Finance Bill


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Mr. Lewis: Let me say on behalf of my hon. Friend the Member for West Bromwich, East (Mr. Watson), who cannot speak on these occasions, that the pager message does not apply to hon. Friends participating in the Committee. We cannot leave before 6 o'clock, alas!

I shall set the provision in context before turning to the amendments. In the past few years HMRC has seen a continuing stream of schemes aimed at avoiding liability to stamp duty and, since 2003, specifically liability to stamp duty land tax. It is no exaggeration to say that, for some practitioners, advising on stamp duty avoidance is one of the major parts of their work. By contrast, most residential purchasers have no option but to pay stamp duty land tax. Countering stamp duty avoidance was one of the main drivers for the introduction of stamp duty land tax in 2003. As part of the introduction of that tax a number of avoidance opportunities were blocked. Following that, however, more avoidance schemes came to light and those were countered again in the Finance Act 2004. In
 
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the years since then, HMRC has seen even more schemes, which are blocked by measures in the earlier part of the schedule, but there is no reason to suppose that practitioners have been idle since the relevant measures were published and we expect that new schemes are being developed at this very moment.

There comes a time when any Government must say that enough is enough. I remember that being an effective strategy leading up to the 1997 general election. In relation to avoidance using group relief, the time has now come. It is time to ensure that group relief is restricted to proper commercial transactions where tax avoidance is not the, or a, main purpose. I recognise that this measure has caused genuine concern among those who are not engaged in tax avoidance, on the grounds that it will stop legitimate commercial transactions. I can reassure the Committee that we do not accept that that will be the effect of the measure, which will only stop claims to group relief where tax avoidance is the, or a, main purpose. The fact that a transaction gives rise to a tax benefit does not mean that avoidance is the main purpose.

I was asked earlier for the definition of the term ''bona fide''. Successive Governments have used that term and most Committee members, and practitioners, understand its meaning to be ''genuine'', which is a pretty straightforward understanding.

The fact that a transaction gives rise to a tax benefit does not mean that avoidance is its main purpose. To take a specific example, a group may transfer a property into a special purpose vehicle so that after three years, the shares in that vehicle can be sold free of stamp duty and land tax. That is not tax avoidance, because the legislation specifically permits such transactions. On the other hand, if the property were transferred into the special purpose vehicle as part of arrangements whereby the property could leave the group in less than three years, that might be tax avoidance because it would go against the intention of Parliament.

Having given that example, I move on to the amendments. Amendment No. 146 would delete paragraph 19.

Mr. Brooks Newmark (Braintree) (Con): I thank the Minister for that excellent example. I appreciate that he is not here to give tax advice. However, I am curious about how the Minister would address the issue raised by my hon. Friend the Member for Rayleigh: companies wishing to reorganise their holdings to enable them to become REITs may find it difficult to argue that they are not transferring properties to gain REIT status and thus exemption from tax.

Mr. Lewis: I shall address the REITs question later. It is an important issue.

As I said, amendment No. 146 would delete paragraph 19. I hope that I have given enough reasons as to why that provision is reasonable and proportionate, and that there is therefore nothing to add on that amendment.
 
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Mr. Francois: I have listened to what the Minister said, but I am not sure that he has addressed the point. If the provision is as innocuous as he says, why are the Chartered Institute of Taxation, the Law Society, the British Property Federation and the CBI all dead against it?

Mr. Lewis: I cannot speak for any one of those organisations, or for them as a collection of organisations. All I can say is that we have considered the reservations, objections and concerns that have been articulated by interest groups. Having considered those seriously, we have come to the conclusion that the measures are necessary and in some ways overdue, and that there has been clear evidence of organisations and individuals seeking to get round Parliament's intentions and avoid appropriate responsibility.

If the hon. Gentleman insists on pressing the matter to a Division, we shall have to engage on an enemy-by-enemy basis. However, we have not taken this decision lightly; it has come after a great deal of consideration and with a sensitivity about not wanting to catch practitioners or companies that are behaving in a genuine way. We do not seek to do that.

Amendments Nos. 102 and 103 would restrict the definition of tax by leaving out capital gains tax and corporation tax. However, it seems from amendment No. 147 that the Opposition now want to go further and leave out income tax as well. In other words, the hon. Gentleman is arguing that it is quite acceptable for group relief—a generous relief from stamp duty land tax—to be available when a transaction forms part of a scheme to avoid income tax, capital gains tax or corporation tax, or all three taxes.

Surely the hon. Gentleman accepts that the Government cannot condone tax avoidance by allowing stamp duty land tax group relief on avoidance transactions. I do not believe that that would be acceptable to any member of this Committee. Again, the amendments may be prompted—I am sure that they are—by concerns that the measure in its current form will cause uncertainty and stop legitimate commercial transactions. I do not believe that that will be so. I do not know whether the hon. Gentleman is aware of it, but the example that has been cited is when property is transferred within a group to match chargeable gains with allowable losses or to match rental income with losses from rented property. For many years, we have accepted that that is not tax avoidance, provided that both gains and losses arise from genuine economic activity and have not been artificially contrived.

4 pm

I can give another example of securitisation. In a simple terms, a securitisation is a structure whereby securities are issued in the market and backed by a charge on assets held by the company. As the Government made clear when announcing this year's Budget, we are keen to encourage securitisation and to work with the industry on the complex tax and accounting issues involved. Members of the Committee will be aware of the provisions in section
 
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83 of the Finance Act 2005, which were aimed specifically to assist those involved in securitisation. It has been suggested that the measure would stop or substantially increase the cost of securitisation but we do not accept that that would be the case. Obviously, a normal commercial securitisation does not have tax avoidance as its main purpose or one of its main purposes. The types of transaction typically undertaken by the companies affected by section 83 do not have tax avoidance as their main purpose. The types of transaction that my officials are discussing with the agency do not have tax avoidance as their purpose.

I do not see any reason why normal commercial securitisations should be affected by the measure. In the end, taxpayers and their advisers know when they are engaged specifically in tax avoidance. They know whether they are obtaining a relief in a manner that is contemplated by Parliament or whether they are seeking to abuse legislation. Only those who make use of tax avoidance schemes need concern themselves with any aspect of the measure.

The hon. Member for Rayleigh referred to REITs. The proposition is that passing the measure would make more difficult the ultimate decisions that the Government are committed to making on REITs. Obviously, we have taken that view seriously. We have considered matters, and we genuinely do not believe it would be appropriate to integrate the decision that we will have to make about REITs in due course with measures at this time, and nor do we accept, having considered matters carefully, that adopting the measures will make it difficult to achieve the right outcome in the best interests of British industry on the whole REIT issue. Given my reassurances, I hope that the hon. Gentleman will seriously consider withdrawing the amendment.

Mr. Francois: I have listened carefully, and the Committee will have realised that such a matter is controversial. We tabled various amendments to provide different options that we might press to a Division. To continue the naval analogies that my hon. Friend the Member for Cities of London and Westminster began this afternoon, we loaded several cannons in order to decide which one to fire. In all sincerity, I did not find the Minister's explanation entirely convincing. It was particularly unconvincing in respect of REITs because there has been a tremendous delay in the REITs process and all the hon. Gentleman did was to provide me with an generally worded assurance.

Mr. Newmark: Waffle.

Mr. Francois: My hon. Friend uses strong language, but the Minister's explanation was not entirely clear and comprehensive.

Paragraph 19 of the schedule still amounts to a general anti-avoidance provision, in all but name. It is unjustifiably broad in scope, which is why a range of organisations including the Chartered Institute of Taxation, the British Property Federation and the Confederation of British Industry have called for it to be withdrawn. Among people who will have to deal with the measure, there is consensus that the
 
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Government have gone too far. The Committee should take notice of that, because it has important implications for the future viability of British business, particularly—to return to my original example—where companies are forced to reorganise because of changing commercial circumstances. We in Parliament often talk about the global economy and global competition, and this is a case where global competition really hits home. British business must be able to react to it. The measure could constrain that ability to react, so there is real danger in it.

I listened to the Government's arguments. I show no personal disrespect for the Economic Secretary, but he speaks for Her Majesty's Government, and they have completely failed to convince, so I wish to press the amendment to a Division.

 
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