Mr. Boateng: Let me suggest to the hon. Member for Billericay that it would be unwise to revisit a point that we have laboured extensively. I shall write to him about the worked example, in order to clarify it.
I reiterate that there is no charge if there is no substantial performance. That point has sunk in in some quarters, although I saw the hon. Member for Tatton busily stirring it with the hon. Member for Billericay. The hon. Gentleman made a good point to which I have responded. I will write to him. He must resist the blandishments on his left hand side and in front of him. If he does not, he will be led into error. That is my experience of the hon. Member for Tatton. I feel that it is necessary to give some counsel.
Mr. Baron: Will the Chief Secretary give way briefly?
Mr. Boateng: I am tempted, but I am not going to. We must, with your agreement, Sir Nicholas, draw this to a close.
The effect of clause 45 is to charge contracts that are substantially performed. Of course, as we have said all along, that issue and the wider questions about where further targeted reliefs might be granted will be the subject of further consultation. I have given the hon. Gentleman as strong an indication on that as I possibly could. That is our intention. The consultation will take place. We will come back to the Committee if further targeted reliefs are justified. I cannot say fairer than that. What more can I do? I hope that, with that, even the hon. Member for Tatton will be satisfied and Opposition Members will not press the clause to a vote. However, it is a matter for them.
Mr. Prisk: On three occasions I have asked for an answer with regard to house builders and on three occasions the Chief Secretary has either chosen not to, or failed to, provide such an answer.
We have a number of other concerns about the clause. The Chief Secretary has tried to answer some of them, but I have listened to him with care and unless he has further information that he wishes to reveal, Opposition Members are not convinced about this set of changes. Therefore, we shall take the clause to the vote.
Question put, That the clause stand part of the Bill:
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The Committee divided: Ayes 14, Noes 7.
Division No. 17]
Boateng, Mr. Paul
Hendrick, Mr. Mark
Munn, Ms Meg
Pond, Mr. Chris
Sutcliffe, Mr. Gerry
Baron, Mr. John
Djanogly, Mr. Jonathan
Jack, Mr. Michael
Osborne, Mr. George
Prisk, Mr. Mark
Wilshire, Mr. David
Question accordingly agreed to.
Clause 45 ordered to stand part of the Bill.
Clause 46 ordered to stand part of the Bill.
Question proposed, That the clause stand part of the Bill.
Mr. Prisk: The clause also refers in part to paragraphs 5 and 6 of schedule 4 and we wish to ensure that there is a full debate on it. Indeed, I hope that the Chief Secretary will be able to respond to a number of questions.
The clause would remove the relief provided by stamp duty on exchanges. At present, the stamp duty is paid by the purchaser of the more expensive property. By abolishing the relief, both parties would pay stamp duty land tax, as the clause interprets such an exchange as not one transaction but two.
Members of the House and those outside have a number of concerns. The first one is perhaps a little more technical. Given the wide definition of consideration, which is set out in more detail in paragraph 5 of schedule 4, what is the purpose of clause 47 (1)? I shall not labour the point by reading that subsection in detail, but many lawyers have looked at it and asked whether it is superfluous.
Subsection (3) refers to paragraphs 5 and 6 of schedule 4. I do not intend to stray into schedule 4 more than that. Yet, paragraph 5 of schedule 4 seems merely to restate subsection (1) almost word for word. Can the Chief Secretary tell the Committee what the precise purpose of paragraph 5 is? What does it add that is not already elsewhere in the Bill but is needed to define the scope of the tax?
That is my first concern to which I hope the Chief Secretary will respond, but I have others of a less technical and more practical nature. The clause will create significant distortionsfor example, when a landlord and tenant exchange properties or leases. I shall refer to one example and I am grateful to the Law Society of Scotland for raising it with me. The society argues that when a landlord accepts a renunciation of
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a lease for no cash consideration but as part of a deal to provide the tenant with a new lease at market value rent, it is not clear how the clause and schedule 4, to which it relates, will apply. I shall return to A and B for the sanity of the Chief Secretary. Suppose that tenant A renounces a lease to landlord B and, as part of the transaction, B grants to A a new lease on a new building. Paragraph 5(3)(a) of schedule 4 seems to suggest that if landlord B's interest in the lease that is being renounced has a value, the renunciation will be taxed on that value and the new lease will be taxed on the rent.
Schedule 5 governs the taxation of the rent. If the renunciation was seen to be the supply of services, it would create a chargeable consideration for the purposes of paragraph 9 of that schedule and the market value of that chargeable consideration would become taxable, possibly at 4 per cent. Can the Chief Secretary confirm that that is not the Government's intention? The Bill is unclear and his confirmation that that is not their intention would assuage the concern of many people. Does he accept that the rate should not include the value of a lease that is then subject to renunciation?
That is one example of the way in which the clause will distort the marketplace. The danger with urban renewal schemes is that the clause could act as a restraint on proactive agencies and developers who decant businesses from older properties so that they can be refurbished because it would prevent them from moving those decanted businesses into newer or refurbished properties. That activity is crucial to urban renewal and if the process is not available, much urban regeneration of our cities will be prevented. After all, the Government recognise the need to provide relief for residential relocation in clause 59, so why are they ignoring company relocations? Can the Chief Secretary explain the logic of that and, if he accepts that an exchange of properties is not a double transaction but a single event, why impose a double charge?
The Chief Secretary has been enthusiastic in pronouncing the aims of the new tax. The consultation and his comments during earlier debates emphasised the need for fairness, modernisation and reflecting commercial practice. However, the clause and the way it will affect the marketplace do not reflect commercial practice today and most certainly are not fair, so why impose the double charge? I hope that the Chief Secretary can explain the thinking behind the clause and how he believes it will fulfil the objectives of what he still claims to be modernisation of stamp duty.
Mr. Jonathan Djanogly (Huntingdon): The concept that there are two transactions in the exchange fascinates me because in other areas of tax, such as capital gains tax on an exchange of shares, there is deemed to be one transaction.
With something like roll-over relief, one transaction rolls into the next and the gain is held over until the final transaction, but the Bill seems to break with that way of thinking. I would be interested to hear the Chief Secretary's views on why that decision has been taken.
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Mr. Boateng: Stamp duty land tax is paid on the chargeable consideration for a transaction and that chargeable consideration comprises money or money's worth. Money's worth can include another interest in land being given in exchange for the interest being acquired. Subsection (1) of the clause makes it clear that if interests in land are exchanged in that way, each acquisition of an interest counts as a separate acquisition on which tax may be payable.
There is nothing new in that situation, which reflects the stamp duty position since 1994. However, since 1994 the Inland Revenue has, by concession, allowed a scheme known as the single sale route to attract only one payment of stamp duty rather than two. Members of the Committee may know how the scheme works. Let us say that two individuals agree to exchange their houses. If the transaction is described in the documentation as an exchange, with each individual agreeing to buy the other's house, two stamp duty liabilities will arise. However, if individual A agrees to buy individual B's house and agrees to satisfy the payment for the house by transferring his house to B, only one stamp duty liability will arise.
To return to the principles that run through the legislation, an aim of stamp duty land tax is to ensure that tax arises on the substance rather than the form of transactions. In the example that I have just given, the form is everything. Therefore, to go to the heart of the matterthe transactionit is necessary to make it clear that under the new dispensation there is no place for the single sale route, which always relied on documentation being drafted in one form rather than another. Subsection (2) makes it clear that the single sale route will no longer be available.
Of course, the Government recognise that urban renewal has an important role to play and that recognition has been the linchpin of the Labour party's approach to such issues. Therefore, I have no problem in giving the hon. Member for Hertford and Stortford the assurance that he seeks. I do not want to get party political at 12 minutes past 5 in the afternoon, but no one can say that we have not done our bit in promoting urban regeneration. Undermining it would be the last thing that we would do.
The Government recognise that simply abolishing the single sale route might cause hardship, particularly for housebuilders who have used the route as a tax-efficient way of offering part-exchange deals to potential buyers of their properties. As I said in earlier debates, there is no intention to interfere with that. The Government have listened to representationsconsultation has workedand clause 58 therefore contains a targeted relief for part exchanges of that type.
As the hon. Gentleman said, the method of calculating the chargeable consideration for exchanges is dealt with in paragraphs 5 and 6 of schedule 4, which we shall consider later in conjunction with clause 50. Schedule 4 also introduces additional reliefs for the exchange of minor interests and the partitioning of property.
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The Government believe that the clause, when considered in conjunction with the reliefs that are being introduced, fulfils the principle of taxing the substance of transactions rather than the form. The part-exchange relief will guard against a particular hardship for housebuilders that the blocking of the single sale route might otherwise cause. I hope that the Committee will not have difficulty with the clause, particularly when one considers my response to the specifics raised by the hon. Gentleman.