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Mr. Heddle : It may be news to you, Mr. Deputy Speaker, that I failed to satisfy the examiners in the general certificate of education at O-level on four successive occasions. Similarly, I have failed to satisfy the Chairman of the Committee of Selection and to be selected to serve on a Finance Bill Standing Committee on no less than nine successive occasions. Therefore, I suspect that I shall have to disappoint the hon. Member for Wrexham (Dr. Marek) in his kind invitation to join him in smoke-filled rooms in another part of this Palace next year.
I am well aware of the case in Newcastle to which the hon. Member for Berwick-upon-Tweed (Mr. Beith) referred. He illustrated very graphically the reason why, in equity and in practical terms, I would have wished my hon. Friend to accept the amendment. Such is my respect for
Column 1063my hon. Friend the Economic Secretary to the Treasury and such is my respect for the fact that he has taken on board a number of proposals that I have made to him informally in the past, so that when he says at that Dispatch Box that he is unable to accept the amendment, even if it were technically correct, I know that his word is as good as his bond. Therefore, with great reluctance, I have no alternative but to beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn.
Amendments made : No. 73, in page 194, line 18, leave out (5) above' and insert (7) below'.
No. 74, in page 194, line 45, leave out
prescribed by the Treasury under section 160(5)'
applicable for the purposes of section 160'.-- [Mr. Norman Lamont.]
Amendment made : No. 51, in page 210, line 27, at end insert-- 3A.--(1) Section 541 shall be amended as follows.
(2) After subsection (4) there shall be inserted--
"(4A) Where, immediately before the happening of the chargeable event, the rights conferred by a qualifying endowment policy are held as security for a debt owed by a company, then, if--
(a) the conditions in subsection (4B) below are satisfied, (
(b) the amount of the debt exceeds the total amount previously paid under the policy by way of premiums, and
(c) the company makes a claim for the purpose within two years after the end of the accounting period in which the chargeable event happens,
this section shall have effect as if the references in subsection (1)(a) and (b) to that total amount were references to the amount of the debt.
(4B) The conditions referred to in subsection (4A) above are-- (
(a) that, throughout the period beginning with the making of the insurance and ending immediately before the happening of the chargeable event, the rights conferred by the policy have been held as security for a debt owed by the company ;
(b) that the capital sum payable under the policy in the event of death during the term of the policy is not less than the amount of the debt when the insurance was made ;
(c) that any sum payable under the policy by reason of the chargeable event is applied in repayment of the debt (except to the extent that its amount exceeds the amount of the debt) ;
(d) that the debt was incurred to defray moneyapplied--
(i) in purchasing an estate or interest in land to be occupied by the company for the purposes of a trade carried on by it, or (
(ii) for the purpose of the construction, extension or improvement (but not the repair or maintenance) of buildings which are or are to be so occupied.
(4C) If the amount of the debt is higher immediately before the happening of the chargeable event than it was at some earlier time during the period mentioned in subsection
Column 1064(4B)(a) above, the amount to be taken into account for the purposes of subsection (1) above shall be the lowest amount at which it stood during that period.
(4D) If during the period mentioned in subsection (4B)(a) above the company incurs a debt by borrowing in order to repay another debt, subsections (4B) and (4C) above shall have effect as if, where appropriate, references to either debt included references to the other."
(3) In subsection (5), after paragraph (b) there shall be inserted "and
(c) "qualifying endowment policy" means a policy which is a qualifying policy by virtue of paragraph 2 of Schedule 15 ;".'.-- [Mr. Norman Lamont.]
(2A) For the purposes of sub-paragraph (2) above "redemption" does not include any redemption which may be made before maturity only at the option of the person who issued the security (and no other person).'
Mr. Lilley : The amendment arises from a commitment made by the Government in Committee to ensure that a security is not treated for tax purposes as a deep gain security simply because its terms of issue give the issuer the option to redeem it before its stated maturity.
Such options for the issuer to redeem the bond early--or call options, as they are often known--will usually involve the payment of either a fixed premium or an amount linked to the market value of some other comparable security. The idea is to compensate the lender for the dislocation of his investment and to allow him to invest in an instrument with a yield at least as attractive as the one which is being redeemed early. However, where this premium is great enough to constitute a deep gain--or is not known for certain but could be great enough--the security is classified as a deep gain security. It is then taxed according to the provisions of schedule 11, as currently drafted.
Issuer options of this kind are features of a wide range of bonds, some of which are in other respects deep gain securities but many of which are not, including some convertibles and some straight bonds issued at par or a shallow discount. Such options are outside the control of the investor.
Following the publication of the Finance Bill, we received a number of representations about the nature of such bonds. We came to the conclusion that in this respect the provisions of schedule 11 had been cast too wide and that it would not be right for a bond to be taxed as a deep gain security solely because of its issuer options. The amendment ensures that options for the issuer to redeem a bond before its stated maturity are disregarded in determining whether it is a deep gain security. This means that a bond will not be a deep gain security for tax purposes if it has no other feature which would make it one. If, on the other hand, it is a deep gain security for some reason other than its issuer options--for example, it is issued at a deep discount and has a variable coupon--it will fall squarely within schedule 11. I hope that that is clear to the House. Amendment agreed to.
Column 1065Amendments made : No. 80, in page 215, line 49, leave out and' and insert--
(cc) is not a convertible security, and'.
No. 81, in page 216, line 37, leave out or'.
No. 82, in page 216, line 42, at end insert
(c) the security was issued before 9th June 1989 and was quoted in the official list of a recognised stock exchange on 8th June 1989, and under the terms of issue the amount payable on redemption is determined by reference to the movement of a published index of prices of shares quoted in the official list of a recognised stock exchange.'.
No. 83, in page 217, line 12, leave out from applied' to it' in line 13 and insert
to determine the amount payable on redemption or to determine interest'.
No. 84, in page 217, line 40, at end insert--
(8A) For the purposes of sub-paragraph (5) above "redemption" does not include any redemption which may be made before maturity only at the option of the person who issued the security (and no other person).'.
No. 85, in page 217, line 50, at end insert--
(9A) In a case where the terms of issue contain provision for the amount payable on redemption to be not less than an amount stated in the terms, the provision shall not prevent the fourth condition being fulfilled if--
(a) the security was issued before 9th June 1989, and
(b) the amount stated does not constitute a deep gain (within the meaning given by paragraph 1(8) above).
(9B) In a case where--
(a) the terms of issue contain provision for the amount payable on redemption in any of the qualifying circumstances (set out in sub-paragraph (10) below) to be not less than an amount stated in the terms, and
(b) the security was issued before 9th June 1989,
the provision shall not prevent the fourth condition being fulfilled.'.
No. 86, in page 218, line 1, leave out sub-paragraph (7)' and insert
sub-paragraphs (7) and (9B)'.
No. 87, in page 218, line 9, at end insert--
(d) the security was issued by a company before 9th June 1989 and a person gains control of the company in pursuance of the acceptance of an offer made by that person to acquire shares in the company.'. No. 88, in page 218, line 15, at end insert--
(13) For the purposes of this paragraph "control" (in relation to a company) shall be construed in accordance with section 840 of the Taxes Act 1988.'
No. 89, in page 218, line 15, at end insert--
Convertible securities 2A.--(1) For the purposes of paragraph 1 above a security is a convertible security if--
(a) it was issued by a company before 9th June 1989,
(b) under the terms of issue it can be converted into or exchanged for share capital in a company (whether or not the company is the one which issued the security), and
(c) the condition set out in sub-paragraph (2) below is fulfilled. (2) The condition is that--
(a) at some time in the qualifying period the security was quoted in the official list of a recognised stock exchange,
(b) at some time in that period relevant share capital was so quoted, or
(c) each of paragraphs (a) and (b) above is satisfied (though not necessarily as regards the same time).
(3) For the purposes of sub-paragraph (2) above the qualifying period is the period of one month beginning with the day on which the security was issued ;
(4) For the purposes of sub-paragraph (2) above relevant share capital is share capital in the company into whose share capital the security can be converted or for whose share
Column 1066capital the security can be exchanged ; and relevant share capital need not be share capital into or for which the security can be converted or exchanged.
(5) References in this paragraph to share capital are to share capital by whatever name called.'.-- [Mr. Norman Lamont.]
(c) For the purposes of this section, use and occupation of any property by a Scottish partnership shall, notwithstanding section 4(2) of the Partnership Act 1890, be treated as use and occupation of it by partners'.
The amendment has been proposed by the Institute of Chartered Accountants of Scotland to which I am an adviser. It is a technical amendment and its purpose will be fairly evident to my hon. Friends.
In the Finance Bill as it stands the holdover relief, which is intended to be availabe to individuals and trustees on the gift of business assets, will be denied to members of Scottish partnerships. In law, under the Partnership Act 1890, the Scottish partnership, unlike an English partnership, is a separate legal person. The amendment will, therefore, ensure that members of a Scottish partnership receive identical treatment to other partners and that the transfer of business property of a partnership by way of gift can benefit from the capital gain being deferred. It does not change the purpose of schedule 14. The problem arises from the 1890 Act. I hope that my amendment will receive a sympathetic response from my right hon. Friend.
Mr. Norman Lamont : The amendment seeks to preserve capital gains tax gifts relief for business assets used in Scottish partnerships. I am advised that I am able to reassure my hon. Friend that his amendment is unnecessary. Although in partnership law a Scottish partnership is treated as an independent entity, for capital gains tax purposes it is transparent. That follows from specific provisions in section 60 of the Capital Gains Tax Act 1979.
Accordingly, gifts relief, like retirement relief, will be available to partners on gifts of business assets used in a Scottish partnership in exactly the same way as for partners in an English partnership.
I shall, of course, study what my hon. Friend has said. If anything causes me to re-examine the advice given to me I shall do so. I am, however, advised as I have told my hon. Friend.
The amendment effectively removes the definition of a holding company, a trading company and a trading group. My purpose is to offer the House the opportunity to
Column 1067debate the implications of the Chancellor's proposals in the Bill on capital gains tax holdover relief. At this late hour I doubt that that invitation will receive many takers.
Holdover relief means the postponement of capital gains tax until such time as assets are sold. It was rightly introduced by the Government to avoid double capital taxation through capital transfer tax and capital gains tax and to encourage the creation of wealth. It has worked extremely well.
In 1986, however, the Chancellor abolished capital transfer tax on lifetime gifts and introduced inheritance tax instead to encourage lifetime giving or the passing of one's assets to the next generation. That was a welcome move.
Now the Government seem to be reimposing a tax on lifetime giving as clause 124 repeals the general holdover relief for gifts or disposals made after 14 March 1989, although it retains it for gifts of business, farm and heritage assets ; and, of course, gifts between husband and wife will continue to be exempt. The issue was given an airing in Standing Committee and is recorded in column 456 of the Official Report. The Government have now brought forward their amendment to allow capital gains tax gifts roll- over relief to be retained for agricultural landlords qualifying for agricultural property relief at 30 per cent. Therefore, my right hon. Friend the Chancellor has demonstrated his willingness to consider specific categories of investor. I believe that 51 per cent. family-owned trading companies also join the list of exemptions.
I argue that the Chancellor's list of exemptions is too narrow, but, more important, the arbitrary nature of the holdover reliefs that are left in place is contrary to the declared strategy of our party on taxation. I note that Butterworth's Handbook says :
"The restriction of hold-over relief will have a profound effect on estate planning, for it will mean gifts of assets with substantial accrued gains are unattractive. Unless the gift is one of those limited categories where hold-over relief is still available, it will carry the risk that both CGT and IHT will be payable."
I do not know how much revenue the Budget proposal on this issue is likely to raise. I believe that £40 million was mentioned, but perhaps my right hon. Friend the Financial Secretary will enlighten us when he replies.
With the leave of the House, it is my intention to withdraw my amendment if I can prise out of my right hon. Friend an undertaking to receive representations from individuals and companies, particularly close companies on which the proposal is harsh, and to monitor most closely the effect of his measures so that in next year's Budget the list of exemptions can be widened so as not to deter the creation and retention of wealth.
In essence, the Finance Bill restores the position on capital taxes relief on transfers which existed in the last year of the last Labour Government. A Conservative Finance Act should move away from Socialist measures, not return to them.
Dr. Marek : If the Act restores the position which existed in 1979, the Opposition would say that it was probably a far fairer and more sensible measure. However, we do not want to argue at this stage. Will the Financial Secretary give an estimate of the cost to the Treasury that would be incurred if the amendment was accepted?
Mr. Norman Lamont : I cannot give an estimate of the cost because I am not precisely clear what the amendment is meant to do. It does not have the effect that my hon. Friend the Member for Romsey and Waterside (Mr. Colvin) described.
We have abolished holdover relief because there is no longer a danger of the double charge. As my hon. Friend said, some types of assets still receive holdover relief. I think that he was arguing that that category should be widened. I am prepared, without commitment, to listen to any representations made on that subject.
Amendments made : No. 58, in page 239, line 31, after sub-paragraph (2),' insert
the words "at the rate of 50 per cent." shall be omitted, and'. No. 59, in page 240, line 24, after sub-paragraph (2),' insert the words "at the rate of 50 per cent." shall be omitted, and'. No. 60, in page 241, line 2, leave out
at the rate of 50 per cent.'.
No. 61, in page 241, line 13, leave out (a)'.
No. 62, in page 241, line 17, leave out (b)' and insert
No. 63, in page 241, line 18, leave out 5' and insert 25'. No. 64, in page 241, line 20, at end insert
(b) the transferor is an individual and, at any time within that period, the company is his family company.'.
No. 65, in page 241, line 36, leave out
a chargeable gain would accrue'
and insert a gain accruing'.
No. 66, in page 241, line 38, at end add
would be a chargeable gain'.
No. 67, in page 242, line 38, at end insert--
(cc) by virtue of subsection (4) of section 71 of that Act (accumulation and maintenance trusts) does not constitute an occasion on which inheritance tax is chargeable under that section,'. No. 68, in page 245, line 15, leave out from beginning to end of line 20.-- [Mr. Lilley.]