Embargo: 00:01 Friday 23 June 2006

Contact: Owen Williams 020 7219 8659


In a report on this year's Finance Bill, which is currently before the Commons, a House of Lords select committee has criticised the Government for lack of consultation before changes were introduced to the way that family trusts are subjected to inheritance tax and for not making its objectives sufficiently clear.

The House of Lords Economic Affairs Committee examined in depth three aspects of this year's Finance Bill - further measures to counter avoidance of direct tax, new measures to deal with Missing Trader Intra-Community VAT fraud, and changes to the way that family trusts are subjected to inheritance tax. In its report, published today, the committee is generally supportive of the Government's actions to counter direct tax avoidance and VAT fraud, but it is critical of the way in which the new inheritance tax measures have been handled. It does not accept the Government's argument that consultation on these measures could not have taken place without inviting forestalling.

The Committee also draws attention to the impact which the new measures, designed to close tax loopholes through the use of trusts, could have on trusts which are used for ordinary family purposes with no tax avoidance motive. And it is critical of the Government's lack of transparency in making clear the intentions behind the new rules.

Lord Wakeham, Chairman of the Committee, said:

"We welcome the follow-up action in the Finance Bill to close direct tax loopholes. We note that previous steps in this direction have already produced something of a behavioural shift away from the widespread use of artificial avoidance schemes. And we support the further action proposed to counter VAT fraud.

"We welcome also the fact that the Government has introduced a large number of amendments designed to deal with some of the criticisms of its measures on the taxation of trusts.

"However, a lot of people have been needlessly worried by the original proposals, and there might have been little need for amendments if the Government, before introducing the measures, had consulted on them in such a way as to make clear its objectives in countering tax avoidance.

"This is not in our view the way in which tax changes should be made"


Notes to Editors

1. The report on the Finance Bill 2006 has been made by the House of Lords Economic Affairs Committee (EAC) following an inquiry by its Finance Bill Sub-Committee. The sub-committee's members were:

Lord Wakeham (chairman)

Lord Barnett

Lord Blackwell

Lord Lamont of Lerwick

Lord Paul

Lord Powell of Bayswater

Lord Sheldon

Lord Sheppard of Didgemere

Lord Vallance of Tummel

2. The report is published by The Stationery Office, The Finance Bill 2006, House of Lords Economic Affairs Committee, 6th Report of session 2005/06, HL Paper 204-I, ISBN 0104009047, Price £13.50

3. Copies will be available to journalists under embargo from 11am on Thursday 22nd June in the Parliamentary press gallery and from the reception of 2 Milbank. To arrange to collect an embargoed copy please contact Owen Williams on 020 7219 8659.

4. The full report will be available online shortly after publication at:

5. This is the fourth year in which the EAC has appointed a sub-committee to examine selected clauses of the Finance Bill. The sub-committee is limited by its terms of reference to examining matters concerned with the administration, clarification or simplification of taxation proposals rather than with the proposed rates or incidence of taxes. The aim of the inquiries is to provide information to both Parliament and the Government as the Bill proceeds through its stages with a view to amendments being tabled at Third Reading in the House of Commons and to an informed debate at Second Reading in the House of Lords.

This year the sub-committee selected three topics, two of which - measures to counter the avoidance of direct tax and to counter VAT fraud - had been investigated in previous years but in respect of which the Government is proposing further measures. The third topic was a new one, focusing on the Government's proposals to change the inheritance tax treatment of family trusts.

The inquiry was carried out over a period of five weeks and involved the hearing of evidence from leading organisations concerned with the tax proposals put forward and from officials of HM Treasury and HM Revenue and Customs.