Jane
Kennedy: Amendment No. 493 is our response to calls for
the provisions in the Bill to be extended so that relief is available
for remortgages. As paragraph 86 stands, loans only qualify for
exemption if they are made to acquire an interest in residential
property in the UK. There would be no relief if the individual had
switched the original mortgage—perhaps because they had found a
better deal—because the replacement loan would not serve to
acquire the interest in the property. Perhaps that is less of an
occurrence in the current climate than had been the case.
I accept
that some relaxation was needed and therefore amendment No. 493 extends
the grandfathering so that remortgages can qualify so long as the
remortgage took place prior to 12 March 2008. Amendment No. 492 is a
relatively minor technical change.
The hon.
Gentleman proposes very extensive changes—certainly in his first
group of amendments Nos. 383 to 385—to grandfathering for
mortgages. They would remove many of the restrictions on relief that
currently apply. For example, they mean that relief would cover all
manner of loans not just those for acquiring residential property. They
would apply not just to relevant foreign income but to foreign
employment income and gains where a payment of this sort has always
been taxable as a remittance under existing law.
His proposed
changes go too far. I suspect that the reason he has tabled two
different groups is to elicit why we have chosen the structure we have,
and why we have gone some way but not to such a generous extent as he
proposes. The relief under paragraph 86 is none the less generous and
the extension we are making to cover remortgaging under amendment No.
493 does strike a fair balance. Extending the grandfathering to all
loans would effectively reinstate the loophole under which remittance
basis users could enjoy tax-free loans which are not available to other
UK taxpayers. While it is reasonable to grandfather mortgages rather
than cast uncertainty over people’s housing arrangements, it is
not reasonable to extend such relief to all loans.
The hon.
Gentleman asked why relief is not allowed for interest paid overseas
from foreign earnings and capital gains which could both be used to pay
interest previously without resulting in a remittance. Payments out of
employment income and capital gains have always been treated as
remittance, so giving relief would be untaxing things which we have
always taxed in practice.
His second
group of amendments appears to be an alternative and rather more modest
in scope. Unlike the others, these amendments would not seek to cover
all manner of loans but would provide relief for remortgaging and home
improvement loans. The first of those is now covered by our amendment
No. 493 and, in view of my comments about paragraph 86 being generous,
I do not consider that it would be right to cover loans for home
improvement.
Having said
that, my officials are currently in discussion with a number of banks
about the status of certain offshore loans and mortgages and whether
those, too, should be covered by the grandfathering rules. I hope to be
able to provide an update to the House on Report. This is an area where
we are continuing dialogue and I will be interested to hear the outcome
of those detailed discussions.
I hope that
I have given the hon. Gentleman some of the answers that he seeks. I
ask the Committee to support my amendments and hope that the hon.
Gentleman will withdraw
his.
Mr.
Hoban: This is a difficult area. The fact that the
Financial Secretary’s officials are having a conversation with
banks at the moment indicates that we need to get this right. The
transitional provisions extend as far as March 2028 and indicate the
complexity and long-standing nature of some of these arrangements. It
is important to get them right. On occasion, we do not get the balance
right—we try to close down appropriate tax loopholes, but at the
same time the phrasing is so wide that it can inadvertently affect
people. That goes back to my comment on the amendments about who would
be caught out by this measure, and whether there is any risk of
unrepresented tax payers falling foul of the arrangements.
I am
grateful that the Financial Secretary is considering the matter again
with the banks to try to get it right—she has addressed a number
of issues in that spirit and tried to get a workable arrangement. One
of the great assets of the scrutiny process in this House is that it
provides the opportunity to get it right, either through the
clarification that Ministers offer in such debates—and we have
had a number of those clarifications already today—or through
the opportunity to revisit issues up to and including Report. The
Financial Secretary might throw those words back at me on Report if
confronted by another 100 amendments on schedule 7, so I should be
careful how fulsome I am when commenting on the effectiveness of the
procedure. Given the Financial Secretary’s reassurance that the
Government are talking to the banks and that there will be further
opportunity to get the fine detail of the rules right, I beg to ask
leave to withdraw the amendment.
Amendment,
by leave, withdrawn.
Amendments
made: No. 492, in schedule 7, page 187, line 17, at end insert
‘or (d) the interest ceases to be
owned by the
individual,’. No.
493, in schedule 7, page 187, line 19, at end
insert— ‘(3A)
If— (a) before 12 March
2008, money was lent to the individual outside the United Kingdom
(“the subsequent
loan”), (b) the
subsequent loan was made for the purpose of enabling the individual to
repay—
(i) the loan mentioned in sub-paragraph (1),
or (ii) another loan in
relation to which sub-paragraphs (2) and (3) apply (by virtue of this
sub-paragraph), and for no
other purpose, and (c) before 6
April 2008— (i) the
money was received in the United
Kingdom, (ii) the individual
used the money to repay the loan referred to in paragraph (b)(i) or
(ii), and (iii) repayment of
the subsequent loan was secured on the interest referred to in
sub-paragraph
(1)(c), sub-paragraphs (2) and
(3) apply in relation to the subsequent loan (and for this purpose
references there to the debt or the loan are to be read as references
to the subsequent
loan).’. No.
338, in schedule 7, page 187, line 21, at end
insert— ‘86A (1) This
paragraph applies in relation to employment-related securities
if— (a) the date of the
acquisition is on or after 6 April 2008 and on or before 31 July 2008,
and (b) Chapter 2 of Part 7 of
ITEPA 2003 (restricted securities) applies in relation to the
securities by virtue only of amendments made by this
Schedule. (2) Section 431 of
ITEPA 2003 (election for full or partial disapplication of Chapter) has
effect in relation to the employment-related securities as if in
subsection (5)(b) for “more than 14 days after the
acquisition” there were substituted “after 14 August
2008”.’.—[Jane
Kennedy.]
Jane
Kennedy: I beg to move amendment No. 402A, in schedule 7,
page 187, line 31, at end
insert— ‘(1A) In subsection
(1), after paragraph (a)
insert— “(aa) any
reference to anything accruing is to be read as a reference to it
arising (and similar references are to be read
accordingly);”.’.
The
Chairman: With this it will be convenient to discuss the
following: Government amendments Nos. 403 to
411. Amendment
No. 390, in schedule 7, page 189, line 17, leave out from
‘12’ to end of line
18. Amendment
No. 494, in schedule 7, page 189, line 36, at end
insert— ‘(5) In computing
gains to which this section applies, those gains shall, if the company
so elects, be calculated by reference to the value of the asset
concerned at 6 April 2008. (6)
An election under subsection (5) is irrevocable and shall be made
within two years of the end of the first accounting period ending after
5 April 2008. (7) An election
under subsection (5) shall be made in the way and form specified by the
Commissioners for Her Majesty’s Revenue and
Customs.’. Amendment
No. 391, in schedule 7, page 189, line 36, at end
insert— ‘93A (1) The
following provisions apply to a company
if— (a) section 13 of
TCGA 1992 applies to the company for the tax year 2008-09,
and (b) the directors of the
company have not opted out from the provisions within this
paragraph. (2) An election to
opt out from the provisions within this paragraph may only be made on
or before the anniversary of the first 31 January to occur after the
end of the first tax year (beginning with the tax year 2008-09) in
which chargeable gains are attributed under section 13 of TCGA 1992 to
a participant in the offshore
company.
(3) An election under sub-paragraph (2) is
irrevocable and must be made in the way and form specified by the
Commissioners for Her Majesty’s Revenue and
Customs. (4) The only
information that need be provided in the course of making the election
is the name of the offshore company and the name of the director making
the election. (5) Sub-paragraph
(7) applies if— (a)
chargeable gains are treated under section 13 of TCGA 1992 as accruing
to an individual in a tax year,
and (b) the individual is
resident, but not domiciled, in the United Kingdom in that
year. (6) The individual is not
charged to capital gains tax on so much of the aggregate chargeable
gains attributed to him in the tax year as exceeds the relevant
proportion of the gains. (7)
The relevant proportion is A/B
where— A is the portion
of the gain that would what have been treated as accruing to the
participator, if immediately before 6 April 2008 every relevant asset
had been sold by the directors and immediately re-acquired by them at
the market value at that time;
and B is the actual gain
attributed to the
individual. (8) For the
purposes of sub-paragraph (7) an asset is a “relevant
asset” if— (a) by
reason of the asset, a chargeable gain or allowable loss accrues to the
trustees in the relevant tax year,
and (b) the asset has been
comprised in the company from the beginning of 6 April 2008 until the
time of the event giving rise to the chargeable gain or allowable
loss.’. Government
amendments Nos. 412 to
435. Amendment
No. 392, in schedule 7, page 196, line 28, leave out ‘made an
election under this sub-paragraph’ and insert
‘have not opted out from the provisions
within this paragraph’.
Amendment
No. 393, in schedule 7, page 196, line 30, leave out ‘An
election under sub-paragraph (1)’ and insert
‘An election to opt out from the provisions
within this
paragraph’. Amendment
No. 394, in schedule 7, page 196, line 30, after ‘the’,
insert ‘anniversary of
the’. Government
amendments Nos. 436 and
437. Amendment
No. 395, in schedule 7, page 196, line 40, leave out
‘(1)’ and insert
‘(2)’. Amendment
No. 396, in schedule 7, page 196, line 42, at end
insert— ‘(4A) The only
information that need be provided in the course of making the election
is the name of the trust and the name of the trustee making the
election.’. Government
amendment No.
438. Amendment
No. 397, in schedule 7, page 197, line 24, at end insert
‘and’. Amendment
No. 398, in schedule 7, page 197, line 27, leave out from
‘gains’ to end of line
34. Government
amendments Nos. 439 to
462.
Jane
Kennedy: I almost say, “Hurrah”, Sir
Nicholas. This is the final group of amendments and the vast majority
of them are technical changes to ensure that the code on chargeable
gains of non-resident trusts, and its interaction with the code for
offshore income gains, works effectively. There are more substantive
changes following our discussions with external stakeholders on
the draft Bill. I will not explore those further at this point, as I
would benefit from hearing what concerns are raised in Committee before
making more substantive
comments.
Mr.
Hoban: Before I talk to amendments Nos. 390 to 398, I wish
to make a couple of brief points about Government amendments Nos. 402A
to 462. Matters are not quite as bad as they are presented on the order
of consideration, but when we realise that the Government have tabled
60 amendments in the group under discussion, my own eight amendments
pale into insignificance in respect of number, although perhaps not in
points to discuss.
3.45
pm As
for Government amendments Nos. 402A to 462, we may return to such
matters on Report. External bodies consider that the volume of
amendments tabled in Committee, although they would affect their
understanding of matters from discussions with officials, show
continuing thought. We do not know whether they would address the
issues that they want dealt with, given that lurking in the amendments
is the use of our old friend “just and reasonable”, which
was dealt with an eternity ago. On new paragraph 108A under Government
amendment No. 432, I do not know whether the intention is for HMRC to
provide guidance about that or to discuss matters on a case-by-case
basis, but it would be helpful to know if that is the route that the
Government intend to take. It is also fair to say that some of the
Government amendments address issues slightly more elegantly than do my
amendments.
Amendments
Nos. 390 and 391 deal with a matter that a number of people have raised
with me, which almost pushes people to use more complex structures to
manage their tax bills. I understand why people do that, but it would
be better not to drive them down that route. I am talking about the
treatment of capital gains tax. Offshore companies that do not have a
United Kingdom branch or agency are not subject to United Kingdom
capital gains tax. From the introduction of CGT, anti-avoidance
provisions have been designed to prevent UK-domiciled, UK resident and
ordinarily resident individuals from avoiding it by exploiting the fact
that an offshore company is outside the territorial scope of CGT by
holding its assets within offshore companies that they
control. Paragraph
93 to schedule 7 introduces new section 14A that extends the
anti-avoidance provisions to UK residents or ordinarily resident
non-doms. I wish to draw the Committee’s attention to a
distinction and to present matters clearly. The current effect of the
anti-avoidance provisions is such that they attribute gains arising to
an offshore company that would be a closed company if it were resident
in the UK—that is how companies are caught—to a UK
resident or ordinarily resident person, or UK-domiciled qualifying
participators who were chargeable to tax on the gain attributed in the
year of attribution, and offshore trusts that meet the qualifying
participator
conditions. The
Finance Bill extends the provisions so that gains will be attributed to
non-domiciled residents or ordinary residents. When the non-dom is a
remittance basis user, they will be taxed on the gains attributed on
the basis of UK gains subject to tax with respect to the tax year on
which the gains arise. Foreign gains on a remittance basis will apply
such that they will suffer UK tax only if they are deemed to remit the
gain attributed. Part of the
problem appears to be that the Finance Bill contains no transitional
provisions, which means that the non-dom would be subject to tax on
gains that relate to the period prior to 6 April 2008 and, as has been
recognised by the Government, where trust structures are concerned,
non-doms had a legitimate expectation that they would not be subject to
UK capital gains tax with respect to gains and disposal of chargeable
assets held within offshore structures. There are transitional
arrangements in place for those non-doms who hold assets in trust
structures, but there are no transitional provisions for offshore
companies held directly by individuals in the same way as is provided
for in the Finance Bill for assets held within trust structures
immediately before 6 April 2008.
As I
understand it, if in one situation a non-dom has a house in, say, Eaton
square and that house is owned by a company, and in another, the
non-dom has the house in Eaton square, a company and an off-shore trust
on top of that, there are transition provisions for the offshore trust
to rebase the capital gains, but there is not a mirroring provision for
companies. That creates a bias in favour of complex trust structures
rather than a more immediate way in which a company may own an
asset.
Amendments
Nos. 390 and 391 attempt to draw out that comparison. It was never
expected that foreign domiciled individuals would receive a rebasing to
6 April 2008 in relation to their direct holdings and
offshore companies, with respect to which they are qualifying
participators, but it is hard to follow the logic of allowing a
wholesale rebasing of assets within an offshore trust structure,
including assets owned by an underlying company, when there are no
comparable provisions to allow rebasing of assets owned by an offshore
company. My
amendments seek to bring about two changes: first, the gains attributed
to offshore companies should be taxed only if there is remittance to
the UK and, secondly, to introduce a rebasing election that can be made
by directors of offshore companies. The first group of amendments deals
with the transitional provisions and what is available for companies as
opposed to trusts. The second group comprises amendments
Nos. 392 to 398. Amendment No. 494, which is also in that
group, is an alternative way to address the issues that I have
highlighted in amendments Nos. 390 and 391. It does have a broader
impact as well, which relates back to amendments Nos. 392 and
398. I
have already mentioned the rebasing election that trustees can make. I
have read the rules on rebasing—I lead a sad life, when I spend
my afternoons doing things like that—and I am not going to go
through them at this point for fairly obvious reasons. Trustees are
able to elect for a settlement that is non-resident at 6 April 2008 to
make what could be described as a rebasing election. The election is
relevant only where the trust has beneficiaries who are non-doms and
the election is irrevocable. It is an all-or-nothing provision,
applying to every asset within the trust structure immediately before 6
April 2008.
The
legislation states that the rebasing
election "must
be made in the way and form specified by Her Majesty's Revenue and
Customs".
and I am sure that
there will be a prescribed form on which to do that. I am sure that
disclosures will be required, but I am not yet sure what they will be.
The deadline for making the election is 31 January, following the end
of the tax year in which the first of the following take place: capital
payment is received or treated as received by a beneficiary regardless
of their domicile of a settlement, and the beneficiary is a resident of
the UK in the tax year in which it is received or; the trustees
transfer part, but not all, of the trust property to a new
settlement. Again,
this is a situation where well-advised taxpayers will receive the right
advice. The concern is that not all taxpayers may benefit from rebasing
elections if the trustees do not make the election in time. Prior to
6 April this year, offshore trustees did not necessarily
need much knowledge of the UK tax system to act as trustees. So, my
argument is that we should introduce into legislation a presumption
that the election will be made. Broadly, people believe that the
election is beneficial for the purposes of rebasing capital allowances.
What we are seeking is, rather than having an election to opt for the
rebasing, we have an election to opt out of the rebasing. It is
probably in the best interests of taxpayers to start on the basis that
they will be
rebasing. As
I understand it, the Government thought that the arguments behind my
amendments Nos. 397 and 398 were rather good, despite not having heard
them. I understand that they tabled amendments Nos. 439, 440, 467 and
447 to address those
issues.
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