Sep 2005 Journal

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AJR advises government on tax exemption

The British government will introduce legislation in next year's Finance Bill to make exempt from income and capital gains tax Holocaust-era restitution awards.

With the establishment of international indemnification procedures such as the $1.25 billion Swiss Bank Settlement, it was clear that successful applicants would receive significant restitution awards. Balances held before and during the Second World War would be returned, together with interest and capital adjustments, to reflect the change in the cost of living.

It was also apparent that today's beneficiaries of restitution would have to pay income and capital gains tax on these awards. In real terms, this meant that the Swiss - and other banks - that kept assets belonging to Jewish victims of the Holocaust would effectively be transferring money to the British government.

In responding to this patently unjust situation, the AJR advised the British government of the need to make exempt from tax Holocaust-era restitution awards.

The government's initial response was favourable. But they needed to investigate the precise parameters of our request. They did not want to spend time and money introducing legislation that would quickly become obsolete. Any change in the law would have to be as comprehensive as possible.

Investigations necessarily included extensive contact with the department of the Swiss Banks Settlement responsible for processing dormant account applications: the Claims Resolution Tribunal. The Claims Resolution Tribunal was able to provide detailed explanations of their work as well as the numbers of UK claimants, which would help give the government some approximation of the likely tax bill it was being asked to waive.

The government also took advice from the AJR as to other, comparable restitution schemes, including initiatives in The Netherlands, France and Belgium, to return unused bank assets.

The government was able to appreciate fully the terms of the AJR's request because of the extra-statutory concession A100 that was introduced in 2000 to make exempt from tax awards made in connection with dormant accounts in British banks. Included at that time were assets originally sequestered under the 1939 Trading with the Enemy legislation.

In her statement announcing the introduction of legislation, the Paymaster General, Dawn Primarolo MP, said: 'Since the introduction of the extra-statutory concession it has come to light that comparable payments may be made to Holocaust victims or their heirs in respect of monies held by the banks of other countries.

Following discussions with the Association of Jewish Refugees, the Government proposes to bring forward legislation in the next available Finance Bill. The legislation will exempt from income tax and capital gains tax payments made to Holocaust victims or their heirs when they are broadly comparable to the awards made under the "Restore UK" scheme run by UK banks. This will include any amount designed to cover interest and inflation by increasing the account balance to make it a fairer reflection of the amount originally deposited.'

Recipients of qualifying awards where tax has already been paid will be entitled to a rebate, while claimants expecting a payment do not need to include the award in future tax returns. The Finance Bill will also make provision for an exemption from retrospective inheritance tax where the estate or heirs received an award in respect of someone who died before the schemes were introduced.

Responding to the ministerial statement, AJR Treasurer and Vice-Chairman David Rothenberg said: 'We are delighted that the government has responded positively to our request to introduce this important extension to Holocaust victims and their families of the concessions which applied to compensation from British banks. The new legislation will enable the families of Holocaust victims to receive the full benefit from their awards.'
Michael Newman

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