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Mr. Forth: I am most grateful to my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) for giving the Committee time to dwell on this matter, which has the potential to create some problems. We are always reluctant in this place to embark on even a brief analysis of matters as complex as those he has brought to our attention, particularly when the provenance is outside expertise. Having said that, it must be beyond dispute that it is our duty to do so. After all, that is why we are here—the experts on these matters do not have the same privileges as we have. It must be our duty to seek to draw out and elucidate any problems.
As I followed my hon. Friend's argument, I saw that it stemmed from the fact that the basis on which the benefits within partnership arrangements are distributed is not always as clear as it should or could be. I deliberately use the word "benefits" in a generic and rather general sense. It is those benefits of the partnership that may be shared from time to time. That is where my hon. Friend started his argument.
One has only to glance at the original words in the Bill and then the wording of my hon. Friend's amendment to see immediately that the Bill refers to the "income profits" of the partnership, whereas the amendment refers not only to the "capital profits", but to
"the residuary allocation (after prior charges and allocations)".
Even I as a layman can see immediately the difficulties that might arise from that.
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One has to distinguish within a partnership between the concept of income profits as opposed to capital profits—and there is the added complication of residuary allocations. That is further complicated when the timing of the different elements in schedule 39 is introduced. We see the potential for considerable complexity. I am not sure from the wording of paragraph 25(2) on page 555—and nor is my hon. Friend—whether a rather simple reference to share in the "income profits" could be adequate to cover all the different possibilities that might arise from the complexity of partnerships.
My hon. Friend mentioned another element that needs to be taken into account. We are not talking only about large, professional partnerships, but about family partnerships. They can sometimes be relatively simple, but the ramifications of any given family can also make them more complicated, as the relationships inside a family can be laid on top of the partnership relationship. That is not true of more conventional professional partnerships.
The amendment could improve the Bill, and it would certainly make clear the different possibilities that could arise. The Financial Secretary faces a problem if the Government's case rests on the very simple concept of a partnership's income profits, as that appears to be inadequate for the purpose of the schedule. The amendment could therefore be of considerable help, as the aim is to clarify the Government's intention. It will also ascertain whether the words used in the Bill fulfil that intention, and whether the schedule can be implemented properly.
I hope that the Financial Secretary will say whether she thinks the distinction between income profits and capital profits is relevant. The same applies to the allocation—explicit or not—of those profits. Moreover, does she agree that the time factor must be relevant as well? I confess that I am not totally familiar with the concept of residuary allocation, but I can see that it could become crucial in some circumstances.
This apparently straightforward and innocent provision could contain a large number of traps and complications. We would not want to leave them unchallenged, and I hope that the Committee will be grateful to my hon. Friend for tabling the amendment, which seeks to clarify matters. I shall be interested to see whether the Minister can give us that clarification, or whether the matter will remain an unsatisfactory element in the Bill that requires much more examination at a later stage.
Ruth Kelly: This probing amendment is interesting. It attempts to clarify the economics of a transaction, and I emphasise that the Bill's underlying principle is that the treatment of a transaction should be as transparent as possible. Moreover, our aim is to ensure that the treatment of taxation and stamp duty land tax follows as closely as possible the substance of the underlying transaction, and that it reflects the transaction's economic or commercial reality.
The correct taxable measure reflects the economics of the underlying transaction—in this case, the right to receive income from the land. When the land, and the right to receive income from it, is transferred, the tax follows that transfer of right. That is an example of the
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transparency principle at work. When the right, as shown by income, has been sold to the partnership, buying it back is another taxable transaction.
Therefore, I believe that the correct principle is enshrined in the schedule. An entitlement to capital profits does not reflect participation in the use of those land assets in the business of a partnership. In any event, arrangements could be entered into that meant that the capital profits of a partnership might never be realised. Although I understand that representations have been made on these issues, I would recommend to the hon. Gentleman that he withdraws his amendment.
Mr. Prisk: Unfortunately, the Minister might have inadvertently forgotten a couple of elements. I mentioned the transitional aspect—the question whether the land was put into partnership after Royal Assent, or was injected into the partnership between 20 October and Royal Assent—in the distinction between income and capital profits, which my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth) accurately highlighted. It is a crucial part of the issue, and I hope that the Minister will feel able to clarify that, either by intervening or by making a speech. I hope that she can enlighten us, if not today then shortly.
I take it from the Minister's reply that the Government have no plans to make adjustments or reflect the concerns expressed. Is that the case? She remains in her seat, so we take it that the Government have no plans to adjust the paragraph. The representations of the Country Land and Business Association and many others have much sense, so I am disappointed that she has not chosen to respond more positively. I hear from my right hon. Friend and a number of others a concern that not only have we ignored the question of income and capital, but the mix of the two is awkward. Surely the Minister will understand that in a family business—the obvious example is farming—the interplay between the capital assets and the profits from income must be recognised more clearly. At the moment, paragraph 25(2) does not achieve that.
I am fully aware that my amendment is by no means perfect. It has many elements that might create confusion if they appeared in the Bill. The purpose of this probing amendment was to draw from the Minister a clearer answer, but so far, unless she wishes to respond further, I have been very disappointed by her response. That is a great shame and unfortunately it suggests that the Government are deaf to reason. Given that there are, as I am well aware, a number of legal problems with my amendment, I shall withdraw it, by leave of the Committee, but I do so with the deepest disappointment that the Minister has not chosen to be more positive and more helpful in dealing with the issue. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, that the schedule be the Thirty-ninth schedule to the Bill.
Mr. Prisk:
We have had some very strong and useful interventions and discussions on the schedule as a whole—it is a very significant schedule—and I wish to
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consider the broader implications of the Government's tax policies on partnerships. The schedule covers transfers of land to partnerships, transfers of partnership interests and transfers of land out of partnerships, all of which are to be charged with stamp duty land tax.
First, we accept that stamp duty land tax should be charged where the relevant partnership is a property investment partnership, but trading partnerships should not be treated as though they were the same. The compliance burden on trading partnerships—particularly professional partnerships, which regularly change partners on introduction and on retirement—would be disproportionate to the tax collected.
Secondly, many professionals are concerned that consultations on partnerships have not accurately reflected the concerns of business. I have received many representations from professional bodies, and from professional practices and partnerships. Let me briefly quote but one from the practice, Grant Thornton, which says:
"We are particularly disappointed that the measures to introduce stamp duty land tax on partnership transactions have not been substantially revised. We understand that there is an anti-avoidance motive behind these measures, but a commerciality test could have dealt with this issue."
"Our view is that it is unacceptable for 'grapeshot' legislation to be introduced which penalises innocent gifts and commercially driven transactions, under the guise of preventing tax avoidance."
6 pm
Our third concern is that the stamp duty land tax provisions have been introduced since last year's Finance Bill, and in a way that confirms the need for a single piece of legislation for stamp duty. Instead, the Government have adopted a piecemeal, ad hoc approach to their legislative programme. I shall quote but one organisation, of which I am a professional member—the Royal Institution of Chartered Surveyors. Its comments provide for me and for many organisations the best summary of the way in which the tax has been implemented. It states:
"If the Government had not hurried the implementation of stamp duty land tax, then the need for extensive, further SDLT legislation in three concurrent Finance Bills would have been mitigated and the tax law would have been better shaped, more transparent and less burdensome to the taxpayer."
That is the view of the professionals affected by the provisions, and it is shared by the Opposition and the country at large.
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