Finance Bill


[back to previous text]

Mr. Francois: I thank the Economic Secretary for his kind compliment about Conservative ingenuity—that was good of him. I am grateful for his reassurances on multiple clawbacks. He will understand that we were seeking to tease out the Government's thinking on a theoretical possibility. We have succeeded in doing that, and I am grateful for what he had to say.

Amendment No. 95 was our principal amendment. You will recall, Mr. Cook, that we wanted to know whether the Government were legislating on the basis of real attempted avoidance schemes. The Minister stated categorically that this measure has been brought in as a result of schemes that the Government judge to have been genuine attempts at avoidance and that the Treasury is, in effect, seeking to plug a loophole. I am prepared to take the Economic Secretary at his word. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Francois: I beg to move amendment No. 98, in schedule 10, page 146, line 6, leave out

    'that does not consist wholly or mainly of dealing in chargeable interests'.

The amendment deals with the qualifications for acquisition relief. It is a probing amendment that seeks to clarify situations in which companies—potentially including certain joint venture companies—may continue to qualify for acquisition relief in property transactions. Paragraph 8 of schedule 10, which deals with reconstruction and acquisition reliefs, seeks to limit situations in which companies may continue to qualify for acquisition relief on certain transactions. Specifically, the proposed new sub-paragraph (5A) seeks to exclude from such relief those companies carrying on a trade that consists

    ''wholly or mainly of dealing in chargeable interests.''


 
Column Number: 291
 

That is legalistic language; in practice, it means that this could not only relate to removing relief from property investment companies—we believe that that is what the Government originally intended to do, and we followed their thinking—but have the practical effect of removing the relief from active property developers who are not only trading in land per se, but seeking to develop property, potentially including specially created joint venture vehicles such as those established to facilitate the redevelopment of a housing estate. There is some controversy about that, so we seek to clarify the issue.

I cite Mr. Sean Finn, a partner in the international tax group Lovells. He wrote an article that appeared on the Legal Week website on 9 June 2005. It commented on this provision in the following terms:

    ''The 2005 rules will require that, for the relief to apply, the relevant undertaking must have as its main activity the carrying on of a trade which does not consist wholly or mainly of dealing in land or interests in land. This measure will greatly reduce the availability of this relief for property transactions.''

As that could have implications for future housing development, will the Minister say what discussions the Treasury has had about it with the Office of the Deputy Prime Minister? One thing that we certainly know about the Deputy Prime Minister is that he is interesting in housing, even if I do not always agree with his philosophy on that issue. Where exactly does the line to which paragraph 8 is intended to apply fall? Where should it be drawn between property investment companies and active property developers and special purpose development vehicles?

Amendment No. 98 would delete the final words of proposed sub-paragraph (5A), so that active property developers and joint ventures might continue to enjoy acquisition relief. Some finely balanced schemes might conceivably have an important bearing on whether or not the scheme can proceed.

However, the amendment would not prevent the amended paragraph 8 from still being applicable to property investment companies, which, as I say, is what we believe the Government originally intended. We want to tease out the Government's thinking and to understand their rationale for the precise wording that they have chosen to employ under that part of the schedule. It looks as though it has been deliberately crafted. We want to understand where they think the line should fall and how precisely the measure should operate in practice. I genuinely look forward to hearing what the Minister has to say.

Mr. Lewis: The hon. Gentleman seeks to tease out my thinking, but five minutes ago he wanted to shoot me. He has changed his position somewhat in that short time, but I shall deal seriously with the issues that he raised. Acquisition relief is a partial relief from stamp duty land tax. It allows a person to buy a business that has property assets at a lower SDLT charge than buying the assets themselves would incur. The charge is at ½ per cent. rather than the usual 4 per cent. The rationale for that is that a 4 per cent. duty would raise a barrier to the purchase of businesses.
 
Column Number: 292
 

Paragraph 8 of schedule 10 restricts the availability of acquisition relief so that the definition of the undertaking must be a trade, not an investment business, and must not be a property-dealing trade. The amendment would remove the restriction on the definition of trade, allowing acquisition of property transferred as part of a property-dealing trade to be taxed at ½ per cent. rather than 4 per cent. It would therefore make the clause ineffective as it would be relatively easy to show a trade of dealing in property when the actual motive is the holding of property for investment purposes.

We do not consider that it is right in that context that acquisition relief, which is an extremely generous relief, should be available when property ownership, or dealing in property, is the main business of the company. It should be available only when the ownership of property is ancillary to the main business of the company, such as, for example, when a retail business owns a chain of shops or when a business is carried on from a factory.

I understand that there have been worries that the concept of dealing in chargeable interests is uncertain, a point made by the hon. Gentleman. It is unclear, for example, whether a property developer or house builder will be caught. While it is ultimately a question of fact what trade a company is carrying on, I can reassure the Committee that property developers and house builders who derive most of their profits from their work, rather than from buying and selling would not be caught by the measure. Companies that want reassurance about that in relation to their specific trade can approach HMRC to seek clarification.

Mr. Francois: I am grateful to the Economic Secretary for providing exactly the sort of clarification I asked for. For the avoidance of doubt and to make sure that I have understood him correctly, I believe that the active word in his response seemed to be ''most'', and, providing that the companies concerned can demonstrate that most of their profit—not turnover—is derived from their work, they will be all right. Did I understand the hon. Gentleman correctly?

Mr. Lewis: It is kind of the hon. Gentleman to both ask a question and give the answer; he is always helpful. Yes, I can assure him that it is the profit; he is right in that respect. Any company that genuinely seeks reassurance on this specific point in relation to the trade issue should approach HMRC. In light of my comments, I hope that the hon. Gentleman feels able to withdraw the amendment.

3.30 pm

Mr. Francois: I certainly do. We have probed to get a clear answer from the Economic Secretary and he has given a workable definition that will allow people in the industry some certainty when they attempt to plan. I also heard him say that the Revenue would invite those with any uncertainty about the matter to enter into discussions with it. As the Economic Secretary has been more than fair, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.
 
Column Number: 293
 

Mr. Francois: I beg to move amendment No. 99, in schedule 10, page 147, line 34, at beginning insert ''Subject to sub-paragraph (5)''.

The Chairman: With this it will be convenient to discuss amendment No. 100, in schedule 10, page 147, line 41, at end add—

    '(5) Sub-paragraph (2) shall not apply where the grant to or by a nominee is associated with, incidental to or preparatory to, a transaction involving a securitisation company within the meaning of Section 83(2) of the Finance Act 2005.'.

Mr. Francois: These are two technical amendments that focus on how the schedule will apply to certain transactions involved in securitisations. In order to make progress, I shall leave what I say at that; the amendments are very technical, so I shall simply sit down and await the Economic Secretary's reply.

Mr. Lewis: If the Committee had conducted its business on the basis that if amendments are very technical, they are not spoken to by those who move them, we would not have been here for the past two weeks. However, I thank the hon. Gentleman for being so honest, because my officials said to me when we discussed the amendments that they did not have a clue about what they were getting at and could not be of any assistance to me. Obviously they too thought that the amendments were very technical. However, I will try to address what we think are the amendment's substantive points.

Perhaps my hon. Friend the Member for Wolverhampton, South-West—no, I should not encourage him—[Laughter.] ''Think before you engage your mouth,'' as my dad used to say to me.

Paragraph 11 applies where a lease is granted to or by a nominee. The normal rule is that transactions with nominees are ignored for stamp duty land tax purposes. That reflects the intention that stamp duty land tax should be charged when beneficial ownership changes, not when someone puts their own property into the name of a nominee—please will the hon. Member for Rayleigh pay attention? Paragraph 11 disapplies that rule where the transaction is the grant of a lease. The reason for that is to counter avoidance schemes where the grant of a lease to or by a nominee is followed by the assignment of the lease to a third party. Normally, there is a charge on the rental element of a lease when it is granted. However, if transactions with nominees are ignored, that charge will not occur. That will enable leases to be granted without any charge on the rental element. Paragraph 11 therefore provides that where the transaction is the grant of a lease, the fact that a nominee is involved is ignored; in other words, there is the same charge that there would be if there were no nominee arrangements. That ensures that there will be the normal charge on the rental element. In many cases, there is a relief such as group relief, which will prevent a charge to tax from arising at all.

The amendment would prevent paragraph 11 applying where the grant of the lease is connected with a transaction involving a securitisation company. Securitisation companies are special purpose vehicles involved in structures where securities are issued in the market and those securities are backed by a charge on assets held by the company. Members may be aware
 
Column Number: 294
 
from announcements made as part of the 2005 Budget that the tax and accounting treatment of securitisation companies is a complex matter. My officials are engaged in discussions with practitioners about these issues, which resulted in provisions in the Finance Act 2005. My officials have not come across any examples of securitisation transactions that involve the use of nominees and leases and the issue has not been raised in discussions, which is one of the reasons why we were unclear about the purpose of the amendments. That suggests that the use of nominees and leases would be unusual, and that nominees and leases might not form part of a normal commercial securitisation. Because of that, it would be wrong at this stage to grant a specific exemption from an anti-avoidance provision. The better way to proceed is for those who have an interest in the tax and the accounting treatment of securitisations to raise that issue in discussions with my officials so that any specific tax measures can be set in wider context.

Having demystified those complex issues for all Committee members, I hope that the hon. Member for Rayleigh will consider withdrawing the amendment.

 
Previous Contents Continue
 
House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2005
Prepared 30 June 2005