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Taxes
3.19 pm
The Financial Secretary to the Treasury (Ruth Kelly): I beg to move,
- That the Stamp Duty and Stamp Duty Land Tax (Variation of the Finance Act 2003) (No. 2) Regulations 2003 (S.I., 2003, No. 2816), dated 5th November 2003, a copy of which was laid before this House on 5th November, be approved.
- That the draft Stamp Duty Land Tax (Amendment of Schedule 5 to the Finance Act 2003) Regulations 2003, which were laid before this House on 30th October, be approved.
We have taken a bold step in modernising the stamp duty regime. That essential task was long overdue, but it was one that Conservative Members fluffed when they had the opportunity to carry it out. It was one that the industry had often requested. Today, I can tell the House that the Treasury has laid the formal order to implement the new regime on 1 December. We are in the middle of a major customer education programme aimed at ensuring that solicitors, licensed conveyors and other practitioners are fully aware of the changes that are about to take place. The new arrangements will create a more robust tax regime for land and building transactions in the United Kingdom by addressing long-standing distortions and loopholes in the current charge that have been increasingly exploited by big commercial players at the expense of the majority of taxpayers.
In last year's Budget, my right hon. Friend the Chancellor announced that, as a result of tax avoidance, only half the stamp duty owed on all large commercial property transactions—worth £10 billion a year—is paid and that the 2003 Finance Bill would introduce new anti-avoidance powers to close those loopholes. It did. We now have a modernised, streamlined stamp duty system, with effective enforcement powers in line with other taxes. My right hon. Friend also committed the Treasury to reviewing the lease duty regime to ensure that businesses pay stamp duty on a fair and consistent basis. I shall deal with those lease duty regulations first.
Mr. Jonathan Djanogly (Huntingdon): The British Retail Consortium says that those changes will lead to three quarters of retailers limiting their expansion plans. Does the hon. Lady consider that fair?
Ruth Kelly: To be honest, I do not think that the British Retail Consortium has credible figures to argue its case and I will shortly come to the impact of the new lease duty regime on small businesses in particular.
Mr. George Osborne (Tatton): Will the Financial Secretary clear up something right at the beginning? This is called the stamp duty land tax. In what sense is it a stamp duty—there is no stamp and no duty?
Ruth Kelly: I know that the hon. Gentleman, whom I much respect, has a long-standing interest in the name
of the stamp duty land tax—he referred to it frequently in debates on the Finance Bill—but the name is commonly understood by practitioners, and it also clarifies for the first time that the new tax regime applies to land transactions rather than to any other sort of transaction.
Jonathan Shaw (Chatham and Aylesford): My hon. Friend will understand the concern of David Chesover, who is a general practitioner at the Thornhills medical group in my constituency. The group is due to move to new premises, and he has written to me saying that it expected to pay £4,000, but that the sum could now amount to about £36,000. What assurances can my hon. Friend give me that she has had discussions with the Department of Health to ensure that GPs are not put off moving to new premises and being involved in LIFT—the local improvement finance trust programme—which we both obviously support?
Ruth Kelly: My hon. Friend makes a powerful case on behalf of his constituent, and I commend him for that interest. I assure him that the Department of Health was consulted fully in developing these proposals. If he has specific concerns about the LIFT programme in his constituency, I would be very happy for officials in my Department to work with officials in the Department of Health to ensure that any concern that he has can be met.
Let me describe how the stamp duty regime has changed. Under the current stamp duty regime, lease duty is charged at different rates according to the term of the lease. That structure is unfair, arbitrary and distorts business decisions. For example, a 35-year lease is charged at 4 per cent. of the upfront premium paid, plus 2 per cent. of average annual rent, whereas a 36-year lease is charged at 4 per cent. of the premium, plus 12 per cent. of the average annual rent. If transactions relate to freeholds, 4 per cent. is charged on the entire purchase price. Given such cliff edges and the lack of coherence between leases and freeholds, decisions on transactions are driven by tax considerations, rather than by commercial ones.
Mr. Mark Simmonds (Boston and Skegness): Will the Financial Secretary give way?
Ruth Kelly: I must make some progress with the argument.
Under a modernised regime, without widespread avoidance, such distortion would become increasingly clear. However, recognising the distinct nature of leases, my right hon. Friend the Chancellor announced that the Finance Bill would make provision for a charge of just 1 per cent. of the rental value of all new leases—four times lower than the usual stamp duty rate, on which we consulted in 2002. He also allowed further time for consultation with business and commerce on how to reduce avoidance and promote a more level playing field between leases and transfers. He added:
- "If I have to trigger the change, I will increase the exemption from stamp duty for commercial property from £60,000 to £150,000 . . . Therefore, in any event, there will be no duty on 60 per cent., of commercial rental contracts."—[Official Report, 9 April 2003; Vol. 403, c. 279.]
Ruth Kelly: I give way to the hon. Member for Hertford and Stortford, who speaks from the Front Bench.
Mr. Mark Prisk (Hertford and Stortford): Can the Financial Secretary confirm that the data on which that 60 per cent. promise is based erroneously include lock-up garages, advertising hoardings and car-parking spaces and not just businesses?
Ruth Kelly: I certainly will not confirm that because that is not the case. [Interruption.] The hon. Gentleman asks from a sedentary position whether I will publish those figures, but let me deal with that 60 per cent. figure for a moment. That figure, which was estimated at the time by the Inland Revenue, has since been independently verified by the Investment Property Databank, which is very well respected, using research funded by the property industry. In fact, the database is far larger than that used by the Inland Revenue. It is based on £100 billion of commercial property and includes 15,000 leases. The data were circulated to the consultative committee, and I am sure that, if the hon. Gentleman asked the IPD, it would probably be prepared to publish the data.
Mr. Prisk: I have a copy of that survey, which the Financial Secretary has also obviously read. Can she confirm that it deals with only 5,000 hereditaments and that it had to be enhanced to become a representative sample by adding the erroneous data from the Land Registry that I criticised earlier?
Ruth Kelly: I do not think that that is the case. In fact, the figures are 5,000 leases a year and 15,000 leases in total. I think that the hon. Gentleman's argument is that 60 per cent. is too high a figure. I could make the opposite argument: it is probably too low a figure, because the data to which it had access were primarily on those properties that must be registered, which are primarily the higher-value properties. The sorts of properties that might be excluded from the survey are precisely the small shop fronts, shop leases and lock-up garages in which I know that he has a particular interest. If anything, the figure is biased downwards rather than being too high.
Mr. Prisk: I am grateful to the Financial Secretary for allowing us to clarify the situation. She started by saying that the figure is 60 per cent., and now it is possibly 87 per cent., but it could be higher or lower. What is worrying business is that the promise made at the Dispatch Box in the Budget by the Chancellor is based on false data. I have asked the Chief Secretary once to publish it so that we can clear up the problem. He has refused. Will she do it so that we can make sure that we are basing this tax on proper information?
Ruth Kelly: As far as I understand it, the Chief Secretary in no way refused to publish that data. They were not his to publish. They belong to the IPD. I am absolutely sure that if he asks it to publish its data, it would do so. I would certainly support that information being putinto the public domain. If anything, more than
60 per cent. of all leaseholds will be exempt from this tax. The figure of 60 per cent., or a figure greater than that, compares with around 9 per cent. of commercial leases that are not chargeable to stamp duty under the current regime. Many leases taken out by small and medium-sized enterprises and business start-ups that currently require the payment of stamp duty will therefore not do so under the new system.
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