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Mr. Prisk: I think I heard the Financial Secretary say that the provision was reintroduced because of the Government's late awareness of the avoidance. That is a most peculiar statement. Could she explain it?

Ruth Kelly: The hon. Gentleman is no doubt aware that avoidance schemes in a variety of sectors come to our attention all the time. When they do so, we tend to take action in respect of that avoidance.
 
28 Apr 2004 : Column 960
 

Mr. Prisk: I understand all that but why was there no discussion with the professions? All of them reported to me that they went through the whole process of consultation, yet suddenly the provision was reintroduced, with no word, no signal, no e-mail—and, heaven knows, e-mails formed a part of consultations on the legislation, unfortunately, as the Financial Secretary knows. It seems peculiar that suddenly we were told, "We have had to put this in because there was a last-minute tax avoidance scheme. We did not manage to mention it to the profession." Surely that undermines any hope that there can be meaningful dialogue between the profession and the Government.

Ruth Kelly: The hon. Gentleman well knows that, not these particular measures, but stamp duty land tax reform has been under discussion with the industry for many years. It is complex legislation. It completely overhauls the previous stamp duty regime to bring it up to date, and to ensure that it is compatible with e-conveyancing and that a fair share of revenue is paid by the industry. Clearly, there are always going to be teething problems with the introduction of such a major change. I should perhaps—or perhaps I should not—point out the many examples of late changes to complex tax legislation under the previous Government. He will no doubt appreciate the complexities of these issues. Of course, it would be preferable to give the industry plenty of time to examine particular issues. It has made its representations to him and he is putting those before the Committee. I argue that this is a tax-avoidance scheme and that we should ensure that that tax-avoidance opportunity is not available. We should take action.

Mr. Prisk: I have no doubt that Governments of all hues have made mistakes, or discovered information that led them to amend legislation, but we had the Budget in March. The Bill was published on Maundy Thursday. Surely the Financial Secretary, who is normally very reasonable, will recognise that it was not a good idea not to send information to those consultees, who have been playing a part in the development of the legislation, perhaps on the day or the day before the Bill was published. Does she not accept that that was a bit of a mistake and that it would have been more helpful to give them that information?

Ruth Kelly: I do not accept the hon. Gentleman's view that this is a significant change. It replicates the system under the old regime. It is regrettable if people did not interpret our intention and made such representations to him. However, because of tax-avoidance opportunities that have become apparent to us, it is necessary to retain elements of the old regime. For that reason, I recommend that the Committee resist the amendments.

Mr. Prisk: That was a disappointing response. The Financial Secretary is normally better able to provide a persuasive argument. The purpose of amendment No. 33 is primarily to probe, but amendment No. 32 is important. I have listened carefully to what the hon. Lady said. I regret, and I suspect that the industry will regret, that she was not able at least to admit that it would have been wiser for the Government to involve its consultee partners. Therefore, we wish to press amendment No. 32 to a vote.
 
28 Apr 2004 : Column 961
 

Question put, That the amendment be made:—

The Committee divided: Ayes 182, Noes 295.

Division No. 153 [5:28 pm


AYES

Ainsworth, Peter (E Surrey)
Allan, Richard
Amess, David
Arbuthnot, rh James
Atkinson, Peter (Hexham)
Bacon, Richard
Baker, Norman
Baron, John (Billericay)
Barrett, John
Beggs, Roy (E Antrim)
Bellingham, Henry
Bercow, John
Beresford, Sir Paul
Boswell, Tim
Bottomley, Peter (Worthing W)
Brazier, Julian
Breed, Colin
Brooke, Mrs Annette L.
Browning, Mrs Angela
Burns, Simon
Burnside, David
Burstow, Paul
Burt, Alistair
Cable, Dr. Vincent
Campbell, Gregory (E Lond'y)
Campbell, rh Sir Menzies (NE Fife)
Carmichael, Alistair
Cash, William
Chidgey, David
Chope, Christopher
Clifton-Brown, Geoffrey
Collins, Tim
Cormack, Sir Patrick
Cotter, Brian
Cran, James (Beverley)
Curry, rh David
Davey, Edward (Kingston)
Davis, rh David (Haltemprice & Howden)
Djanogly, Jonathan
Dodds, Nigel
Donaldson, Jeffrey M.
Dorrell, rh Stephen
Doughty, Sue
Duncan, Alan (Rutland)
Duncan, Peter (Galloway)
Duncan Smith, rh Iain
Ewing, Annabelle
Fabricant, Michael
Fallon, Michael
Field, Mark (Cities of London & Westminster)
Flight, Howard
Flook, Adrian
Forth, rh Eric
Foster, Don (Bath)
Francois, Mark
Garnier, Edward
George, Andrew (St. Ives)
Gibb, Nick (Bognor Regis)
Gidley, Sandra
Gillan, Mrs Cheryl
Goodman, Paul
Gray, James (N Wilts)
Grayling, Chris
Green, Damian (Ashford)
Green, Matthew (Ludlow)
Greenway, John
Grieve, Dominic
Gummer, rh John
Hammond, Philip
Harvey, Nick
Hawkins, Nick
Hayes, John (S Holland)
Heald, Oliver
Heath, David
Heathcoat-Amory, rh David
Hendry, Charles
Hermon, Lady
Hoban, Mark (Fareham)
Hogg, rh Douglas
Holmes, Paul
Horam, John (Orpington)
Hughes, Simon (Southwark N)
Hunter, Andrew
Jack, rh Michael
Jackson, Robert (Wantage)
Jenkin, Bernard
Jones, Nigel (Cheltenham)
Keetch, Paul
Kennedy, rh Charles (Ross Skye & Inverness)
Key, Robert (Salisbury)
Kirkbride, Miss Julie
Laing, Mrs Eleanor
Lait, Mrs Jacqui
Lamb, Norman
Lansley, Andrew
Laws, David (Yeovil)
Letwin, rh Oliver
Lewis, Dr. Julian (New Forest E)
Liddell-Grainger, Ian
Lidington, David
Llwyd, Elfyn
Luff, Peter (M-Worcs)
McIntosh, Miss Anne
Mackay, rh Andrew
Maclean, rh David
McLoughlin, Patrick
Maples, John
Mawhinney, rh Sir Brian
May, Mrs Theresa
Mercer, Patrick
Mitchell, Andrew (Sutton Coldfield)
Moore, Michael
Moss, Malcolm
Murrison, Dr. Andrew
Norman, Archie
Oaten, Mark (Winchester)
O'Brien, Stephen (Eddisbury)
Öpik, Lembit
Osborne, George (Tatton)
Page, Richard
Paice, James
Paisley, Rev. Ian
Price, Adam (E Carmarthen & Dinefwr)
Prisk, Mark (Hertford)
Pugh, Dr. John
Randall, John
Redwood, rh John
Reid, Alan (Argyll & Bute)
Robathan, Andrew
Robertson, Hugh (Faversham & M-Kent)
Robertson, Laurence (Tewk'b'ry)
Robinson, Mrs Iris (Strangford)
Robinson, Peter (Belfast E)
Roe, Mrs Marion
Rosindell, Andrew
Russell, Bob (Colchester)
Sanders, Adrian
Shepherd, Richard
Simmonds, Mark
Simpson, Keith (M-Norfolk)
Smith, Sir Robert (W Ab'd'ns & Kincardine)
Smyth, Rev. Martin (Belfast S)
Spelman, Mrs Caroline
Spicer, Sir Michael
Spink, Bob (Castle Point)
Spring, Richard
Stanley, rh Sir John
Steen, Anthony
Streeter, Gary
Stunell, Andrew
Swayne, Desmond
Swire, Hugo (E Devon)
Tapsell, Sir Peter
Taylor, John (Solihull)
Taylor, Matthew (Truro)
Taylor, Dr. Richard (Wyre F)
Teather, Sarah
Thomas, Simon (Ceredigion)
Thurso, John
Tonge, Dr. Jenny
Trend, Michael
Trimble, rh David
Turner, Andrew (Isle of Wight)
Tyler, Paul (N Cornwall)
Tyrie, Andrew
Viggers, Peter
Waterson, Nigel
Watkinson, Angela
Webb, Steve (Northavon)
Weir, Michael
Whittingdale, John
Wiggin, Bill
Willetts, David
Williams, Hywel (Caernarfon)
Williams, Roger (Brecon)
Willis, Phil
Wilshire, David
Winterton, Ann (Congleton)
Wishart, Pete
Yeo, Tim (S Suffolk)
Young, rh Sir George
Younger-Ross, Richard

Tellers for the Ayes:

Mr. David Ruffley and
Gregory Barker


NOES

Abbott, Ms Diane
Adams, Irene (Paisley N)
Ainger, Nick
Ainsworth, Bob (Cov'try NE)
Allen, Graham
Anderson, rh Donald (Swansea E)
Anderson, Janet (Rossendale & Darwen)
Armstrong, rh Ms Hilary
Atkins, Charlotte
Austin, John
Bailey, Adrian
Barnes, Harry
Barron, rh Kevin
Bayley, Hugh
Beard, Nigel
Begg, Miss Anne
Benn, rh Hilary
Benton, Joe (Bootle)
Betts, Clive
Blears, Ms Hazel
Blizzard, Bob
Blunkett, rh David
Bradley, rh Keith (Withington)
Bradley, Peter (The Wrekin)
Brennan, Kevin
Brown, rh Nicholas (Newcastle E Wallsend)
Brown, Russell (Dumfries)
Browne, Desmond
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Burnham, Andy
Byers, rh Stephen
Cairns, David
Campbell, Alan (Tynemouth)
Campbell, Mrs Anne (C'bridge)
Campbell, Ronnie (Blyth V)
Caplin, Ivor
Casale, Roger
Caton, Martin
Challen, Colin
Chapman, Ben (Wirral S)
Chaytor, David
Clapham, Michael
Clark, Mrs Helen (Peterborough)
Clarke, rh Tom (Coatbridge & Chryston)
Clarke, Tony (Northampton S)
Clelland, David
Clwyd, Ann (Cynon V)
Coaker, Vernon
Coffey, Ms Ann
Coleman, Iain
Connarty, Michael
Cooper, Yvette
Corbyn, Jeremy
Corston, Jean
Cousins, Jim
Crausby, David
Cryer, Ann (Keighley)
Cryer, John (Hornchurch)
Cummings, John
Cunningham, rh Dr. Jack (Copeland)
Cunningham, Jim (Coventry S)
Cunningham, Tony (Workington)
Davey, Valerie (Bristol W)
David, Wayne
Davidson, Ian
Davies, rh Denzil (Llanelli)
Davies, Geraint (Croydon C)
Dawson, Hilton
Dean, Mrs Janet
Denham, rh John
Dismore, Andrew
Dobbin, Jim (Heywood)
Dobson, rh Frank
Donohoe, Brian H.
Doran, Frank
Dowd, Jim (Lewisham W)
Drew, David (Stroud)
Drown, Ms Julia
Dunwoody, Mrs Gwyneth
Eagle, Angela (Wallasey)
Eagle, Maria (L'pool Garston)
Edwards, Huw
Efford, Clive
Ellman, Mrs Louise
Ennis, Jeff (Barnsley E)
Farrelly, Paul
Field, rh Frank (Birkenhead)
Fisher, Mark
Fitzpatrick, Jim
Fitzsimons, Mrs Lorna
Foster, rh Derek
Foster, Michael (Worcester)
Foulkes, rh George
Francis, Dr. Hywel
Gapes, Mike (Ilford S)
George, rh Bruce (Walsall S)
Gerrard, Neil
Gilroy, Linda
Godsiff, Roger
Griffiths, Nigel (Edinburgh S)
Griffiths, Win (Bridgend)
Grogan, John
Hain, rh Peter
Hall, Mike (Weaver Vale)
Hall, Patrick (Bedford)
Hanson, David
Harman, rh Ms Harriet
Havard, Dai (Merthyr Tydfil & Rhymney)
Healey, John
Henderson, Doug (Newcastle N)
Henderson, Ivan (Harwich)
Hendrick, Mark
Hepburn, Stephen
Heppell, John
Hesford, Stephen
Heyes, David
Hinchliffe, David
Hood, Jimmy (Clydesdale)
Hope, Phil (Corby)
Hopkins, Kelvin
Howarth, rh Alan (Newport E)
Howarth, George (Knowsley N & Sefton E)
Hughes, Kevin (Doncaster N)
Humble, Mrs Joan
Hutton, rh John
Iddon, Dr. Brian
Illsley, Eric
Irranca-Davies, Huw
Jackson, Glenda (Hampstead & Highgate)
Jackson, Helen (Hillsborough)
Jamieson, David
Johnson, Alan (Hull W)
Johnson, Miss Melanie (Welwyn Hatfield)
Jones, Helen (Warrington N)
Jones, Jon Owen (Cardiff C)
Jones, Kevan (N Durham)
Jones, Lynne (Selly Oak)
Jones, Martyn (Clwyd S)
Joyce, Eric (Falkirk W)
Kaufman, rh Gerald
Keeble, Ms Sally
Keen, Alan (Feltham)
Keen, Ann (Brentford)
Kelly, Ruth (Bolton W)
Kemp, Fraser
Khabra, Piara S.
Kilfoyle, Peter
King, Andy (Rugby)
Lammy, David
Lawrence, Mrs Jackie
Laxton, Bob (Derby N)
Lazarowicz, Mark
Lepper, David
Levitt, Tom (High Peak)
Lewis, Terry (Worsley)
Liddell, rh Mrs Helen
Linton, Martin
Love, Andrew
Lucas, Ian (Wrexham)
Luke, Iain (Dundee E)
McAvoy, Thomas
McDonagh, Siobhain
MacDonald, Calum
McDonnell, John
MacDougall, John
McFall, John
McGuire, Mrs Anne
McIsaac, Shona
McKechin, Ann
McKenna, Rosemary
Mackinlay, Andrew
MacShane, Denis
Mactaggart, Fiona
McWalter, Tony
Mahmood, Khalid
Mahon, Mrs Alice
Mallaber, Judy
Mann, John (Bassetlaw)
Marsden, Gordon (Blackpool S)
Marshall, Jim (Leicester S)
Marshall-Andrews, Robert
Martlew, Eric
Meacher, rh Michael
Merron, Gillian
Michael, rh Alun
Milburn, rh Alan
Miliband, David
Miller, Andrew
Mitchell, Austin (Gt Grimsby)
Moffatt, Laura
Mole, Chris
Moonie, Dr. Lewis
Moran, Margaret
Morgan, Julie
Morris, rh Estelle
Mountford, Kali
Mudie, George
Mullin, Chris
Munn, Ms Meg
Murphy, Jim (Eastwood)
Murphy, rh Paul (Torfaen)
Naysmith, Dr. Doug
Norris, Dan (Wansdyke)
O'Brien, Mike (N Warks)
Olner, Bill
Osborne, Sandra (Ayr)
Owen, Albert
Palmer, Dr. Nick
Picking, Anne
Pickthall, Colin
Pike, Peter (Burnley)
Plaskitt, James
Pollard, Kerry
Pope, Greg (Hyndburn)
Pound, Stephen
Prosser, Gwyn
Purchase, Ken
Quinn, Lawrie
Rapson, Syd (Portsmouth N)
Raynsford, rh Nick
Reed, Andy (Loughborough)
Robertson, John (Glasgow Anniesland)
Robinson, Geoffrey (Coventry NW)
Roche, Mrs Barbara
Rooney, Terry
Ross, Ernie (Dundee W)
Roy, Frank (Motherwell)
Ruane, Chris
Ruddock, Joan
Russell, Ms Christine (City of Chester)
Ryan, Joan (Enfield N)
Salter, Martin
Sarwar, Mohammad
Savidge, Malcolm
Sedgemore, Brian
Shaw, Jonathan
Sheridan, Jim
Simon, Siôn (B'ham Erdington)
Simpson, Alan (Nottingham S)
Singh, Marsha
Skinner, Dennis
Smith, Angela (Basildon)
Smith, Geraldine (Morecambe & Lunesdale)
Smith, Jacqui (Redditch)
Smith, Llew (Blaenau Gwent)
Soley, Clive
Southworth, Helen
Spellar, rh John
Squire, Rachel
Starkey, Dr. Phyllis
Steinberg, Gerry
Stevenson, George
Stinchcombe, Paul
Stoate, Dr. Howard
Strang, rh Dr. Gavin
Stringer, Graham
Stuart, Ms Gisela
Tami, Mark (Alyn)
Taylor, rh Ann (Dewsbury)
Taylor, Dari (Stockton S)
Taylor, David (NW Leics)
Thomas, Gareth (Clwyd W)
Thomas, Gareth (Harrow W)
Timms, Stephen
Tipping, Paddy
Todd, Mark (S Derbyshire)
Touhig, Don (Islwyn)
Trickett, Jon
Truswell, Paul
Turner, Dr. Desmond (Brighton Kemptown)
Twigg, Derek (Halton)
Twigg, Stephen (Enfield)
Tynan, Bill (Hamilton S)
Vaz, Keith (Leicester E)
Walley, Ms Joan
Ward, Claire
Wareing, Robert N.
Watson, Tom (W Bromwich E)
Watts, David
White, Brian
Whitehead, Dr. Alan
Wicks, Malcolm
Williams, rh Alan (Swansea W)
Wills, Michael
Winnick, David
Woodward, Shaun
Woolas, Phil
Worthington, Tony
Wright, Anthony D. (Gt Yarmouth)
Wright, David (Telford)
Wright, Tony (Cannock)
Wyatt, Derek

Tellers for the Noes:

Ms Bridget Prentice and
Paul Clark


Question accordingly negatived.

 
28 Apr 2004 : Column 964
 

Mr. Prisk: I beg to move amendment No. 34, in page 555, line 46, after the first 'the', insert

'capital profits or (if no separate allocation is made of capital profits) the residuary allocation (after prior charges and allocations)'.

Amendment No. 34, which is concerned with the treatment of income and capital in partnerships, would change paragraph 25(2) of schedule 39. It is a probing and somewhat technical amendment, but I shall endeavour to explain it to the Committee; I am sure that I shall receive its rapt attention.

The issues underlying the amendment have been brought to my attention by a number of expert solicitors and by the Country Land and Business Association. Stamp duty land tax is to be paid on the land value of transfers into or out of partnership, and in respect of changes in partnership share. The problem is that the legislation provides that in ascertaining that share, regard should be had only to the income-sharing proportions. That ignores two problems, as Members are doubtless particularly interested to learn.

First, the division of income between partners is rarely done by reference to a predetermining percentage, as Members will appreciate, let alone by reference to one that is then linked to capital subscription. Furthermore, a prior charge on trading profits frequently arises in the case of most family businesses. That is especially so when one partner devotes his full time to the business while the others do not, or when one partner has an expertise or qualification that the others do not. In both circumstances, which are certainly very common in family firms, it would not be appropriate for other than super-profit-sharing ratios to be taken into account.
 
28 Apr 2004 : Column 965
 

The second problem occurs when certain partners have contributed most of the assets, which then have to be segregated on an event such as death. In that case, the appropriate measure of the partnership share would be the capital-profit-sharing ratios. It is thought by many legal experts, who are far more knowledgeable about these matters than me, that as drafted the Bill will produce a stamp duty land tax charge on 90 per cent. of the land value. That applies where a farmer has put in 90 per cent. of the assets and is entitled to only 10 per cent. of the income. He may then decide to withdraw from the partnership. The question to which the Financial Secretary should respond is whether, in those circumstances, he should pay on the 10 per cent. rather than the 90 per cent.

5.45 pm

The problem seems to be compounded where the land is either put into partnership after Royal Assent or injected into the partnership between 20 October and Royal Assent, where paragraph 18(2)(b)(i) asserts that the injecting partner has not thereby increased his share "in" the partnership, whatever the income entitlement.

To conclude this technical but important point, the danger is that parallel partnerships might then have to be formed in order to own the land. That is not simply my view, but that of many of the leading professionals in the field, and of the Country Land and Business Association, which advises many people on such matters. It is an important issue, if somewhat technical and remote to the uninitiated. I do not profess to be an expert on the specific matters, but the concerns seem legitimate. This is a probing amendment and I hope that the Financial Secretary will provide some assurance that the issue either has been or will be dealt with either during the passage of the Bill or immediately thereafter.

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