Mrs. Thatcher
I beg to move Amendment No. 136, in page 72, line 18, at the end to insert:
9. In paragraph 5(b) of Schedule 18 to the Finance Act 1965 after the words ‘the trustee or trustees of any settlement’ there shall be inserted the words ‘other than the trustees of any settlement established for charitable purposes only and registered under the Charities Act 1960’.
I hope that Niall MacDermotthe Financial Secretary will consider this Amendment with a view to telling us something about it on Report if he cannot accept it now. The matter concerns debenture interest. As the hon. and learned Gentleman knows, the normal rule is that debenture interest is allowed in computing liability for Corporation Tax. The normal rule is altered with regard to close companies when a debenture interest would not be allowed as far as it was a distribution to a director or to an associate of a director.
I have a very special case concerning charitable trusts. It arises in this way. Two directors made very extensive charitable settlements for the benefit of the employees of a company, and other settlements for general charitable purposes. Those settlements were made for charitable purposes only, for registered charities. It so happens that when one considers paragraph 5 of the Eighteenth Schedule to the Finance Act in conjunction with paragraph 9 (1, a) of the Eleventh Schedule to the Finance Act, one finds that trustees of a charitable settlement set up by the director of a close company are to be regarded as associates of that director. Because those trustees are regarded as associates of that director, debenture interest would be treated as a distribution. This means that the charity suffers very considerably indeed. They are charities which are wholly for charitable purposes and are registered charities.
We therefore proposed an Amendment which would provide that debenture interest which goes to settlements made under those circumstances would not be a distribution for the purposes of this provision. This would be a tremendous help to the charity and I hope that the Financial Secretary will consider the point. Last year, he made certain relieving provisions with regard to pension funds, and so I hope that this year he will make certain relieving provisions for [column 1242]settlements which are set up for charitable purposes only.
Mr. MacDermot
The hon. Lady invited me to give a reply indicating a willingness to consider this matter further before Report. I would not wish to encourage her particularly in that form, but rather to say that I would be willing, as I was last year, to consider the circumstances of any case that the hon. Lady brought to my attention so that we could examine further whether we think any alteration of the law would be justified and would be possible in a way that could be contained.
I must say that the Amendment as it stands at the moment would be too wide, and we could not accept it. I understand that there could be what I may call perfectly genuine cases of the kind which she is describing, but equally I am afraid, unfortunately, it is the experience of the Revenue that attempts are from time to time made to use charitable status for purposes of tax avoidance.
One does not have to be of a peculiarly suspicious mind to envisage a case where a person could make a trust which was a charitable trust and then arrange for the funds to be provided back by way of loan finance to the company in a way in which one could take the realistic view that the settlor had not relinquished control, and that this was being used as machinery for avoiding the rules that we have just been discussing.
Without going into detail, the intention is that one cannot accept the Amendment as it is. Nevertheless, the hon. Lady said that she has a particular case in mind, and if she cares to let me have particulars, I will, without any kind of undertaking, willingly look into it.
Mrs. Thatcher
I will willingly respond to the hon. and learned Gentleman's invitation, and now beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.