The
Committee consisted of the following
Members:
Chairman:
Dr.
William
McCrea
Balls,
Ed
(Economic Secretary to the
Treasury)
Brennan,
Kevin
(Lord Commissioner of Her Majesty's
Treasury)
Cable,
Dr. Vincent
(Twickenham)
(LD)
Clwyd,
Ann
(Cynon Valley)
(Lab)
Evennett,
Mr. David
(Bexleyheath and Crayford)
(Con)
Field,
Mr. Frank
(Birkenhead)
(Lab)
Flynn,
Paul
(Newport, West)
(Lab)
Francois,
Mr. Mark
(Rayleigh)
(Con)
Fraser,
Mr. Christopher
(South-West Norfolk)
(Con)
Goldsworthy,
Julia
(Falmouth and Camborne)
(LD)
Hands,
Mr. Greg
(Hammersmith and Fulham)
(Con)
Hollobone,
Mr. Philip
(Kettering)
(Con)
Johnson,
Ms Diana R.
(Kingston upon Hull, North)
(Lab)
Keeble,
Ms Sally
(Northampton, North)
(Lab)
Prosser,
Gwyn
(Dover)
(Lab)
Stoate,
Dr. Howard
(Dartford)
(Lab)
Vaz,
Keith
(Leicester, East)
(Lab)
Emily
Commander, Committee
Clerk
attended the Committee
Fourth
Delegated Legislation
Committee
Wednesday 10
January
2007
[Dr.
William McCrea
in the
Chair]
Stamp Duty Land Tax (Variation of the Finance Act 2003) Regulations 2006
2.30
pm
The
Chairman:
May I welcome everyone to the Committee and wish
you all a very happy new year? I call the Economic Secretary to move
the motion.
The
Economic Secretary to the Treasury (Ed Balls):
I beg to
move,
That the
Committee has considered the Stamp DutyLand Tax (Variation of
the Finance Act 2003) Regulations 2006 (S. I. 2006, No.
3237).
Thank you, Dr. McCrea.
May I start by saying that it is a great privilege to serve for the
first time under your chairmanship? I am sure that hon. Members on both
sides of the House and the Committee will reciprocate those good
wishes, and wish you a very happy new year for 2007.
The purpose of the statutory
instrument is to give effect to the decision of my right hon. Friend
the Chancellor of the Exchequer in the pre-Budget report on 6 December
to tackle a number of schemes that have been developed by property
lawyers to avoid paying stamp duty land tax. As hon. Members will know,
stamp duty land tax is a transactions tax payable on the purchase of
land and property or any consideration for the acquisition of an
interest in land or property. It is payable by the buyer at a rate that
depends on the purchase price of the property, and it is administered
and collected by Her Majestys Revenue and Customs.
As part of a major
modernisation in the Finance Act 2003, stamp duty on documents
was replaced by stamp duty land tax on the transaction itself with
effect from 1 December 2003. One of the key drivers for the new stamp
duty land tax structure was to counter stamp duty land tax avoidance by
a few taxpayers at the expense of the rest. Since the introduction of
stamp duty land tax, commercial avoidance of stamp duty on property
transactions has been reduced. However, some taxpayers have continued
to seek to evade the
tax.
Keith
Vaz (Leicester, East) (Lab): I thank the Economic
Secretary for his introduction. Can he tell the Committee whether the
Treasury has had any discussion with the Law Society about the
activities of those solicitors who are involved in what he has
described as helping clients to evade tax? Clearly, it is not
illegalwe are seeking to make it illegalbut have any
consultations or discussions taken place to try to persuade them not to
continue with such
practice?
Ed
Balls:
I am grateful for that intervention, because it
enables me to say that part of the reason that we are able to legislate
in regulations today is precisely because
of the 2004 disclosure regime, which was put into
effect. It requires disclosure of potential areas where avoidance could
arise. Our decision to legislate is a direct consequence of some issues
that have come to light as a result of those disclosures. The
solicitors who had worries have given us the information to enable us
to act in respect of the regulations
today.
We extended the
disclosure regime for stamp duty land tax in 2005, and the regulations
that we are discussing arise directly from those disclosures. Since
2005, disclosures to HMRC have made us aware of several sophisticated
and highly artificial avoidance schemes that are being used in
high-value commercial property transactions. The three schemes that
have been identified are avoiding stamp duty land tax using leases,
sub-sales and partnerships. They seek to avoid payment of stamp duty
land tax by adding additional stages to the sale of property from one
party to another in such a way as to remove the need to pay tax on the
transaction. That that is happening is widely acknowledged in the
industry. Indeed, Craig Leslie from PricewaterhouseCoopers described
the schemes in Property Week
as
artificial
structures that are used once youve got two sides ready to do a
deal.
The instrument
that we are debating will clarify Parliaments intention in
relation to the transactions and put beyond doubt the fact that tax is
due in those three circumstances. It will ensure fairness as the
transactions will henceforth be taxed in the same way as they would
have been had they been straightforward land transactions between two
parties.
Although up
to now only a relatively few transactions have used the schemes, the
loss in stamp duty land tax yield is significant and, without action,
would rise as more transactions take place. Indeed, those particular
schemes seem to be quickly gaining popularity among tax advisers and I
reiterate that HMRC is receiving notifications of increasing numbers of
proposals for such schemes. HMRC estimates that the schemes account for
a loss in stamp duty land tax yield of about £75 million a year
at their current levels and that would be bound to grow. Closing them
will bring extra combined revenue for the years 2006-07to
2009-10 respectively of £25 million, £75
million,£70 million and £70
million.
The
regulations that we are debating are, by law, temporary and last only
18 months. The Government will include provisions in this years
Finance Bill to make the schemes ineffective for the long term. Some
might argue that we should wait until the 2007 Budget to make the
schemes ineffective instead of acting now. In other tax fields, we have
closed loopholes through ministerial statements that are only
subsequently backed by legislation. However, stamp duty land tax is a
real-time transactions tax. A land transaction return must be delivered
to HMRC within 30 days of purchase of a property. A ministerial
statement cannot have the legal force, and the short time limit for
submitting a land transaction return means that it could be submitted
before the law is changed. That is the reason for the regulations today
and why we shall return to such matters under the Finance
Bill.
Mr.
Greg Hands (Hammersmith and Fulham) (Con): Can the
Economic Secretary say when he first became aware of the apparent
loophole and explain how long it has taken for it to be
closed?
Ed
Balls:
As the Minister in charge of such matters, I was
first aware of the loophole in the autumn of last year. I acted within
a matter of weeks on advice from HMRC to advise the Chancellor that we
should take action in the pre-Budget report and act through regulation.
The notifications in disclosure terms have clearly been coming to HMRC
over time, but the fact that, in recent months, there were two
particular transactions of very high value meant that we had to
persuade HMRC that we needed to act because there would be a
significant revenue loss if we did not. That was why we were advised to
take action in the pre-Budget
report.
Keith
Vaz:
Can my hon. Friend estimate the amount that has been
lost to the Treasury as a result of the avoidance of tax in this
area?
Ed
Balls:
I have not got a precise figure to give to my right
hon. Friend today, but in 2006-07 the loss that we would have
experienced would have been in the order of £25 million. That is
the amount that we would not otherwise have brought in as a result of
the regulations. That figure increases to £75 million,
£70 million and £70 million. The fact that some of those
transactions might have taken place during the current tax year means
that there will be a revenue loss, but I cannot give the Committee a
precise estimate of that loss.
Paul
Flynn (Newport, West) (Lab): Will the Economic Secretary
name the two companies
involved?
Ed
Balls:
I have to tell my hon. Friend that, as is
completely normal in tax matters, I do not know the names of the two
companies. It would be improper and outside the normal practices of
HMRC for Ministers to know the names of individuals or companies. What
I do know is that the two transactions had a substantial value, running
into the high hundreds of millions. That was one of the things that
prompted us to take such quick action in the pre-Budget report. I am
not telling him the names, because I am not able to. I do not know the
names of the two companies
involved.
Mr.
Hands:
The Economic Secretary mentioned that two schemes
in particular seem to have triggered the instrument. Can he tell us
what threshold the Treasury normally looks at in a tax evasion or
avoidance scheme before a loophole is closed? He implied that a certain
level has to be reached before such things
happen.
Ed
Balls:
The fact that I cannot put a figure on the possible
tax loss over the past few months probably answers the hon.
Gentlemans question. No particular threshold is specified. The
question is whether we think that there is the potential for
significant revenue loss because of abuse. I have given the Committee
the extra information that two particular transactions are causing
concern. The flow of information in notification terms has happened
only in the past six months or so. If there were a loss of even a few
million and we feared that it could grow over time, we would act. It is
clear from the figures that I have given that the sums in this case are
considerably higher than that£25 million rising to
£70 million. The wise thing to do when making tax policy is, if
one sees a problem that could lead to wider abuse, to take action
before
that occurs. In this case, we are acting early to ensure that potential
revenue losses do not occur. I reassure the Committee that there has
not been a substantial revenue loss so far, although there will have
been some. We are enacting todays regulations in order to avoid
substantial losses in future.
Julia
Goldsworthy (Falmouth and Camborne) (LD): The Economic
Secretary has spoken about the need to act immediately in order to
prevent forestalling. Does he know of any examples of companies that
were in the process of a transaction but did not complete it because
the measures were introduced with immediate effect in the pre-Budget
report?
Ed
Balls:
I do not have that information and, from a
ministerial point of view, it is in the nature of tax policy making
that it is not normal to track in real time any particular transaction.
I cannot answer the question because, as part of the normal business of
government, I would not have that information, just as I would not have
the names of particular companies. I was advised in the autumn, in
advance of the pre-Budget report, of a concern that there could be
substantial revenue loss over time. Subsequently, I was told that two
particular transactions that ran into the high hundreds of millions
prompted us to take action. However, I cannot tell the Committee the
relationship between the two transactions and the regulations. That
would be to go further into the detail of a transaction than is
appropriate for a Minister. My role is to ensure that the regime is
right and the policy is correct, notto track individual
transactions. That is a matterfor HMRC, which stands at
arms length from Government.
When we introduced the
disclosure regime and legislated, we introduced a regulation precisely
in order to allow the Government to act quickly and decisively to
prevent revenue loss, but we time limited it to18 months,
which means that we have to review whether the legislation is right,
and to come back with permanent measures in the Finance Bill. That is
what we will do. We are acting now, and a new piece of legislation
covering the same ground will appear in the Finance Bill and will apply
once it gains Royal Assent. That will enable us to make any tweaks that
are needed to the legislation that we are considering today, but it
enables us to act now to protect any future revenue loss.
We have been
reassured by the responses that we have received from the property
industry since the pre-Budget report. Sue Taylor, head of real estate
tax at Eversheds, said that the instrument that we are debating today
will
catch most of the
avoidance planning in current
use,
and the tax
barrister Patrick Cannon told us that it is A well-aimed
measure which raises the bar. But at the same
time, I have instructed HMRC to monitor the situation very closely in
the coming months in case the industry develops new avoidance schemes
that try to get round these regulations. We will take appropriate
action to close new schemes.
The vast majority of taxpayers
do what is right. They pay what they owe and they claim only what they
are due. We are committed to supporting those taxpayers by dealing
firmly with the minority who
intentionally avoid their responsibilities. I hope that the Committee
agrees. I look forward to the Committees support and I commend
the
instrument.
2.45
pm
Mr.
Mark Francois (Rayleigh) (Con): It is pleasureto
serve under your chairmanship this afternoon,Dr. McCrea. I
have no doubt that you will keep us in good order. I would also like to
reciprocate your wishes for a happy new year in 2007 as we come to
debate these regulations on the operation of stamp duty land tax, or
SDLT for short.
It is
also a pleasure to be discussing these matters opposite the Economic
Secretary. During the proceedings of the Finance Act 2005, I debated a
number of changes to the SDLT regime with his departmental predecessor
the current Under-Secretary of State for Health, the hon. Member for
Bury, South (Mr. Lewis) who now struggles with the crisis in
the NHS. I welcome the opportunity to return to these issues
today.
As the
explanatory notes to the regulations point out, the aim of these
measures is essentially to prevent avoidance. The first deals with
multiple transactions while the second deals with the SDLT
implicationsof transfers into and out of partnerships and
transfers of partnership interests, including a revised method of
calculating the sum of the lower proportions or the SLP ratio, as it is
known, which often applies when transactions take place. The Opposition
can see what the Government are trying to do here. We do not oppose
these measures and we do not intend to vote against them at the end of
the Committee. But there are, nevertheless, several questions that I
should liketo ask the Economic Secretary about the background
to the measures and how the SDLT is intended to work in practice
thereafter.
First,
one of the criticisms of the SDLT regime is that it is in many respects
more complicated than the system it replaced. These regulations
themselves are quite detailed, demonstrated in part by the fact that
the explanatory notes and the accompanying technical note are longer
than the instruments themselves. Under the heading Policy
background, section 7.2 of the explanatory memorandum gives the
Governments rationale for the measures in the following
terms:
HM
Revenue & Customs have recently become aware of a number of
avoidance schemes which have the potential to put significant tax yield
at risk. In view of the amounts at stake the Government has decided it
is appropriate to counter the schemes with immediate
effect.
As we are being
asked to provide retrospective approval to these changes, which were
brought in 6 December 2006, the day of the pre-Budget report, and
therefore, in effect, to make what is a complicated regime on one level
more complicated still, can the Economic Secretary give the Committee
some idea of what is really at stake here financially? He mentioned the
figure of up to £75 million a year which the Government feel
could be lost if the measure were not passed. We are mindful of that.
Can he say a little more about how this estimate was calculated? Is it
mainly based upon the two cases to which he referred? I understand the
constraints on discussing specific details of the case.
We appreciate his dilemma, but is that estimate mainly based on those
two examples or is there a wider number of examples that he and his
officials used to come up with that £75 million
estimate?
Secondly,
section 109 of the Finance Act 2003 gives the Treasury power to vary
part 4 of the Act which deals with the SDLT regime by regulations.
Section 4.2 of the explanatory notes, under the heading
Legislative background,
states:
The
power in section 109 has been used once before in making The Stamp Duty
and Stamp Duty Land Tax (Variation of the Finance Act 2003) (No 2)
Regulations 2003... (in strictness twice, since those Regulations
replaced an earlier defective instrument).
Given that, how confident are the
Government that these regulations will succeed in addressing the
problems that they have apparently now identified, particularly as they
are only temporary measures that will be superseded in this
years Finance Bill? In short, considering that the Government
brought in a statutory instrument a while ago that they admit was
defective, how confident are they that these regulations will work and
be, as it were, fit for
purpose?
Thirdly, the
Government have announced a consultation exercise on the new stamp duty
land tax regime and the further changes that they wish to introduce in
the Finance Bill. In light of the technicalities involved, we welcome
that approach; it is sensible to consult on such technical matters. I
therefore wish to take this opportunity to raise with the Economic
Secretary some operational matters about the stamp duty land tax
regime, and I hope that he will take them as a contribution towards the
consultation exercise. In the hope of receiving some initial answers
this afternoon, I should tell the Committee that I have given him
private notice of my
points.
The SDLT
regime is complex, which has caused a number of practical difficulties
for those operating it, particularly solicitors involved in property
purchasing. In November 2006, the Law Society carried out a survey of
solicitors on the operation of the regime, to which some 1,128 replied.
As most opinion polls are normally a sample of about 1,000 adults, I
hope that the Economic Secretary will accept that as a sizeable and
credible sample.
The
survey highlighted three principal issues that are still affecting the
operation of the regime. One wasthe need to simplify the stamp
duty land tax forms. As the Law Societys note to me, which is
based on the surveys findings, states:
Simplification of SDLT forms - we
have continued to encourage HMRC to look at simplifying the forms but
with little success. Many of the questions asked on the forms are not
relevant to collection. Discussions of the VOA have produced a few very
minor concessions. A transparent review of why so many questions are
asked, which waste a lot of time (and money) to answer would be
welcome. As a better regulation measure only essential questions should
be asked.
Do the
Government have any plans to simplify the forms? If the Economic
Secretary plans to argue that that might make fraud easier, there is a
counterpoint to that: having complicated systems can itself encourage
fraud. Tax credits are a classic case of that, but I shall contain
myself from straying on to them. Is simplifying the forms a practical
possibility? They are of concern to the profession.
The second matter highlighted in
the survey was the turnaround time for HMRC to issue an SDLT
certificate to enable registration with Her Majestys Land
Registry. The Law Society estimates that only64 per cent. of
such certificatesfewer than two thirdsare issued within
HMRCs own target of five days. In the Law Societys
words,
This is
a fundamental part of the process which is still a long way from
adequate.
What is being
done to address that
problem?
The third
point raised was that there are still difficulties in the e-filing of
SDLT returns. The Law Society accepts that it might eventually be the
best way to proceed but argues that the system is not yet sufficiently
robust. As it characterises the
situation:
E-filing
of SDLT returns will probably be the answer in the long-term but the
Society (and the HMRC) do not feel the current system is yet
sufficiently tried and tested for us to actively
promote it to the
profession.
Will the
Economic Secretary pass those comments to the IT specialists in HMRC,
and can he say anything this afternoon about plans to improve the
e-filing of SDLT returns to help to speed up the process of property
purchase, which we would all welcome?
I hope that the Economic
Secretary accepts that my questions represent genuine feedback from
SDLT practitioners. I have used this opportunity to bring them to his
attention and I thank you for your forbearance, Dr. McCrea, in allowing
me to do so. I hope that he will reassure me that the matters are being
addressed. I will entirely understand it if he needs to write to me on
any of the detail, but in the mean time I look forward to hearing what
he is able to tell the Committee this
afternoon.
2.55
pm
Julia
Goldsworthy:
I too wish you a happy new year, Dr. McCrea.
I believe that this is the first time that I have had the pleasure of
serving under your
chairmanship.
This
instrument represents the follow-up to the announcement in the
pre-Budget report of measures to tackle stamp duty land tax avoidance,
which was made effective on the day same day to avoid forestalling.
Section 109 of the Finance Act 2003 gave the Treasury powers to vary
part 4 of that Act, which relates to stamp duty, and to do so with
immediate effect, provided that that was subsequently approved by the
House of Commons, as we are doing today. The same section also requires
that such regulations cease to have effect after 18 months, so we look
forward to further discussion on the issue in this years
Finance Bill.
I
understand that this is the first time that section 109 has been used
to introduce regulations to counter avoidance. It has been used before,
but when stamp duty land tax was introduced by the Finance Act 2003,
the consultation process was continuing at the same time and it was
accepted that further changes would be required prior to re-enactment.
The section was used for that purpose and primarily for the purpose of
granting reliefs.
The
instrument puts forward provisions primarilyto tackle
commercial transactions, worth several hundreds of millions of pounds.
It therefore relates to a relatively small number of high-value
transactions
rather than a large number of low-value transactions. I see from last
years pre-Budget report that these changes are anticipated to
bring in £25 million this financial year, £75 million
next year and £70 millionin each of 2008-09 and
2009-10. That is a total of£240 million. We are talking
about a relatively small number of high-value transactions, however,
and I would appreciate the Economic Secretarys explanation of
the basis of that estimate and the number of transactions that he
believes the extra yield to represent.
Given that the projected total
stamp duty receipts are £12.7 billion for this year, the figures
represent a change of a fraction of a per cent. in the total stamp duty
land tax take. With regard to residential and commercial property, that
still represents a small proportion of the total take. Avoidance on any
scale must be tackled, but we are talking about a relatively small
amount compared with the overall take.
On the provisions themselves,
paragraph 1 of the schedule seeks to close loopholes in high-value
cases where the cost of making arrangements proves to be
cost-effective. By undertaking such arrangements, the liability for
stamp duty can be reduced in a disposal and acquisition by breaking
down a transaction down into a series of transactions. The press
notices that accompany the pre-Budget report are helpful in giving some
specific examples of the kind of transactions concerned. They relate to
the granting of leases, the payment of dividends to parent companies
and complex arrangements relating to freehold and leasehold properties
involving more than two companies.
Paragraph 2 of the schedule
deals with partnership transactions and makes changes to schedule 15 to
the Finance Act 2003, which relates to transfers in and out of
partnerships, again closing the loophole so that it is not possible to
reduce stamp duty liability by making such changes, as has been the
case. There has been mention in the professional press of specific
cases in which anticipated transactions intended to gain benefit from
those loopholes have not taken place.
There has been little
opposition to these proposals, and I see little reason to oppose them.
It is important to ensure that the spirit of stamp duty is adhered to
in these narrow areas, and I have a few questions to which I hope the
Economic Secretary will be able to respond. Although the number of
commercial transactions that are liable for stamp duty has fluctuated
but has not increased or decreased significantly since 1996-97, the
number of liable transactions involving residential properties has
jumped from 531,000 to nearly a million in 2004-05, according to
parliamentary answers. What does he estimate will be the impact of the
proposals on the number of commercial property transactions? Similarly,
in 2001 the stamp duty yield from residential properties represented
only 26 per cent. of the total stamp duty take. That figure has
increased to 42 per cent. Is he considering further proposals to those
measures implemented in 2005-06 to increase the stamp duty threshold to
£120,000 to ensure that the continuing rise in house prices does
continue to burden more and more people with that liability? With
reference to my part of the world, while the threshold
may have been raised to £120,000, very few people can afford to
scrape their stamp duty together to get a first foot on the housing
ladder.
Individuals
increasingly find themselves liable for stamp duty while, in a large
number of high-value commercial transactions, companies can still use a
variety of avenues to avoid that liability. Even in the proposals
before us, there are opportunities to avoid the spirit of the original
legislation.
I shall
give two examples relating to single asset property companies that show
the extent of the limitations. In the first example, company A is a
UK-based single asset property company. The company, which had a single
assetthe propertywas sold in August last year for
£6 million. Because it was the company that was sold, only 0.5
per cent. stamp duty was paid, rather than 4 per cent., meaning that
£30,000 was paid rather than £240,000. There was no
implication of improper actions on the part of the
buyer.
However, given
that in the pre-Budget report, Gordon
Brown[Interruption.] I am sorry. The Chancellor of the
Exchequer announced a package of measures aimed at ensuring that all
individuals and companies contribute their fair share to the provision
of public services and the Economic Secretary has restated that today.
Does he think that the example I gave fits in with the spirit and
principles of stamp duty and of paying a fair share? Will he consider
dealing with that issue in a future package that we might consider in
the Finance Bill this year? What does he consider the underlying
commercial reality of the transaction that I outlined in my example to
be?
My second example
relates to another single asset property company, this time based
abroad. Let us say that a company that was leasing decided to buy a
single asset company, which includes the freehold of a property. Again
it would be liable for only 0.5 per cent. stamp duty, not 4 per
cent.
It will not
come as a surprise to either the Economic Secretary or Opposition
Members that the experiences of company A are very similar to those of
a single asset property company called 16 OQS Ltd, formerly called
Labour Party Properties (Two) Ltd, which sold the Labour party
headquarters last summer. In the second example, company Bs
experiences are very similar to, and mirror closely, the experiences of
a company based in the British Virgin Islands called Platinum Overseas
Holdings, which owns the former Conservative party
headquarters.
Does
the Economic Secretary agree that those examples show an obvious
underlying commercial reality and an abuse against which steps should
have been taken in the proposals? Will he take steps to tackle those
issues in the next Finance Bill, when the proposals before us will be
considered again? It is another area in which there is abuse that needs
to be tackled.
Mr.
Francois:
Will the hon. Lady give
way?
Julia
Goldsworthy:
I had finished my
remarks.
The
Chairman:
Even if the hon. Lady had finished her remarks,
the hon. Member for Rayleigh has a right to speak again. Therefore, I
will give him leave to speak now.
Mr.
Francois:
I am very grateful, Dr. McCrea. That is probably
the quickest way of dealing with it.
As the hon. Lady has touched on
such subjects, may I ask her whether the individual who funded the
Liberal party general election campaign to the tune of £2
million, but who was found to not be a UK resident, has had to have
that money paid back?
The
Chairman:
The hon. Lady had sat down, so I now call the
Economic
Secretary.
3.4
pm
Ed
Balls:
I have a range of issues to deal with. I will not,
however, attempt to answer the hon. Member for Rayleigh, because I do
not know the answer in detail. The question was almost certainly out of
order. In any case, it would be quite wrong of me as a Treasury
Minister to comment on the tax practices of any
individualonshore, offshore, donor, non-donor, Labour,
Conservative or Liberal Democrat. For the hon. Member for Rayleigh or
me to pick over those open wounds would be out of order, so I will not
go down that road.
Similarly, it would be quite
wrong for me to delve too far into the detail of the questions asked by
the hon. Member for Falmouth and Camborne. She worked through some
examples, which I struggled to follow. My ears pricked up when she
started to name names, and I realised that to attempt to answer her
questions at that point and give her the answers that I had given her a
second ago would be completely inappropriate. However, the hon.
Ladys colleague Lord Oakeshott wrote to me on the matter, and I
have written to him today. The letter that I sent pointed out that I
cannot comment on any individual taxpayers case, but she is
welcome to read
it.
Julia
Goldsworthy:
The issue is single-asset
companiescompanies that are set up specifically because they
have a single asset. Will the Economic Secretary undertake to
investigate such circumstances to see whether it is possible to
establish, as the proposals seek to do, what the underlying transaction
is behind any such set-up? As the hon. Member for Rayleigh said
earlier, lawyers are clearly advising companies on what procedures to
take to receive the most beneficial tax treatment. Perhaps it would
benefit the Treasury to examine that as
well.
Ed
Balls:
The hon. Lady persists in trying to draw me into
commenting on individual tax schemes and affairs, despite the fact that
in terms of tax policy it would be the wrong thing to do. As the hon.
Member for Rayleigh pointed out, it is not without risks in political
terms either. I assure the hon. Lady and the Committee that HMRC will
continue to carry out its role of collecting tax where due without
favour. Where it finds evidence that the correct amount of tax has not
been paid or has not been paid on time, it will take appropriate
action. To go further into individual affairs
would run foul of HMRCs proper procedures and run risks that, as
the hon. Member for Rayleigh pointed out, would probably not be in the
hon. Ladys interests
either.
I return to
the substance of the debate. I shall divide my remarks into two parts,
addressing the particular questions that have been asked about the
operation of the regulations and the broader question asked by the hon.
Member for Rayleigh. He asked whether the regulations risk making the
SDLT system more complex, and whether the fact that we will need to
legislate again in the Finance Bill is evidence of that. As the hon.
Member for Falmouth and Camborne pointed out, section 109 of the
Finance Act 2003 allows for regulations lasting only 18 months. In our
view, it is part of good tax practice to act quickly in regulations and
return to the matter in the Finance Bill. In and of itself, it is not
evidence of greater complexity.
Of course, some tax
practitioners raised public concerns that the regulations might be too
wide or make things more complex. It is appropriate for them to make
such comments, but many of the very same tax practitioners have a
professional duty, in their view, to ensure that they always push the
boundary of the law to test the Governments intentions. As they
come up with more complex ways to get around the rules, we will have to
deal with that. It is always our intention to do so in the simplest
way, but the hon. Member for Rayleigh knows that the matter is very
complex. The structures put in place, as the hon. Member for Falmouth
and Camborne inadvertently pointed out, can be complex and hard for the
uninitiated to follow in detail, but we will carry out any possible
simplification or narrowing of scope in the Finance Bill.
The hon. Members for Rayleigh
and for Falmouth and Camborne asked about our calculations. They were
based not on just two transactions but on all the evidence before us;
we also consulted the industry. The estimates are the best available to
us at the moment and they are calculated in the normal way on the basis
of all the evidence that we have. However, the numbers that I quoted
rose because if we did not act, the interest in the marketplace would
grow, and is growing. Our estimates are therefore based on a forecast
of potential transactions prevented, rather than on actual transactions
stopped. That is the nature of tax
forecasting.
Mr.
Hands:
I am glad the Economic Secretary is confident that
these measures will be effective. He earlier quoted Eversheds
solicitors saying that the firm was confident that these measures would
catch most of the avoidance. Has he contacted Eversheds to find out
what it believes will not be covered by these
regulations?
Ed
Balls:
I will use the hon. Gentlemans intervention
to answer a further question from the hon. Member for Rayleigh about
whether we were confident that the proposal would work. The reality of
tax policy making is that we move quickly with a regulation if we need
to act against avoidance, and then have further consultation. We took
legal advice on the drafting of the regulation, but we have also
invited representations on that regulation from practitioners as part
of the
process of drafting the Finance Bill proposals. Officials are meeting
groups of practitioners and I am 100 per cent. confident that an expert
from Eversheds will be invited to such a meeting. We will take
representations as part of the process of drafting the
legislation.
We are
as confident as we can be that the regulations will work, but issues
may be raised as part of the consultation, which will prompt us to take
a different view at the margin when we come to the Finance Bill. That
is the nature of tax policy making. I cannot say that with absolute
certainty because of the ingenuity of tax experts and their ability to
think up new and complex ways to stay within or go outside the
intentions of tax policy makers. That is why we have proposed these
regulations. We are as confident as we can be that we are doing things
in the right way. I think that that answers the questions raised by the
hon. Member for Rayleigh; I will come back to his operational questions
in a moment.
I hope
that I have answered the hon. Ladys question about the
calculation; she also asked me about the overall split between
commercial and residential yields. She appeared to suggest that
£200 million over four years was a small amount, but then
indicated that she was worried that we were not doing enough to tackle
avoidance in the commercial sector, so the yield from the residential
sector was rising. In my experience,£25 million is an
avoidance sum that raises concern, and the £75 millions add up.
If the hon. Lady were in government, I assure her that she would be
concerned about figures of £75 million. I urge her not to
dismiss the numbers that I quoted today.
It is true that the yield from
residential stamp duty has been rising, although at the same time, as
the hon. Lady said, because of our actions, half of all first-time
buyers are exempt from stamp duty entirely, and 80 per cent. of all
home buyers pay only the 1 per cent. rate. The overall yield has risen
because house prices have risen. Most people with the largest houses
pay more stamp duty than they did 10 years ago.
The hon. Lady was worried that
there may have been a shift from the commercial to the residential
sector. The latest available figures, which were published by the
independent and well reputed National Statistics in September showed
that there was a £1 billion increase in the commercial yield in
2005-06 compared with 2004-05 and a £1 billion reduction in
residential yield compared with 2004-05. The balance between
residential and commercial has been shifting in the direction of the
latter over the last year. I hope that that gives her some comfort that
we are not falling into the traps that she
mentioned.
Julia
Goldsworthy:
Referring to my earlier comments, I was not
saying that there was not serious avoidance, but that the figures
represented a small proportion of the total tax take for stamp duty.
With regard to the Economic Secretarys comments on the balance
between residential and commercial property, the reality is that the
yield from residential transactions has been growing rapidly and that
rate of increase has been much more significant and rapid over the past
five years than in the commercial sector. Would he accept
that?
Ed
Balls:
I refer to the hon. Lady to a lengthy debate on the
Finance Bill last summer about why house
prices had risen, associated regional patterns, and the impact on
first-time buyers and households throughout the country. I repeat what
I said then: we need to build more houses, which is the way to keep
house prices down for families. However, there are things that we can
do to stamp duty and shared equity to ensure that we ease the pressure
on first-time buyers in the mean time. That is what we have been doing.
I have given her the figures that set out how that has been
operated.
The hon.
Member for Rayleigh gave me notice of his questions last night and in
detail again this morning. In my experience on the Finance Bill, his
approach in such debates is to try to ensure that Committee discussions
bring out more detail on policy and lead to greater understanding. I
have always found him to be courteous in dealing with such matters, as
was the case when we debated at great length last summer the
residential position on real estate investment trusts. As a result of
his giving me notice of his questions, for which I am grateful, I hope
that I can give him answers that are more detailed than he was
expecting. However, I shall avoid giving too much detail because to do
so would go outside the terms of the Committee. This is a rather
complex issue.
The
hon. Gentleman asked three questions. First, are the returns too long
and complex and can we simplify the form? Secondly, why are
considerably fewer than 100 per cent. of certificates issued by HMRC
within five days? Thirdly, have there been difficulties with e-filing?
To provide some background, since the introduction of the new SDLT
regime over the past two or three years, there has been a substantial
engagement by HMRC with the industry. There have been two reviews, a
working together group has been established, additional resources have
been made available through our stamp duty helpline and improved
website and, as he mentioned, we have also had the input from the
survey of solicitors. This is an ongoing discussion. We have been
trying to make
improvements.
If it is
okay with the hon. Gentleman, I shall answer his second question first,
because that will help to answer his first. Our latest figures, from
December 2006, show that 74 per cent. of certificates were issued
within five days. We would like that number to be considerably higher.
There is one important reason why that number is less than 100 per
cent.: when solicitors submit a paper form to HMRC, if there are errors
or mistakes in that submission or further information is needed, a form
called SDLT8, seeking clarification, is sent to the practitioner. Part
of the problem is that too many SDLT8 forms are having to be sent to
solicitors, which holds up the process and means that it extends beyond
the five-day
period.
Mr.
Francois:
I am grateful to the Economic Secretary for
giving way and I appreciate the generous remarks he made earlier. I
have no doubt that there is some merit in what he says about errors on
original forms from solicitors. However, when we debated these matters
two years ago, a difficulty with that error rate was that the devices
that HMRC was using to scan the forms into their computer system had a
problem recognising the digit zero. Clearly, in terms of SDLT returns,
that is a practical problem. I should like
quickly to make the point that it would not be fair entirely to blame
the solicitors for those. That leads on to my third point about
problems with
IT.
The
Chairman:
Order. I have given the hon. Gentleman quite a
wide
berth.
Ed
Balls:
It will horrify you, Dr. McCrea, to learn that I
can answer that question; I shall try to do so briefly. Over the last
year, as a result of efforts both by the community itself and by
HMRCwe are happy to acknowledge that learning was needed on
both sideswe have been able to reduce the number of SDLT8 forms
that had to be sent from 35 per cent. to under 15 per cent. We want to
get that down further. One of the ways in which we have done that is by
having a form that can be effectively computer-read, which is slightly
longer. The answer to the hon. Gentlemans first question about
why the form is longer, is precisely to ensure, first, that we can get
all the information that we need to avoid having to go back, and
secondly, to make sure that we can read the forms in a computer and
avoid the kind of problems that he mentioned. That is the answer to his
first question: the form looks longer so as to try to avoid having to
go back to get more information.
The second way in which we can
reduce sending out the forms is by encouraging firms to file online, a
process that we introduced in August. The great advantage of online
filing is that the verification process occurs before the form gets
submitted to HMRC. If someone gets the information wrong or does not
fill in a box, they are unable to file; the form is thrown back at them
to have another go. By the time that someone gets it in, it works.
Since August 2005, when we started that process, we have managed to
increase online filing from 17 per cent. in October to22 per
cent. in December. Our internal goals, which I am happy to tell the
Committee, are to get to 30 per cent. by March 2007 and to 40 per cent.
by March 2008. The process of online filing has been a voluntary
process, and it is our goal, as the hon. Member for Rayleigh
acknowledged, to have universal online filing. Moving to more online
filing solves the problem of delay because the issue of an SDLT8 form
does not arise because verification happens as part of the filing
process. I hope that that will help to explain to him the actions that
we are taking to try to improve the
position.
Thirdly, we
need to ensure that online filing works, and that the systems are
sufficiently robust. We have investigated the position in terms of our
own systems, and have not managed to identify ways in which the HMRC
systems have problems. However, sometimes the problems exist in the
technology of the filing solicitors, and sometimes it is to do with the
interaction between the solicitors computers and those of HMRC.
We now have teams of IT specialists who go out to visit solicitors who
have problems to try to rectify them on-site. We are willing to do more
of that, and that is an issue that the working together group is
looking at to try to improve the position.
I will not stretch you patience
any further,Dr. McCrea. I think that I have answered the
questions asked by the hon. Member for Rayleigh. If he wants to write
with further detailed questions, I will be happy to
provide further detailed written answers. I assure him that HMRC and the
working together group are addressing all those issues. Having, I fear,
stretched the patience of the Committee at the request of the hon.
Gentleman, I am happy to commend the
regulations.
Question
put and agreed to.
Resolved,
That the Committee has
considered the Stamp DutyLand Tax (Variation of the Finance
Act 2003) Regulations 2006 (S. I. 2006, No.
3237).
Committee
rose at twenty-four minutes past Three
oclock.