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Ruth Kelly: Market rent leases are excluded from the definition of what is partnership property for the purposes of determining the land interests that are chargeable to stamp duty land tax on transfers of partnership interest. Amendments Nos. 22, 24 and 25 seek to remove one of the conditions for a lease to be identified as a market rent lease. Taken together, they would substantially change the definition of market rent lease, and could be used to take out of account leases that were not at market rent. I am sure the hon. Gentleman did not have that intention.

The exclusion of market rent leases in paragraph 13 is, as he recognises, a deregulatory measure, ensuring that such leases do not have to be valued when there is a transfer of partnership interest. The amendments remove the condition that such leases should have a rent review to market rent within five years of the start of the
 
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term of the lease. From the consultation on taxation of leases, it became apparent that most commercial market rent leases have rent reviews every five years, and a relaxation was requested by industry representatives. Removing the condition would allow leases that were initially granted at market rent, but on which rent was subsequently reduced, to be excluded from land interests included in the partnership property for stamp duty land tax charge purposes. Such leases could have a very substantial market value, and I think that the hon. Gentleman would agree that it would be anomalous to exclude from consideration any leases that genuinely have a market value. He raised the particular case of fixed-rent leases. A fixed-rent lease would acquire a market value over time, so it should not be ignored.

I believe that this is a deregulatory measure. It is intended only to reduce the compliance burden for genuine market rent leases, so I recommend to the hon. Gentleman that he seek to withdraw his amendment.

Mr. Prisk: I am intrigued by the Financial Secretary's response on fixed rents. I am not entirely sure whether it concurs with what I admit is a somewhat hazy recollection of my land management course at Reading university some 20-odd years ago, but I understand the underlying point that she makes, although I think that there is a genuine worry that the way in which the legislation is affecting the market is not entirely as the Government and the industry anticipated. I hope that the Government will closely monitor the situation. In those circumstances, I would consider seeking to withdraw the amendment, but perhaps she could confirm on record that they will do so.

Ruth Kelly: I can of course confirm to the hon. Gentleman and to the Committee that we will continue to monitor the stamp duty land tax measures very closely over coming months and years.

Mr. Prisk: Having received that gracious response, it is only right and proper that I should not press the amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Prisk: I beg to move amendment No. 31, in schedule 39, page 550, line 12, at end add—

'(4)   The provisions of sub-paragraph (1) do not apply where the provisions of paragraph 10 apply'.

The amendment relates directly to the question of provisions about exchanges. Paragraph 14(1) of the schedule has been designed to apply where A—this is the usual terminology in such cases—transfers an interest in the partnership to C, who is not a partner, in return for their having transferred land to A. Paragraph 5 of schedule 4 of the Finance Act 2003 would ensure that A and C each paid stamp duty land tax at 4 per cent. on the open market value of the interest received. However, as currently drafted, paragraph 14 of schedule 39 would also apply where A contributes the property to the partnership. Paragraph 10 sets out special rules that apply in those circumstances. Stamp duty land tax is charged on the acquisition of the land transferred to the
 
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partnership by reference to the open market value of the proportion of the interest transferred to the other partners. The incoming partner does not pay stamp duty land tax on the proportion of the market value of the underlying land represented by an interest in the partnership that is acquired.

It therefore appears that paragraph 14 does not fulfil what I understand to be the Government's stated aim. The purpose of the amendment is to correct that error. I am aware that the matter is open for discussion, so my principal purpose is to tease out the detail from the Financial Secretary so that those seeking to implement the legislation can do so properly.

Ruth Kelly: I understand that the amendment is inquisitorial and has been tabled to probe the Government's intention.

The amendment would disapply the exchange provisions where land was transferred into a partnership in exchange for the acquisition of an interest in a partnership from an existing partner. If a partnership interest so acquired included an interest in land, the acquisition of the interest in the partnership would not be treated as the acquisition of a major interest in land, so the market value rules for such acquisitions would not apply.

We recently debated the principle of transparency, which also applies in this situation. It dictates that, for transactions in partnerships, stamp duty land tax is paid on the land interest acquired. As partners are connected to each other, market value must be imposed to ensure that the transaction undertaken is subject to similar duty as a transaction undertaken by an individual, otherwise partnerships would be an attractive vehicle to reduce stamp duty land tax on transactions.

Mr. Prisk: Does the Financial Secretary not see the peculiarity that individuals who engage in that activity are treated one way by the tax system, while those in partnerships are treated entirely differently?

Ruth Kelly: Let me put a different anomaly to the hon. Gentleman: it would be particularly invidious to penalise a person who enters into a transaction whereby they obtain a partnership share for cash and pay stamp duty land tax on the market value of the underlying land in the partnership, but to exempt a person who enters into the same transaction but who, instead of paying cash, transfers land to the partner from whom they receive the partnership interest. It is more sensible to treat each transaction similarly. We are, after all, trying to identify the substance of the transaction, and to treat partnerships in essentially the same way as we treat individuals who are not in partnerships.

The amendment also allows for the possibility of avoidance when the interest in the partnership does not itself constitute a major interest in land. That would disapply the market value rule for transfer of partnership interest where the land under consideration is given for that interest. I therefore ask the hon. Gentleman to withdraw the amendment.

Mr. Prisk: We are beginning to get to the heart of the problem, which is that the tax system treats individuals in one way and partnerships in another, and I am sure
 
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that we will re-examine the issues on both sides of that argument very shortly. I am particularly grateful for the Financial Secretary's comments on the application of market value, because some professionals are unclear about the true applicability of market value. In the light of those comments, and given that the amendment is, indeed, inquisitorial and probing, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Prisk: I beg to move amendment No. 26, in page 552, line 19, leave out "20th October 2003" and insert "8th April 2004".

The Temporary Chairman: With this it will be convenient to discuss the following amendments: No. 27, in page 552, line 28, leave out "20th October 2003" and insert "8th April 2004".

No. 28, in page 553, line 2, leave out "19th October 2003" and insert "7th April 2004".

No. 29, in page 553, line 3, leave out "19th October 2003" and insert "7th April 2004".

No. 30, in page 553, line 39, leave out "19th October 2003" and insert "7th April 2004".

Mr. Prisk: The five amendments concern paragraph 18 of schedule 39 and the potentially retrospective character of the legislation. Paragraph 16 deals with a transfer of land from a partnership to a partner, an outgoing partner or, for that matter, a person who is connected with either such person. Paragraph 16(3) states:

"The chargeable consideration . . . shall . . . be equal to the chargeable proportion of the market value of the interest transferred."

Paragraph 18, with which we are principally concerned, provides for how the chargeable proportion is then calculated.

Broadly speaking, paragraph 18 operates to fix the chargeable proportion as 100 minus the purchaser's partnership share. For example, if A, B and C are equal partners, and a property with a market value of 100 is transferred to C, C would pay stamp duty land tax on 67—in other words, 100 minus 33. However, the benefit of those provisions is obtained only where the transfer of land into the partnership occurred before 20 October 2003.

If the land was transferred after 20 October 2003, the instrument of transfer would have been stamped with an ad valorem stamp duty or stamp duty land tax would have been paid on the transaction.

5 pm

Most people accept that the concept of excluding from tax the proportion of the market value of the underlying land represented by the purchaser's interest in the partnership is fair. However, excluding from the benefit of those rules land that was transferred into the partnership on or before 20 October 2003 unless stamp duty is paid is objectionable, because it introduces an element of retrospectivity.

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