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The Chairman of Ways and Means (Sir Alan Haselhurst): With this it will be convenient to discuss amendment No. 33, in page 555, leave out from beginning of line 1 to end of line 38.

Mr. Prisk: These amendments would delete paragraphs 23 and 24 of the schedule, which retain the stamp duty charge on instruments transferring interests in partnerships. That is in addition to the imposition of stamp duty land tax in relation to landowning partnerships. Further to that, paragraph 24 modifies the calculation of any stamp duty charge to remove from charge any land value also taken into account in arriving at the stamp duty land tax liability.
 
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All the professional bodies involved in the consultations with the Revenue and the Treasury have reported to me considerable concern about those two paragraphs, especially paragraph 23. Following the introduction of stamp duty land tax, stamp duty was retained as a temporary measure in relation to partnership transactions. It was understood by all those concerned that once the partnership provisions were implemented, stamp duty would apply only to transactions of stock or, for that matter, marketable securities.

All the professional bodies involved have therefore expressed surprise to me that the old rules are being retained with no warning or signal from the Revenue that that would be the case. I have done my best to ensure that this is indeed the view of the whole profession. I have to say to the Minister that it is and that there is a genuine feeling that the proposal has come forward without warning. I am sure that Ministers appreciate that that can be damaging to the process involved in the relationship between the Government and business.

5.15 pm

Retaining the stamp duty charge in this way has been described adversely by many professionals, but I shall quote just one, Kevin Griffin of Ernst and Young, who uses the phrase

"unheralded, unreasonable and ultimately unproductive".

There is much merit in that point. I shall briefly explain why.

Retention is unheralded because the businesses involved were given no warning, and no indication during the consultation process that it would happen. Paragraph 2.6 of the Government's consultation document stated:

"The Government's intention is to apply stamp duty only to transactions related to UK land, and to transfers of shares and securities".

Nothing has been said since that document was issued to suggest any change of heart. No warning was given, and no information provided. By acting in this way, the Government are undermining what remaining confidence business has in engaging in a dialogue with the Treasury.

Last year, we had the fiasco of the business lease consultation. Now we have this about-face. I appreciate that it is U-turn season for the Government, but surely the Financial Secretary will recognise how this kind of approach undermines people's confidence in any consultation in the future.

The policy is unreasonable because it is difficult to see a real policy reason for charging duty on transfer of non-landowning partnerships. The main assets of such partnerships are likely to consist, for example, of good will, stock in trade or receivables. Such assets are inherently outside the charge to stamp duty on transfer. An interest in a business comprising such assets could therefore be purchased from an individual free of stamp duty. If it was transferred in the form of a partnership interest, however, a charge could arise. The charge to stamp duty land tax on underlying assets, on the transfer of an interest in a partnership, effectively treats the partnership as transparent. Charging stamp duty on the
 
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transfer of an interest in a partnership effectively treats it as opaque—we return to the issue of transparency on which we touched in earlier debates. Surely it is unreasonable to tax the same entity twice by treating it in two contradictory manners.

In practical terms, there are some potentially serious impacts for family partnerships. The Law Society has highlighted one example whereby a father might enter into a partnership with his son on a 50:50 basis. If it were a farming family, he might contribute, say, farmland worth £500,000 to that partnership, so a charge to stamp duty land tax would arise on his half, £250,000. If the partnership is subsequently dissolved, and the land is distributed in equal shares to father and son, it appears that a further charge will arise on £500,000 after the paragraphs in the schedule are applied. The aggregate amount charged to would therefore be £750,000. As I said, that is not simply my view or the view of my party, but the view of the Law Society experts in the field. If, however, the father had merely gifted half interest in the land to his son, outside of a partnership, there would be no stamp duty land tax to be paid. The Committee, and all Members of the House, will realise that that gives an absurd result, and it will be a severe disincentive to farming businesses and any other business with a significant land asset to engage in or carry on within a partnership.

Thirdly, and perhaps most importantly, the result could well prove unproductive because the amount of stamp duty land tax currently collected on transfers of partnership interests is, by all professional accounts, tiny. That is because it is often possible to avoid the need to pay significant stamp duty, perhaps by transferring interests without the need for a stampable document, or by minimising the value of partnership interests through debt finance.

We fully understand, from all the information that has come through, that this has been retained at the last minute to clamp down on avoidance. Tackling avoidance is the watchword of this Bill. But the original purpose of the tax—as the then Economic Secretary, now the Financial Secretary, told us—was to reflect modern commercial practice. This arrangement does nothing of the sort. Retaining what is basically a fruitless stamp duty charge makes it necessary to retain a whole raft of pages of legislation that would otherwise come close to being redundant.The decision to retain the charge has dismayed a large number of professionals. It undermines confidence both in future consultations and in the commitment of the Government to modernising the duty.

We believe that neither paragraph should be included, particularly paragraph 23. That is the view of the outside experts, of the thousands of professionals in partnerships affected by it, and of Conservative Members. It would be wrong to proceed with the paragraphs as they stand, and I hope the Minister will accept that we should vote against including them.

Mr. Laws: We support the amendments. The hon. Member for Hertford and Stortford (Mr. Prisk) explained very clearly why the two paragraphs had caused so much concern to all the professional bodies, and I shall not repeat all that he said. However, I should like to quote from the Law Society's representations to the Treasury. Like many other professional bodies, it
 
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pointed out that the Government seemed to be treating certain assets inequitably, depending on whether they were in or outside partnerships. It said of paragraph 23

"This could have the absurd result that in the case of a partnership holding assets the transfer of none of which would be subject to stamp duty, SDLT or stamp duty reserve tax, the transfer of a share in that partnership would be subject to stamp duty at rates of up to 4 per cent. whereas the transfer of the underlying assets of the partnership would have given rise to no charge to stamp duty whatsoever."

PricewaterhouseCoopers has raised a point made by the hon. Member for Hertford and Stortford—that whereas business goodwill, for example, would normally be exempted from stamp duty altogether, it would appear to be charged stamp duty if it is in a partnership. The Financial Secretary smiles warmly: perhaps she is going to reassure us that we have misunderstood, and that the Government do not intend that the same assets should be treated differently depending on whether they are in or outside a partnership. That, however, seems to be the effect of the legislation as it stands, not just in our view but in that of the professional bodies. We believe that stamp duty on the transfer of partnership interests should be abolished with effect from the operative date of the SDLT partnership provisions.

I hope that the Financial Secretary will either accept the amendments or tell us that she intends to table amendments of her own.

Ruth Kelly: The amendments would remove clauses 23 and 24—

Mr. Laws: Paragraphs 23 and 24.

Ruth Kelly: Clauses 23 and 24, I believe, although the hon. Gentleman may be right. They retain stamp duty on partnership transactions and modify the consideration where that partnership has land assets. The amendments would effectively abolish stamp duty on partnership transactions.

It has been pointed out that the original draft legislation had that effect, and that that would create opportunities to structure transactions so that, through use of a partnership vehicle, stamp duty on stock and multiple securities, and stamp duty reserve tax on chargeable securities, would not be due. It became apparent that partnerships would be used to avoid stamp duty and stamp duty reserve tax on shares and securities. In view of the late stage at which we became aware of this avoidance scheme, we decided to retain stamp duty; however, we also reduced the charge to stamp duty for the SDLT charge by taking out of account land that has been taxed to SDLT.

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