Mr.
Todd: Nor did I imagine that the hon. Gentleman meant
that. However, the concern that I have is perhaps the one that the
Minister shares. My focus is on a narrow community of volunteer
drivers, but if the proposed rate was applied generally, there would be
an incentive for drivers to change their behaviour to achieve a
maximisation of the return that they could make tax-free from their
activities. Also, I am not persuaded that the general cost of driving
has risen sufficiently over a period of time to merit a general
increase in the rate.
Mr.
Browne: If new clause 5 is accepted in a few
minute’s time, it is possible, I suppose, that somebody who
currently drives 8,000 miles a year as a volunteer may look at the
arrangements and say, “Wait a second. If I drive another 2,000
miles, and I get an extra 5p per mile, that extra £100 a year
would be an incentive to do additional voluntary work.” If that
was the case, we might regard that as £100 well spent. There
might be environmental considerations, because that person’s
extra voluntary activity would potentially lead to a greater amount of
pollution. The point is that the matter is not quite as clear cut as
the hon. Member for South Derbyshire implies and I am not convinced
that an extra 5p a mile would have that much effect on
behaviour.
The Minister
set up a straw man when she said that there needed to be some sort of
limit because otherwise people would be paid very low salaries but
incur very high mileage costs. Everybody accepts that there needs to be
some limit. The Minister made the point in order to knock it down. It
has not been made by anyone else. I am sceptical about the estimated
cost that she quoted. In the absence of detailed workings—a
point raised by the hon. Member for Beverley and Holderness—it
is quite hard to know on what basis those costs were calculated. There
is a potential cost of disincentivising people to undertake either
business or voluntary activity. I am not certain that the Minister has
calculated the potential loss of revenue if such activity is
disincentivised.
On the basis
of all those points, and because our constituents probably think that
we spend a lot of time discussing the issue without seeking to bring it
to a head, I hope that we can have a Division and see whether the
Government are persuaded by the
argument. Question
put, That the clause be read a Second time.
The
Committee divided: Ayes 2, Noes
17.
Division
No.
5] Question
accordingly negatived.
New Clause
8Private
residential exemption from capital gains
tax ‘(1) Part 7 of TCGA 1992
is amended as follows. (2) In
section 222(5) (relief on disposal of private residence) leave out
paragraph (a) and
insert— “(a) the
Commissioners must notify, in writing, the individual of the notice
requirement in paragraph
(aa), (aa) the individual may
include that question by giving notice to the inspector within six
months from the date on which the notification under paragraph (a) was
received but subject to a right to vary that notice by a further notice
to the inspector as respects any period beginning not earlier than six
months before the giving of the further
notice,”. (3) Insert
after section
223(2)— “(2A)
Subsections (1) and (2) do not apply where an individual has varied a
notice under section 222(5)(aa) to the effect that an
individual’s previous main residence has been redesignated as
their main
residence.”. (4) The
amendments made by this section have effect for the tax year 2010-11
and subsequent tax years.’.—(Mr.
Browne.) Brought
up, and read the First
time.
Mr.
Jeremy Browne: I beg to move, That the clause be read a
Second
time. New
clause 5 was pretty straightforward, because I think everyone is able
to grasp the difference between 40p a mile and 45p a mile. I am afraid
that new clause 8 is rather less straightforward. It seeks to deal with
what has been an extremely topical issue over the past few months,
namely eligibility for capital gains tax on second
residences.
The new
clause does not refer to the practice of which many members of the
public strongly disapprove, which is the very narrow issue of Members
of Parliament designating one property as a second residence in order
to claim their additional costs allowance and designating another
property as a second residence for the purposes of capital gains tax
compliance with HMRC. That is legal, although, people feel that in most
cases it is morally dubious, at best. However, that is not the central
thrust of new clause 8.
The new clause
would amend the Taxation of Chargeable Gains Act 1992. When I looked
into the issue—with some assistance—it proved to be
rather more complicated than it first appeared. The new clause centres
on sections 222 and 223 of the 1992 Act. Section 222
identifies what constitutes the principal residence and what
constitutes other residences for the purpose of eligibility to pay
capital gains tax. The section includes a requirement for a person to
inform HMRC which residence is their principal residence, as well as
other requirements relating to, for example, married couples and the
consistency of their declarations on which residences are designated in
which
category. Section
223 deals with the amount of relief and the rules whereby people can
qualify for it. It is worth bringing one point in particular to the
attention of the Committee, because some Members may not be aware of
it. Under one of the provisions, if a second property is sold within
three years of it becoming a second property, there is no eligibility
for capital gains tax in that period. For example, somebody who has a
single home may want to buy a bigger house in the next street, because
they have an expanding family. They move swiftly to buy the house
before they have sold their existing property, because the house is on
the market and they are happy to pay the asking price. They do not have
the time to make a chain arrangement, but they are fortunate enough to
have enough money to support two mortgages for an interim period. My
understanding is that the original property is not considered to be a
second home for the purposes of eligibility for capital gains tax
during that
period. The
housing market may be picking up a little, but I think that people in
areas where it is hard to sell properties would feel aggrieved if they
had to pay substantial capital gains tax on a property that was only a
second property in a technical sense, but that had been the family home
until they moved. I understand the argument for having that three-year
period, but many people might think that it is quite a long time;
perhaps we could discuss what is an appropriate period. There is a
problem in that, although the present system is reasonable in the
circumstances that I have just described, it allows quite a lot of
creativity and flexibility where people do not have those sorts of
arrangements and where they own multiple
properties. I
declare an interest, because I own two properties, but I have not
flipped between the two for the purposes of my additional costs
allowance, and I have never sold a property in my life. I have bought
two, but I have not sold any, so I have never paid capital gains tax on
any property transaction. I hasten to add that, rather than seeking to
avoid it, I have not realised any capital
gain. 3.15
pm What
am I trying to do in the new clause? I am inserting two new paragraphs.
The first is on the subject of the first part of my speech: the
requirements to report to HMRC which property is the main home and
which is the second home. At the moment, the requirements are not
sufficiently prescriptive so there is, therefore, room for doubt and
for people to be caught out unwittingly or to bend the rules in a way
that we would disapprove of.
New
section 222(5)(a) requires HMRC to write to the individual to inform
them of the requirement to declare which property is their main
property and, by implication, which is not their main residence for the
purposes of tax. New paragraph (aa) reduces the two-year period to six
months from the date on which the notification from HMRC is received.
People moving house have many concerns—making sure that they
have their council tax and utility bills right and so on—so some
leeway in registering the change of status is reasonable, but two years
is excessive; six months would be sufficient. Under my proposal, for
the first time, HMRC would be obliged to write to the person from whom
it required the information, so people would not be caught out
unwittingly. I can imagine circumstances in which people would not
realise that they were required to submit the information and I would
not wish them to incur the wrath of HMRC
unwittingly.
Mr.
Mark Field (Cities of London and Westminster) (Con): I
congratulate the hon. Gentleman on putting his case pretty clearly. The
rules are couched in that way, first, to avoid added
bureaucracy—he has started down that path and I suspect that we
will hear more about the bureaucratic necessity for an individual or
HMRC to get in touch—and, secondly, to recognise that
people’s lifestyle changes over time, perhaps because of getting
divorced, splitting up and so on, and it is not necessarily easy to say
that that will be within six months or twelve. The three-year rule
means that one does not have to worry about changes in circumstances or
have to investigate an individual’s intention at a particular
time in their life. While perhaps an over-long period for the hon.
Gentleman’s liking, a three-year period is clear, and enables
matters to be managed with clarity and with as little bureaucracy as
possible.
Mr.
Browne: I am grateful for that intervention, because it
allows me to clarify a point that I probably did not explain well
enough the first time. Two separate points are being conflated. One is
the three-year rule, which I mentioned earlier, and the other is the
period in which people are not eligible to pay capital gains tax. I
cited the example of somebody moving within their neighbourhood while
still retaining ownership of the first property for an interim
period. The
point that I was making before I gave way was about the two-year period
during which HMRC ought to be notified of which property is the
principal residence. We do not want it to be unclear which property is
the main residence. If it was unclear, there would be an incentive for
the individual to claim that whichever house they were selling and
realising a capital gain on was their principal residence at that
point. Many people would feel that that was unreasonable.
As I
understand it, my new clause states that the individual must inform
HMRC which property is the principal residence, unlike the current
wording, which seems to say that the individual may inform
HMRC—there is ambiguity. Trying to frame the new clause has been
difficult because the current rules are somewhat ambiguous. Trying to
amend a rather fluid and hard-to-pin-down arrangement is not easy. That
fluidity and the difficulty in pinning it down make the rules open to
abuse and, if I am being generous, broad interpretation, particularly
by accountants, which means that the spirit of the rules can be
infringed, even while abiding by the letter of the
law.
Mr.
Bone: As Conservative Members are not whipped in Committee
these days, it is always interesting to hear an argument before making
a decision. I am not sure what nut the hon. Gentleman is trying to
crack. I have experience of the previous recession, which was not as
bad as the one we are in now. The house in which I was living fell
considerably in value. When I had to move to a different part of the
country, I could not afford to sell the first house at a loss, so I had
to wait for it to come back up in value. Under the hon.
Gentleman’s proposal, I would have been penalised for
that.
Mr.
Browne: There are two sections, both of which I will
explain. If I do not explain the whole picture, there is a danger that
someone as open-minded as the hon. Gentleman may not fully realise the
merits of my case. I do not say that in a sneering way at all. The hon.
Gentleman is one of the few Members whose vote is unpredictable on this
Committee. Many Members could ask themselves why they bother to turn up
at all because they vote as instructed. [Interruption.] I
will not be tempted down this route. I suspect that few members of the
Committee find slightly laughable the ritual of one side voting one way
and the other side voting the other. As I say, the hon. Member for
Wellingborough is commendably open-minded in many of his
views. I
realise that people’s circumstances change, that they get jobs
in different parts of the country, and that they get divorced and
married. All those changes happen all the time. We all know that the
rules are trying to establish that one’s principal residence is
not eligible for capital gains tax, but subsequent residences are. If
that were not the case, one could, as an investment decision, accrue
many different properties and not be eligible for capital gains tax on
them when they are sold, whereas that individual would be eligible for
capital gains tax if they had chosen to invest in something other than
property.
We know what
we are trying to achieve. In each individual case, one can recognise,
in most instances, what is an appropriate interpretation of the law and
where the rules are being bent. The difficulty is trying to frame in
legislation—no doubt the Government have faced this
difficulty—the wording that prevents people from treating the
law in the opposite way to which it was intended but does not
inadvertently trap people whose behaviour is entirely proper and in
line with that just mentioned by the hon. Gentleman. That is the
difficulty that I face. I hope that everyone is facing it because we
all need the incentive to get this
right. The
first part of the new clause is the requirement for people to inform
HMRC which is their principal residence. Without that information, it
is impossible to draw any further conclusions. That is what I was
talking about a moment ago. The second part is to see how we can
tighten up the rules on what has now widely become known as
“flipping”. At the moment, when someone redesignates a
property, they can claim that for a three-year period, they are not
eligible for capital gains tax. That point came up earlier when I
talked about the safeguard that is in place for somebody who has moved
within their neighbourhood from what is essentially one first home to
another first home, but who, for an interim period, owned two
properties. The safeguard, which prevents that person from being
eligible for capital gains tax, means that individuals can
“flip”—to use the new jargon—the residence
and, therefore, qualify for
the three-year exemption. They qualify even though the property was
always their second property. They are being advised by accountants
that that is an appropriate way to avoid capital gains tax, or a
portion of it, on what was always a second property. That is hard to
define. I propose that if people flip to a property and then flip back
to the principal property, they would not then be eligible for the
three-year period. It is still difficult because somebody with multiple
properties who sells them on a rotating basis might be able to stay one
step ahead of the tax man in terms of their tax liabilities. It is
difficult to frame a law that would stop them from doing that. However,
they should not be able to flip from their main property to the second
one and back again in a way that enables them to qualify for a benefit
that social attitudes would deem to be inappropriate and against the
spirit of the
law. |
