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Ruth Kelly: I shall endeavour to help the House at the end of what has been a surprisingly entertaining debate on disadvantaged area relief.

The amendment would mean that interests in land that is wholly or partly in a disadvantaged area would not form part of the partnership property for the purpose of the charge on a transfer of interest within a partnership. The effect would be that a transaction undertaken by an individual to obtain a part-interest in several land interests, and a similar transaction undertaken through the vehicle of a partnership, would be treated differently for stamp duty land tax purposes. That could arise because the amendment takes land in a disadvantaged area fully out of consideration for a partnership, even though it is not taken out of consideration for an individual. That could mean that land that is partly in a disadvantaged area could be chargeable on an individual, or that it could change the rate of tax applicable to a composite transaction, but that there would be no effect in a partnership.

As the hon. Member for Hertford and Stortford (Mr. Prisk) will understand, our proposals on partnerships are an attempt to increase transparency: we want to bring the treatment of tax for partnerships more into line with that for individuals. I am sure that the hon. Gentleman has also taken note of the comments from the right hon. Member for Bromley and Chislehurst (Mr. Forth), who pointed out the extraordinary possibility that the amendment could mean that an entire property might be exempt from tax even if only 1 per cent. of it was situated in a disadvantaged area. However, the hon. Gentleman asked a specific question about transfers of an interest within a partnership. I can assure him, and the Committee, that disadvantaged area relief will apply to such transfers.
 
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I hope that that assurance, and the wise words of the right hon. Gentleman, will cause the hon. Gentleman to see fit to withdraw the amendment.

Mr. Prisk: As the Financial Secretary pointed out, this has been an extended debate—

Mr. Forth: Extended? We have hardly started.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): Do not provoke him.

Mr. Prisk: I will not provoke my right hon. Friend, as there have been refreshingly open and supportive comments from both sides of the House to ensure that we get the right legislation. However, I must say that, in terms of Back-Bench support, I feel wholly disadvantaged.

I listened to what the Financial Secretary said about partnerships and property. She made a fair point, but I hope that she will bear in mind the underlying thesis of the amendment—which will certainly be emblazoned on my memory, as the comments of my right hon. Friend are still ringing in my ears.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Prisk: I beg to move amendment No. 21, in schedule 39, page 549, leave out lines 8 to 16.

The Temporary Chairman: With this it will be convenient to discuss amendment No. 23, page 549, line 23, after 'no', insert 'chargeable'.

Mr. Prisk: These amendments affect paragraph 12 of schedule 39 and they have the aim of making the chargeable consideration equal to the actual consideration. Paragraph 12 makes the transfer of an interest in a partnership a chargeable transaction for stamp duty land tax purposes if the partnership property includes an interest in land. Without the specific provision, the acquisition of an interest in a partnership would not constitute a land transaction and so would not be within the scope of the tax.

Paragraph 12(4) and (5) would fix the amount of the chargeable consideration for the transfer of an interest in a partnership by reference to a proportion of the market value of the underlying land held by the partnership. During the consultation that has underscored the Bill and other elements related to it, a wide range of property experts have referred a specific problem to me. They have argued that an interest in a limited partnership should be equated to shares in a company or to shares in other collective investment vehicles. The purchaser or investor would be acquiring an interest in an investment vehicle rather than a direct interest in the underlying assets of the partnership. That would mean that tax should be levied on the consideration given for the partnership share and not a deemed consideration fixed by reference to the market value of the gross assets of the partnership. That of course ignores any loans taken out by the partnership for acquiring property. The official Opposition believe
 
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that amendment No. 21 would probably make the Bill not only clearer but fairer, and suspect that it better reflects real commercial practice.

In our view, amendment No. 23, which would amend paragraph 13(2) of the schedule, is required because otherwise it might be argued that, to take the best example, ordinary tenants' covenants contained in a lease could be deemed consideration and therefore could be deemed to be liable to tax.

Ruth Kelly: During the debate on amendment No. 20 there was some discussion of the principle of transparency, which I believe applies equally to this amendment. Amendment No. 21 would apply stamp duty land tax to the consideration paid for the transfer of an interest in a partnership rather than the market value of the underlying land forming that interest. To return to the principle of transparency for a moment, that, I would argue, dictates that the market value is the correct measure to use because that looks through to the underlying substance of the transaction. The price paid by a partner for a share or an increased share also takes account of any loans or other assets in a partnership and cannot be taken to be a suitable measure of any transaction involving land. Were we to move from a definition based on the substance of the transaction to one based on the price paid, we would, I believe, be issuing an invitation to people to structure quite ordinary transactions through a partnership vehicle and thus pay stamp duty land tax on a lower consideration than would have been used.

Mr. Prisk: The Financial Secretary referred to market value. Would she clarify that for the Committee's benefit? Does she mean open market value and if so, what is the basis of that valuation?

Ruth Kelly: I can indeed clarify that I do mean open market value and, as the hon. Gentleman knows, that will be valued in the same way as any other market value.

Amendment No. 23 alters the first condition for a lease to be excluded from the definition of partnership property as a market rent lease. It achieves this by amending the definition of consideration paid for a lease to make it only chargeable consideration that would exclude the lease from the definition of market rent lease. It is again easy to conceive of circumstances where consideration had been given for the grant of a lease that was not chargeable consideration. The market rent of such a lease may well then be below that which would be payable, had the other consideration not been given. For these reasons, I request that the hon. Gentleman withdraws his amendments.

Mr. Prisk: I am glad we have clarified the meaning of market value. The Financial Secretary seemed to assume that open market value was taken to be the same as market value, but hon. Members who have been engaged in the market will understand that a market value with a number of covenants on it that may restrict the value is not the same as open market value. I am grateful that the Minister has put the matter clearly on the record. It is a small but important point. I am therefore willing to beg to ask leave to withdraw the amendment, which was, after all, a probing amendment.
 
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Amendment, by leave, withdrawn.

Mr. Prisk: I beg to move amendment No. 22, in schedule 39, page 549, line 20, leave out 'three' and insert 'two'.

4.45 pm

The Temporary Chairman: With this it will be convenient to discuss the following amendments: No. 24, page 549, leave out lines 30 to 40.

No. 25, page 549, leave out lines 44 and 45.

Mr. Prisk: The three amendments are closely related. Their aim is to reduce the compliance burden by amending paragraph 13, which is designed to ensure that leases that were granted to a partnership and which had no capital value at the time of the grant are excluded from being partnership property. That would typically include premises in which a partnership carried on a business. The purpose of the Government's provision is to reduce the compliance burden for trading and professional partnerships that may otherwise have to carry out lease valuations whenever a partner retires or a new partner is admitted.

The concept is welcome, but one of the concerns is that the detail is unduly restrictive. Amendment No. 22 would amend the language of the paragraph in order to allow amendments Nos. 24 and 25 to take effect. Paragraph 13(4) would mean that only leases that have a rent review mechanism could be excluded from partnership property. Therefore fixed price leases, leases of less than five years and leases where the rent is increased in line with the retail prices index would not be excluded. It is unclear that there is a good policy reason for this. The purpose of amendment No. 24 is to delete that sub-paragraph.

Paragraph 13(3) requires the rent payable under the lease to be a market rent—meaning an open market rent—at the time of grant, which ought to be the only concern of the Revenue. A lease with no provision for the rent to be reviewed would tend to carry a higher initial rent. Amendment No. 25 would delete sub-paragraph (6). I am grateful to a number of experts in the field, which I confess was not one with which I was professionally familiar beforehand. These are important matters, and I hope the Minister will clarify the Government's purpose and intent.

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