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Philip Hammond signals rethink on 'anti-democratic' tax demands sent to referendum donors after Brexit row

Philip Hammond MP - © 2018 Bloomberg Finance LP
Philip Hammond MP - © 2018 Bloomberg Finance LP

Private donations to referendums might not be taxed in future, a Treasury minister has said, after an outcry over 'anti-democratic' tax demands running into millions of pounds were sent to Brexit donors.

Philip Hammond, the Chancellor, is said to be “sympathetic to looking carefully” at the changing tax law so that large scale donations to referendums campaigns by private individuals are not subject to inheritance tax.

However any change as result of the rethink will not affect the demands running into millions of pounds which were sent to the prominent donors to the 2016 European referendum campaigns.

Last night donors facing the large bills welcomed the change of heart – but urged Mr Hammond to change the law retrospectively.

In the letters the tax authorities had seized upon a relatively obscure area of inheritance tax laws which forces people to pay the 20 per cent tax upfront on large "gifts" during their life times.

The demands were attacked by Boris Johnson, the Foreign Secretary, and Michael Gove, the Environment secretary, who both led the Vote Leave campaigns, as anti-democratic.

In the House of Commons on Tuesday, Conservative MP Jacob Rees-Mogg said it was "deeply unfair" for people who contributed to referendums linked to changing the voting system, Scotland and the EU to receive such bills.

Mel Stride, the Financial Secretary to the Treasury, added any reforms would be considered for future campaign referendums, with the Treasury's position not to apply tax changes retrospectively.

Mr Stride replied: "There is an exemption to the charge for inheritance tax relating to donations to political parties that does not exist in relation to donations to referendum campaigns.

"But I can inform him I and the Chancellor have discussed the issues he has raised over the previous weeks and we're sympathetic to looking carefully at how the law may be changed for future campaign referendums."

Mr Rees-Mogg added that in the past nine years there have been 23 “retroactive tax changes” where there has been unfairness, error or unduly onerous taxation.

Mr Stride replied that the Treasury would not apply any changes “retrospectively”.

Brexit donors welcomed the news of a rethink but called for them to be applied to the existing bills which have been levied since the 2016 referendum.

Peter Cruddas, a City financier who is facing a demand of £200,000 on his £900,000 donation, said the admission was an “acknowledgement that the Government think the law was not intended to tax donations by publicly spirited people.

“Clearly it [the current law] is either right or it’s wrong, and if it is wrong it should be back-dated.”

Jeremy Hosking, a fund manager who is facing a £320,000 bill on his £1.6million donation to the Leave campaign, said that "thousands of worthy, local causes which do not enjoy charitable status" were also potentially liable for the tax charge.

He said: “Many think tanks also will have to be cut back. In order to apply the law fairly, the HMRC will have to levy piffling amounts of IHT on ordinary people's good intentions.

“Not all these people are Brexiteers, Mr Hammond!  This is bad law, badly applied. Surely a full, retrospective reversal is the logical next step?”

Stuart Wheeler, a spread betting millionaire who paid his bill of £250,000 on his £1million to the leave campaign “three months ago”, said changing the law now as a “classic case of closing the stable door after the horses have bolted. 

“There is no particular reason why, in future referendums, the government should have an extremely strong view supporting one side or the other.

"If ever anything needed putting right it is this.  In my case, the huge amounts involved have sadly caused me to halve the regular donations I make to charities for excellent non-controversial causes."

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