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Condition B is that the individual makes the disposal as part of the withdrawal of the individual from participation in the business.
That may be where the ambiguity has crept in. The guidance note, however, is very clear:
A withdrawal from participation in the business concerned relates to the material disposal of business assets...That is, it takes place when the individual reduces his or her interest in the assets of the partnership, or their holding in the company.
Where individuals make a material disposal in the assets of the partnership or the holding of the company, they will be withdrawing from participation in the business by definition.
Kitty Ussher: The disposal referred to in the Bill is the associated disposal, and the definition that the hon. Gentleman read out from the guidance is the definition of the wider withdrawal from the overall business. I think it best that if we need to alter the draft guidance following this discussion, we do so, but I hope that when he has had an opportunity to reflect on this exchange, he will understand our point.
I am grateful to the hon. Gentleman for saying that amendments Nos. 93 and 92 have been dealt with by the Government amendments, so perhaps I can move on to amendment No. 88. This amendment seeks to extend entrepreneurs relief to individuals who dispose of shares acquired under enterprise management incentive options before they have held the requisite proportion of shares, and voting rights in the company for shares, for the qualifying period of 12 months.
I was asked whether the Government would take the opportunity to reaffirm our commitment to the enterprise management incentive and to employee share options and share ownership more generally. I would like to take the opportunity to do so 100 per cent. It is often extremely useful to align incentives for the work force with those of the overall organisation, and we have always sought to support that process.
The crucial point is the difference between having the option to acquire a share and the owning of the share itself. Perhaps that will tease out the issue under debate. One of the conditions for entrepreneurs relief to be available on a disposal of shares is that the company should have been the individuals personal company for a period of 12 months. A company is an individuals
personal company if that individual holds at least 5 per cent. of the ordinary share capital of the company, and by virtue of that holding can exercise at least 5 per cent. of the voting rights in the company. Amendment No. 88 would make a company an individuals personal company at the time when he holds EMI options that would entitle him to 5 per cent. of the ordinary share capital, by treating the shares as acquired when he has acquired only the option.
Entrepreneurs relief is intended for individuals who have an active stake in the company by owning, throughout a qualifying period of a year, at least 5 per cent. of the ordinary shares, and by being able to exercise at least 5 per cent. of the voting power. Obviously, an option does not require voting power. I think that that is where the difference lies. Someone who holds only an option to acquire shares does not have the sort of stake in the company that should qualify that person for entrepreneurs relief. The option does not confer the rights and liabilities of a shareholder, or voting rights, as I have said.
Mr. Hammond: We have heard the Economic Secretary reaffirm the Governments 100 per cent. commitment to the enterprise management initiative, while stripping away the principal tax advantage of it. What is the incentive for individuals thinking of taking employment with EMI qualifying companies to take up share options? Where is the benefit?
Kitty Ussher: There are wider benefits than simply being able to have a different capital gains tax requirement, such as the way in which the company might be able to develop in future and the simple value of that asset, so that is quite clear. If someone acquires shares by exercising an EMI option and as a result the company becomes his personal company, a gain on a disposal of the shares will of course qualify for entrepreneurs relief after he has held them for at least one year, assuming that the other conditions are satisfied. That is the same as for any other shareholder.
People acquiring shares by way of EMI options continue to benefit from generous income tax and national insurance reliefs, which also answers the hon. Gentlemans point, and we increased the individual limit to £120,000 for EMI options from 6 April this year. There is also a technical defect in the amendment, but I have made my main point, and I urge that the amendment is not pressed to a Division. If so, it should be resisted.
I have alluded to Government amendment No. 29. It relates to the capital gains tax and entrepreneurs relief rules for associated disposals. The disposal of an asset may qualify as an associated disposal if the asset were in business use and disposed of alongside someones withdrawal from a business. In the Public Bill Committee, my right hon. Friend the Financial Secretary, who has joined me on the Front Bench, explained that eligibility for entrepreneurs relief may be restricted if the asset was only partly deployed for business use, or if the asset or individual was involved in the business for only part of the period in which the asset was used by the business. Relief may also be restricted if an individual received rent for the use of the asset by the business.
That is a sensible way to focus the relief, as in these circumstances the asset is more akin to an arms length investment. The Bill takes all payments of rent into account, even when rent was paid before the new rules
were introduced on 6 April. When this particular point was touched on in the Public Bill Committee, my right hon. Friend said that she would consider the case for disregarding rent received before April 2008. We are now persuaded that that is the right approach to adopt, and having examined the matter, we have concluded that it is right to disregard rent paid before entrepreneurs relief was introduced, in order to smooth the transition to the new regime. Amendment 29 delivers that change. I would like to move that it be part of the Bill, and I urge colleagues to resist the other amendments if they are pressed to a vote.
Mr. Hammond: I am afraid that the Economic Secretary has not dealt with the issues that amendments Nos. 89, 90 and 91 raise. It may surprise her to know that I did not dream up the problem all on my own. If I doubted my ability to analyse the complex provision, I do not doubt that of others who have pressed the point. I have read and re-read the Bill in the light of the Governments comments. It states:
Condition A is that an individual makes a material disposal of business assets
Condition B is that the individual makes the disposal
which the Economic Secretary has clarified as the associated disposal
as part of the withdrawal of the individual from participation in the business.
The guidance notes make it clear that the satisfaction of condition Athat a material disposal of business assets has been madeconstitutes a withdrawal of the individual from participation in the business because it necessarily involves the individual reducing his or her interests in the assets of the partnership or their holding in the company. Condition B will therefore be satisfied.
I do not believe that the Economic Secretary has made the case so I wish to place on record our concern that the matter could leave this place unclarified, and there is no other stage of the Bills passage when it could be tackled. I therefore urge my hon. Friends to support the amendment.
Question put, That the amendment be made:
Amendment made: No. 29, page 133, line 26, at end insert
Transitionals: section 169P(4)(d)
5A Section 169P of TCGA 1992 has effect in a case where the period for which the assets are in use for the purposes of the business began before 6 April 2008 as if the reference in subsection (4)(d) of that section to that period were to so much of it as falls on or after that date.. [Kitty Ussher.]
(1) The Treasury may by regulations made by statutory instrument vary the table in paragraph 1B (graduated rates for light passenger vehicles) of Schedule 1 to VERA (annual rates of duty).
(2) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.
(3) The power conferred by subsection (1) does not extend to the ending of different provision for vehicles first registered after 1 March 2001 and before 23 March 2006 and with a CO2 emissions figure exceeding 185 g/km.. [Justine Greening.]
Brought up, and read the First time.
Justine Greening (Putney) (Con): I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Sylvia Heal): With this it will be convenient to discuss the following:
New clause 7 Vehicle mileage costs
The Treasury shall publish annually alongside the Pre-Budget report an estimate of the average cost of operating a motor vehicle (including associated running costs and depreciation) per mile for a vehicle driving 10,000 miles per year for
(a) a vehicle registered before 1st March 2001 paying a pre-graduated Vehicle Excise Duty with an engine size 1549cc below;
(b) a vehicle registered before 1st March 2001 paying pre-graduated Vehicle Excise Duty with an engine size above 1549cc; and
(c) a vehicle registered after 1st March 2001 liable to pay graduated Vehicle Excise Duty in each of the VED bands A-M with effect from 1st April 2009..
New clause 8 Fuel duties: rates and rebates: general fuel duty regulator
(1) HODA 1979 is amended as follows.
(2) In section 6 (excise duty on hydrocarbon oil) after subsection (1A) (as substituted by section 11 of this Act) insert
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