT returns. Most estates with such liabilities will therefore be unaffected by the changes.
On consultation, the provisions are designed primarily to tackle avoidance schemes, such as those involving debts between connected parties. As is normal practice for such measures, there was no consultation and draft legislation was not published in advance. To do so would have exposed the avoidance schemes to greater publicity, potentially encouraging more schemes to be set up. Following the publication of the Finance Bill, the Government, as expected, received comments from interested parties and are responding to the many concerns raised by tabling amendments on Report to clarify and improve the Bill.