Mr. Flight: I thank the Minister, but I am still not clear what she is saying, because she has not answered my specific question. Two agreements may happen in parallel, one agreement for the sale of land owned by a pension fund and the other for the sale of a business owned by someone else, for example. Will the new penalty rules apply to the sale of the business when the business relates to land being sold at the same time? I think that the Minister is saying that they will not apply, but her words were unclear. This probing amendment seeks clarity on the matter.
Ruth Kelly: I understand the hon. Gentleman's point. He seeks an understanding from the Government as to whether a deal involves or includes United Kingdom land, and what the relationship is between the two. It is my understanding that if the transfer of business includes United Kingdom land, that does not come under the new subsection, which is drafted in such a way as to ensure that free-standing transfers of assets that do not involve United Kingdom land are protected from the new measure.
On the point that the hon. Gentleman raises about whether land is included in the transaction, clearly the measure must apply if the transaction includes United Kingdom land. [Interruption.] I hope that the hon. Gentleman will allow me to write to him on the specific point of the interrelationship between two different deals, one of which includes United Kingdom land while the other does not. However, it is a minor point and the legislation is relatively clear.
Mr. Burnett: I am grateful to the Financial Secretary for giving way. The point that I make actually arises fairly frequently because of the problem of the stamp duty charge. I should be grateful for a copy of the letter that the hon. Lady proposes to write in clarification.
There may be a transaction and two agreements, one relating to land and the other to business assets other than land when the business is carried on on the land. It would be welcomed if the Government would explain to the Committee in due course that the second agreement relating not to the land but only to the other assets of the business is not caught by the charge.
Ruth Kelly: I will certainly consider the points that have been raised and will circulate a letter to Committee members so that the matter is absolutely clear.
Mr. Flight: The hon. Member for Torridge and West Devon may have explained with even greater legal clarity than I could what the amendment is all about. It is clear what we and the Law Society are seeking. As stated, the purpose of the amendment is to ensure that in the situation described by the hon.
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Gentleman, which I also described, business assets that are not land and subject to a separate contract will be covered by the new penalty provisions. The reason for lack of clarity is that if the land and property subject to separate contracts are used by the business there is an argument that they would be caught because they relate to it. I look forward to clarification of the issue but if it comes back the other way, we may want to raise it on Report. In the meantime I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Contracts for the sale of an estate or interest in land chargeable as conveyances
Mr. Flight: I beg to move amendment No. 118, in page 90, line 21, leave out subsection (1) and insert—
'(1) This section applies to a contract or agreement for the sale of an estate or interest in land in the United Kingdom where—
(a) at the time the contract or agreement is made or at any time thereafter while the contract or agreement is capable of completion by transfer of the legal estate to the purchaser or to any person nominated by the purchaser, the legal estate is vested in a nominee or trustee and the sole or main benefit that may be expected to accrue from the separation of the legal estate from the beneficial interest is the deferral or avoidance of a charge to ad valorem stamp duty, and
(b) the amount or value of the consideration exceeds £10 million or the instrument forms part of a larger transaction or series of transactions in respect of which the amount or value, or aggregate amount or value exceeds £10 million.'.
The Chartered Institute of Taxation commented that the clause constitutes a major extension of the tax base, which is being slipped in without attention being drawn to it. It kills subsale relief, which has existed since 1782. Pitt introduced that statutory relief and it is now contained in section 58(4) and (5) of the Stamp Act 1891. It limits the stamp duty payable when property is on-sold, either in whole or in part, to a sub-purchaser so that, subject to anti-avoidance, stamp duty is paid only once according to the consideration paid by the sub-purchaser.
Clause 113 will block subsale relief following Royal Assent when the consideration for the sale of property exceeds £10 million—that is, around £8.5 million plus VAT—by imposing a stamp duty charge on the initial sale contract. It is argued that the clause, subject to what I am describing being a correct understanding of it, represents an overreaction to the need to block the split legal and beneficial title avoidance scheme. That is no doubt the aim, which could have been addressed more efficiently with a clause denying the exemption from stamp duty for property sale agreements when the legal title is held separately and it appears that the purpose, or one of the main purposes, in so doing is to defer or avoid the payment of ad valorem stamp duty on a sale of the beneficial interest.
The blunderbuss approach will close off a relief that has existed for some 200 years and plays an important role in facilitating the efficient operation of the commercial and residential property market in Britain. Typical uses of subsale relief include the house-building business when land is acquired by developers and then subsold to customers with a completed building erected. Any denial of subsale relief will tend to lead to house price cost inflation as
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developers inevitably pass on the cost of their stamp duty in the price charged to customers, which will bear stamp duty on the sale of the house. In addition, the commercial property sector, both private and public, is increasingly moving towards outsourcing, which often involves sales and leasebacks. To achieve necessary rates of return and to finance further purchasing, a leaser may invest on contract and in due course parcel up surplus land to sell on to investors and developers using subsale relief to limit the total stamp duty to one hit on the price from the sub-purchasers. Again, general experience is that some outsourcing sale and leaseback proposals may not be economically viable if a stamp duty double hit arises on both the initial restructuring and the intended on-sale.
There is therefore a strong case in favour of recognising the important and valuable role that property intermediaries play in promoting the better and more efficient use of property through outsourcing and investment structures that enable an existing user better to utilise a smaller proportion of their estate while releasing surplus land for more efficient utilisation by others. Stamp duty subsale relief encourages that sort of better utilisation and recognises that the intermediary in such situations should not properly bear their own stamp duty on the grounds that it effectively provides liquidity and promotes the more efficient utilisation of property, which is in scarce overall supply. Procedure exists for such a release in the exemption from stamp duty in section 88 of the Finance Act 1986 for the sales of shares to stock exchange intermediaries.
If it is not possible for the Government to recast clause 113 in terms of a specific blocking of the split scheme, which I assume that it is intended to do, it should be amended to preserve subsale relief and the new charge on sale contracts in excess of £10 million should not apply where the purchaser is a property intermediary. That term would need to be defined more precisely after consultation, but would broadly equate to commercial property and investment professionals who acquire property in the course of their business activities, which include sales, leasebacks, property development and refurbishment.
Amendment No. 118 seeks to deal with that territory. Specifically, rather than recasting clause 113 to include a specific lock-in, it follows the route of ensuring that subsales would be preserved and the new charge on sale contracts in excess of £10 million would not apply where the purchaser is a property intermediary. I do not know whether Government amendment No. 247, which I have not yet had a chance to see, addresses the point, but I hope that it will. The clause will undermine subsale and there will be both undesirable knock-on economic effects and unfairnesses.
Ruth Kelly: Clause 113 is another element of our anti-avoidance package. It aims to discourage companies from deliberately not completing large deals in land and buildings to avoid paying stamp duty.
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Property transactions have two stages—contract followed by completion—and stamp duty normally applies on completion. Companies have been using contracts, which they believe are not stampable under existing legislation, to transfer ownership of land and buildings by resting at the contract stage and not completing the transaction in the ordinary way. That is clearly an artificial means of transferring land and buildings that is not generally available to individuals who traditionally complete the transaction, for example when they buy a house, and pay stamp duty.
To tackle that practice, the clause brings contracts for the sale of interests in land and buildings with a consideration of more than £10 million into charge. From Royal Assent, that will ensure that for high-value deals in land and buildings stamp duty is payable where a transfer rests on contract. It should be clear that although the type of stamp duty avoidance described in amendment No. 118, which is commonly described as title splitting, is indeed one of the forms of stamp duty avoidance tackled by clause 113, it is by no means the only form of avoidance that the Government are addressing in the clause.
Amendment No. 118 would not therefore cover the avoidance that the Government are combating. It would undermine the spirit of the clause and allow companies to continue to rest on contract as a means of avoiding stamp duty. For those reasons, I cannot recommend that the Committee accept the amendment.
We have carefully considered the point about subsale relief made by the hon. Gentleman and other representative bodies. I make it clear that we did not intend clause 113 to remove the benefits associated with subsale relief, and forthcoming amendments will put that beyond doubt. In broad terms, where a contract or contracts is or are within the scope of the clause but a subsequent conveyance attracts stamp duty, subsale relief will be available in the ordinary way. I hope that hon. Members will appreciate our intention to introduce Government amendments in due course. I urge the hon. Gentleman to withdraw his amendment.