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Ruth Kelly: The amendment seeks to remove an anti-avoidance provision in the Bill. The provision is designed to ensure that a taxpayer cannot obtain two reliefs: sub-sale relief when he on-sells land without taking title to it; and sale and leaseback relief, if the land is leased back to him by the sub-purchaser. The Government believe that sale and leaseback relief should apply only to the leaseback leg of a transaction where the seller has previously taken title to the property and has paid stamp duty land tax, or old stamp duty, on that acquisition.
In principle, we believe that it would be wrong for a taxpayer to be allowed to sub-sell land and not have a stamp duty land tax charge because of sub-sale relief
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and then also to take a leaseback of the land that he has sub-sold and claim leaseback relief. We believe that the taxpayer should choose either to sub-sell and pay stamp duty land tax on the leaseback to him, or to pay stamp duty land tax when he acquires the land and then enter into a sale and leaseback transaction and obtain relief on the leaseback. We do not think that he should be able to have it both ways.
Mr. Prisk: I understand what the Minister says about tax avoidance, but does she not also understand that the treatment of the same issue with two different taxes in two different ways is confusing for the taxpayer? What are the reasons behind it?
Ruth Kelly: The issue does not arise in the context of two taxes. The point is that it is possible to obtain two reliefs on the same transaction, which we want to avoid. We think that the tax treatment should follow the substance of the transaction, and that it is only right that only one relief should be allowable. I am sure that the hon. Gentleman would support us in that end.
Mr. Prisk: I suspect that we may differ on parts of the issue, but I accept that the Minister has clarified a couple of nuances in her second response that were not clear at the beginning. We could probably debate this all day, and while that might be tempting on occasions, in the present instance I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Prisk: I beg to move amendment No. 14, in page 532, line 17, at end insert
'in the case of leases assigned within three years of grant'.
The Temporary Chairman: With this we may consider amendment No. 13, in page 534, line 29, leave out from beginning to end of line 7 on page 537.
Mr. Prisk: The amendment concerns cases in which there is an assignment of a lease treated as a grant of lease, as in paragraph 11. This part of the schedule is a reasonable measure, designed to prevent a landlord from getting a lease to an unconnected third-party tenant without the stamp duty land tax paid on the lease. Without the measure, somebody could grant a lease to a company within a group and obtain the benefit of intra-group relief from the tax. The lease could subsequently be assigned to a tenant without the tax being paid. The tax would not be payable on an assignment of lease unless there was another consideration given—I presume that we are talking about cash or something similar.
The amendment would restrict the application of the rules to assignments taking place within three years of the grant of the lease. Both landlords and tenants—both sides of the property equation—have told me that they accept that this should be sufficient to counter avoidance. Without the amendment, an unnecessary compliance and tax burden will be placed on taxpayers taking an assignment of a lease where there is no real evidence of a tax avoidance motive.
We chose three years as the time limit partly because it reflects similar clawback provisions for other group reliefs, but I am open to suggestions from the Minister
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for a different time frame, if she chooses to respond positively. I believe, as do many people outside, that the amendment would improve the schedule and I look forward to a positive response.
Amendment No. 13 is more substantial. It concerns abnormal rents and relates to paragraphs 14 and 15. It would remove all the provisions relating to such rents. When the Minister, who was then the Economic Secretary, proposed the reform of stamp duty land tax, she said that the Government's aims were to simplify the tax and to "reflect modern commercial practice". These provisions not only fail in those aims but in many senses directly contradict them.
The provisions say that, when there is an increase of rent after the fifth year, the tenant must assess whether that increase is abnormal. Members of the Committee may be asking themselves what constitutes abnormality. The answer is in paragraph 15, but it is a very long answer, covering two pages of law, with three formulae and a six-step definition.
2.45 pm
For those who are unfamiliar with what the Government expect them to do as tenants, let me take them briefly—I hope to be as concise as possible—through the process. Tenants will first have to define the start date, which is
"the beginning of the period by reference to which the rent assumed to be payable after the fifth year of the term of the lease is determined in accordance with paragraph 7 (3)".
"Divide the period between the start date and the date on which the new rent first becomes payable".
We are then helpfully given two ways of doing that.
Then, for those poor tenants still struggling to work this out, step three comes along and tells them that they must
"Find the factor by which the retail prices index has increased over each period identified in step two.
This is a figure expressed as a decimal and determined by the formula—
(RD–RI)RI
where—
RD is the retail prices index for the month in which the last day of the period in question falls, and
RI is the retail prices index for the month in which the first day of the period in question falls."
At this point, it gets complicated. In step four, tenants are asked to
"Find the relevant factor for each period identified in step two."
Hon. Members will realise that a rather awkward formula is coming up. Step four continues:
"This is a figure expressed as a decimal and determined by the formula—
m1 "0.05 X —" r 12
where—
m is the number of months in the period in question (treating part of a month as a whole month), and
r is the factor by which the retail prices index has increased over the period in question, determined under step three."
What could be simpler than that? However, we then find that the tenants have not completed what the Government require them to do to establish what an abnormal rent is. Indeed, no—there is far more to come, and those tenants who are still awake must proceed to step five, in which they are asked to
"Find the uplift factor for the reference period as follows."
What follows is a helpful seven-paragraph definition.
Finally, we come to step six—for those tenants who are still awake and have not lost the will to live. Step six says:
"The rent increase is regarded as abnormal if the new rent is greater than:
R X UF
where—
R is the rent previously taxed (see paragraph 14 (4)), and
UF is the uplift factor for the reference period."
There we have it. What, indeed, could be simpler?
When we debated this back in November, I said that Sir Humphrey would be proud, and I am sure he is. I recognise that some large organisations will probably be able to put in place systems that can handle the process, but everyone in the Committee will understand that the vast majority of tenants will find the provisions—the two pages, three formulae and six steps—unintelligible and unduly onerous.
Indeed, the Treasury itself could not get the formula right. When it was first printed, it was wrong, so it had to be pulped and reprinted, so how on earth is a humble taxpayer meant to cope?
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