Mr.
Timms: My hon. Friend has very helpfully set out the
background to the clause and why it is in the Bill. The clause ensures
that any change in the VAT paid by an agricultural tenant is not
considered to be a change in rent for the purposes of the rent review
provision in the Agricultural Holdings Act 1986. Changes in the VAT
paid by tenants could arise because the landlord opts to apply VAT to
supplies of the agricultural land, which landlords do from time to
time, under schedule 10 to the Value Added Tax Act 1994, or because of
changes to the VAT rate applicable to such supplies. Of course, we have
had one such change recently and we will have another at the end of the
year. I
am aware of the concern described by my hon. Friend that the clause as
drafted might not cover VAT changes resulting from a reapportionment of
rent between commercial and residential elements. We have looked
carefully at the issue and my conclusion is that such VAT changes could
arise only as a result of the landlord’s exercise of the option
to tax under schedule 10 to the VAT Act 1994. Therefore, those changes
are already covered by the current wording of clause
78(1).
Mr.
Todd: I can imagine another circumstance. It is unlikely,
but one of our tasks is to consider the unlikely as well as the
certain. A landlord and a tenant could agree a reapportionment between
them of the two elements of the lease—residential and
commercial—with a consequential change in the amount of VAT
payable, but subsequently fall into dispute about how future rents
might be determined. If that were the case, and they had an agreement,
at that point they would be bound to keep to the three-year period for
arbitration. That is something that would not conform to the intent of
the clause or for that matter, the intent of those who drafted the
original clause, whose purpose was to deal with the protection of an
agricultural
tenancy. 2
pm
Mr.
Timms: The intention of the clause and its effect,
according to the best advice on these matters, mean that all these
situations are covered. Any consequential VAT change would still arise
only because of the landlord’s option to tax. That is why in our
view it is covered by subsection (1)(d)(i). I am perfectly willing to
reflect further on what my hon. Friend has said and perhaps to discuss
the matter further with him. If there is any remaining uncertainty
there will be an opportunity to have another look at it, but I am
confident that what is here does the
job.
Mr.
Todd: I thank my right hon. Friend for his offer of
further reflection. Obviously I will think about what he has said and
discuss it with the National Farmers Union, which came to me as an MP
with a large agricultural interest. I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
78 ordered to stand part of the Bill.
Clause
79Exercise
of collective rights by tenants of
flats Question
proposed, That the clause stand part of the
Bill. Mr.
Greg Hands (Hammersmith and Fulham) (Con): I welcome you
back to the chair, Mr. Atkinson, at the start of our
consideration of part 5. Perhaps I should also congratulate the
Minister on his remarkable solo effort today. He has shown incredible
dexterity in handling pensions, VAT and now stamp duty. Perhaps later
he will be doing North sea oil. I feel slightly sorry for him. As all
else crashes around him and everyone else seems to be coming and going,
he is pretty much the only element still standing. It is a little bit
like the Sun at the heart of the solar system as various planets and
comets come in and out of orbit. Sometimes they reappear for as short a
period as nine days. I think that is a shorter appearance than
Halley’s comet. I simply express my admiration for the Financial
Secretary’s ability to cope with the rapidly shifting
sands. Clause
79 is about the exercise of collective rights by tenants of flats. We
have no objection to the clause which, as far as we can see, should
allow fairer treatment of leaseholders in blocks of flats. If it does
what it purports to do, my constituents will certainly very much
welcome it, given the huge numbers who are leaseholders who are
considering purchasing the freehold of their building. If anything, I
am slightly surprised that the issue has not been dealt with
comprehensively before. I understand there have been some difficulties
in relation to the workings of the Finance Act 2003 and the right to
enfranchise companies.
At present
when leaseholders club together to buy out the freehold of a block,
stamp duty is charged on the block as a whole. Because larger
properties and larger freeholds are subject to higher rates, perhaps as
high as 4 per cent., individual leaseholders can find that their share
of the stamp duty is higher than it would have been for an equivalent
individual freehold on the flat they have purchased. That does not seem
fair and it was never intended to be the case. Leaseholders exercising
their statutory right to acquire the freehold for a block of flats were
supposed to be able to use a “right to enfranchise”
company as a vehicle for the purchase. The Finance Act 2003 provided
relief for those RTE companies, but to date the Government have not
enacted the provisions. It is impossible to set one up and for
leaseholders to get the relief they were promised. The clause takes out
the references to RTE companies in the 2003 legislation. The
substitutions it makes will enable all leaseholders to claim relief in
proportion to the freehold that they have purchased.
The
Department for Communities and Local Government issued a consultation
paper last month proposing that the basis for RTEs—that is, the
provisions in the Commonhold and Leasehold Reform Act
2002—should not be implemented and should be repealed. The
provisions were designed to allow a majority view among leaseholders to
prevail and to stop one or two blocking the process, but they hit the
rocks over apportioning the costs of collective enfranchisement when
leaseholders disagree among themselves. The Government now appear to
have given up on their plans altogether.
Against the
background of that recent history of confusion and false starts, we
welcome clause 79. However, I hope the Minister can offer assurance
that, if the Government change their mind again—perhaps as a
result of the DCLG consultation—and activate the framework for
RTE companies, references to RTEs would be reinstated in the Finance
Act 2003. Leaseholders have waited long enough for relief and they
should not be made to wait again.
A question
has also been raised with me about changes to some definitions. Relief
will now be calculated with respect to the term
“qualifying” flats, rather than the existing one
of
“flats in
respect of which the right of collective enfranchisement is being
exercised”. Will
the Minister clarify whether the new term will exclude flats that join
in a purchase by paying a share of the cost but strictly speaking are
not participating in the statutory process? For example, I have been
told of concerns that a tenant who was too old or infirm to participate
directly in the statutory process could miss out on relief under the
new wording. I would be grateful for clarification on the new wording
and how it differs from the previous version. I hope the Minister will
give reassurance and then we can
proceed.
Mr.
Timms: I suspect I am not the only member of the Committee
who is already missing my hon. Friend the Member for Burnley (Kitty
Ussher) from our discussion.
The clause
amends section 74 of the Finance Act 2003, which gives stamp
duty land tax relief where leaseholders of flats exercise statutory
rights collectively to acquire the freehold of their block. As the hon.
Member for Hammersmith and Fulham accurately set out, the relief only
applied where the purchaser was a statutory right to
enfranchise—RTE—company. Provision for such companies was
introduced by the Commonhold and Leasehold Reform Act 2002 and was
awaiting commencement when the SDLT legislation was enacted in 2003.
However, the provision was never commenced so, as he said, no one has
been able to claim the relief. Members of the Committee may recall that
a new clause to address that was debated in a Committee of the whole
House on the Finance Bill last year. My hon. Friend the then Exchequer
Secretary undertook on that occasion to look further at the best way to
resolve this, if necessary including an appropriate clause in the
present Finance Bill, as we are doing.
It is now
clear that the RTE company provisions will not be commenced. The
Department for Communities and Local Government published on 12 May a
consultation on proposals to repeal the RTE company provisions. That
sets out the difficulties encountered in seeking to put those
provisions into effect, which involved the likelihood of creating an
unduly cumbersome enfranchisement process with far greater potential
for delay, uncertainty and burdens—outweighing any
benefits.
The hon.
Gentleman raised some specific points about, for example, leaseholders
who are physically incapacitated. Given that a personal signature is
required to participate in collective enfranchisement, leaseholders
unable to sign their name cannot participate. That means that, under
the terms of the relief, their interests cannot be taken into account
in determining the rate of stamp duty land tax on the purchase of the
freehold. This is
about the basis on which the right of collective enfranchisement can be
exercised, rather than the terms of the relief. If the RTE
provisions are enacted, we would certainly amend the provisions in
section 74 of the Finance Act 2003 accordingly. The clause
will amend the relief so that it can be claimed by nominees or
appointees of leaseholders exercising their statutory rights. Those can
be individuals or companies. The amendments have effect for
transactions whose effective date for stamp duty land tax date
purposes, which is normally the day of completion, is on or after
Budget day—22 April. I am grateful for the hon.
Gentleman’s support for the
clause. Question
put and agreed to.
Clause 79
accordingly ordered to stand part of the
Bill.
Clause
80Registered
providers of social
housing Question
proposed, That the clause stand part of the
Bill.
Mr.
Hands: The clause relates to stamp duty land tax for
registered providers of social housing. More specifically, it relates
to profit-making providers of social housing. The association of profit
with social housing is not universally popular on the Government
Benches. Some of the unreconstructed Government Members might seek to
extend their hostility from the existence of profit-making providers to
clause 80, which gives those same providers tax relief.
The Housing
and Regeneration Act 2008 essentially did away with the old system of
registered social landlords. It also allowed private, profit-making
organisations to compete for public money. Clause 80 puts them on the
same footing as non-profit-making providers, in relation to stamp duty
land tax, when purchasing a property that is either already, or will
become, a social home. I understand that the 2008 Act had already added
references to non-profit-making providers to section 71 of the Finance
Act 2003, which provided the stamp duty relief for the old RSLs. It is
not entirely clear why profit-making providers were not included then.
Presumably, today’s proposals either represent a change of heart
by the Government—or at least an afterthought—or correct
an
oversight. A
stamp duty exemption, when a project is receiving a public subsidy,
seems straightforward enough—giving it a public subsidy and tax
relief at the same time—but it would be helpful to get some idea
from the Minister of the amount of duty that the Exchequer will forgo
as a result of this measure. In principle, however, we have no
objection to the clause. Had he not introduced these proposals, the
Government would in effect have introduced stamp duty on social housing
developments, even if only for profit-making providers, which would
have run counter to the spirit of the 2008 Act. As I understood it,
that Act sought to create a level playing field for not-for-profit and
profit-making providers.
Subsections
(6) and (7) appear to merely extend the related relief for clients of
the old RSLs to those of the new profit-making organisations. A social
tenant who enters into shared ownership of their property will now
receive the same favourable stamp duty treatment irrespective of whether
the social housing provider is a profit-making or a not-for-profit
body. We find no reason, therefore, to oppose the clause, but I shall
watch with interest to see whether the Government Members are of the
same
view. Mr.
Timms: On the subject of unreconstruction, it is just as
well that there is not a European dimension to clause 80. Had there
been, we might have heard from a few more Conservative
Members.
2.15
pm The
hon. Member for Hammersmith and Fulham has correctly described what the
clause does and what its purpose is, arising from the change in the
Housing and Regeneration Act 2008. He asked why the change was not made
in that Act, but of course this is a change that can only be made in a
Finance Act. That is why it is here in front of us today. It ensures
that the relief, currently available for certain acquisitions by
registered social landlords and for purchases under shared ownership
schemes operated by housing associations, can be extended under the new
system of registered providers of social housing in England to those
who may be profit-making companies, who can operate a shared ownership
scheme and be eligible for a social housing grant. What this does is
extend to them the benefit of SDLT relief.
Bodies
that become profit-making registered providers of social housing will
mainly be developers building homes for sale under low cost home
ownership schemes currently attracting grant aid under section 27 of
the Housing Act 1996. Acquisitions with grant aid under that section do
not currently attract SDLT relief, so in this case the measure will
increase the amount of relief given. As relief under the measure is
tied to the receipt of public subsidy, it is unlikely that there will
be a net increase in the volume of shared ownership purchases
qualifying for SDLT relief. That is the basis for saying that the cost
of the measure is negligible.
Question
put and agreed
to. Clause
80 accordingly ordered to stand part of the Bill.
Clause
81Rent
to shared
ownership
Mr.
Hands: I beg to move amendment 260, in
clause 81, page 42, leave out lines 22 to
25.
The
Chairman: With this it will be convenient to discuss
amendment 261, in clause 81, page 43, leave
out lines 8 to
11.
Mr. Hands:
Clause 81 continues on stamp duty land tax and relates to “rent
to shared ownership” schemes. It seeks to amend schedule 9 to the
2003 Act. In general, it seeks to simplify the tax position of tenants
who are in a Rent to HomeBuy arrangement with a social housing provider.
As members of the Committee will be aware, HomeBuy schemes allow tenants
to enter into agreement with a provider to purchase slivers of equity
in a property, owning a share of the leasehold and
continuing to pay rent on the remainder. That percentage can obviously
vary based on local circumstances, or even by individual
scheme.
One barrier
to participation in HomeBuy schemes is the need to provide a deposit in
order to be granted a mortgage. Rent to HomeBuy, called “rent to
shared ownership” in clause 81, is the Government’s
proposed solution. It is designed to help tenants enter a HomeBuy
scheme at a future date by giving them up to five years’ tenancy
in which to save for a deposit. The rent is discounted at 80 per cent.
or less of market rates. During the rental period the tenants have
first option to purchase a minimum 25 per cent. stake in the property
they are occupying, either outright or through a mortgage. If they fail
to do so when their assured shorthold tenancy expires, the tenancy is
reviewed and may be terminated.
One might
question particular details of this model—I do not think this
Committee sitting is really the most appropriate way to look at
that—but one might question particular details without
necessarily questioning the general HomeBuy concept, which on these
Benches has certainly found a great deal of favour. However, it seems
wrong that a tenant who goes on to purchase a stake in a property may
become retrospectively liable for stamp duty land tax—that is,
from earlier in the shorthold tenancy. We therefore welcome the aim of
clause 81, which is to make the charge payable when, and only when,
that shared ownership commences. It also detaches occupancy under the
shorthold tenancy from the start date of shared ownership: again,
something that seems proper in this
context. However,
the second element that I have just outlined may be unnecessary. This
is where amendments 260 and 261 come in. The amendments we have tabled
do not intend to alter the scope or effect of the clause; rather they
reflect the concern expressed to me by the Law Society that the wider
principle governing the applicability of possession towards stamp duty
liability is called into question. I understand that the principle is
set out in paragraph 7,900 of the stamp duty land tax manual. I am not
sure why there are 7,900 paragraphs. I hope that I am reading that
correctly and that it is not 79.00 or something—I am told that
it is 7,900. That paragraph states that HMRC will, other things being
equal, take the view that
when “the
purchaser already has occupation of the premises under a different
interest, for example when the purchase is of a freehold and the
purchaser is a tenant, substantial performance will not be triggered at
the time of the contract as long as the purchaser adheres to the
covenants in the
lease.” The
Law Society believes that that already protects Rent to HomeBuy
tenants, and makes two arguments. First, it argues that that principle
makes the Government’s new sub-paragraphs 13(4) and 14(4) to
schedule 9 of the Finance Act 2003 unnecessary. Secondly, it argues
that by including those new paragraphs the Government are suggesting
that there is some doubt about the principle and its general
applicability, which in turn might cause a loss of confidence among
practitioners. Legal uncertainty is in all circumstances best avoided,
and I should be grateful if the Minister would specifically address
that
concern. As
I have said, this is a technical matter and we do not oppose the
Government’s intentions in the clause. If there are good reasons
for including those sub-paragraphs,
we will happily not press the amendments. If there are good reasons,
however, that would also suggest that HMRC’s guidance needs
reinforcement, and hence potential statutory inclusion in other areas
of the relevant
legislation. | 
