The Financial Secretary to the Treasury (Mr. Stephen Timms): This Government have put in place a comprehensive set of tax reliefs for charities and for those who choose to donate to charities. These tax reliefs provide valuable incentives to encourage people to give and provide support to the charity sector. In the UK we are rightly proud of our charity sector, which continues to undertake important work in the UK and around the world.
It is therefore particularly regrettable that we have become aware of an artificial, aggressive and offensive tax avoidance scheme that seeks to abuse those tax reliefs available for donations to charity. A similar scheme to exploit this same relief was shut down in the Finance Act 2004, and we are aware that other schemes to exploit these reliefs have been marketed since then.
The Government will not tolerate tax avoidance or tax evasion, and will act promptly to tackle both of these, so I am today announcing changes to be made to legislation, with immediate effect, to counter these schemes.
The scheme exploits the relief available for donations of listed shares and other types of qualifying investments (including land) to charities in section 431 of the Income Tax Act 2007 and section 587B of the Income and Corporation Taxes Act 1988. An offshore company sells to a taxpayer listed shares with a market value well in excess of the amounts paid. However the offshore company has an option to buy back the shares, exercisable after three years, for £1. The taxpayer then gifts the shares to a charity and gets tax relief on the higher market value of the shares, despite having paid only a fraction of that market value for the shares.
The option to buy back the shares is not taken into account for the purposes of determining the amount of the relief. The rules disregard contingent liabilities, such as an option, until the liability crystallises, typically by the exercise of the option in this case. In reality the option is never exercised and the scheme organiser gets the money back from the charity through some contrived arrangements.The benefit to the charity is typically less than half of 1 per cent. of the value of the tax relief obtained.
The Government do not accept that these highly contrived arrangements have the effect sought, but will remove any doubt by introducing appropriate legislation in the Finance Bill 2010. The new rules will reduce the tax relief on such arrangements to the lower of the cost of acquisition to the donor of the shares or investments gifted, or the market value at the date of disposal, where the acquisition was made as part of a tax advantage scheme. This legislation will have immediate effect from 15 December 2009.
The legislation will not affect genuine donations to charity where tax avoidance arrangements are not involved and HM Revenue and Customs (HMRC) will be consulting with the charity sector to ensure that the legislation achieves its intended effect.
Further details are contained in a draft explanatory note published on HMRC's website at: www.hmrc.gov.uk, today with the proposed draft legislation.
It is particularly offensive that individuals seeking to avoid tax do so in a way that exploits charity tax reliefs.
I am therefore giving notice of our intention to deal with any arrangements that emerge in future that are designed to take advantage of the tax reliefs for donations of qualifying investments under section 431 of the Income Tax Act 2007 and section 587B of the Income and Corporation Taxes Act 1988. The Government introduced these reliefs in 2000, with the intention that they should be used only for genuine donations to genuine charities. Where HMRC becomes aware of arrangements which attempt to frustrate that intention, the Government will introduce legislation to close them down, where necessary with effect from today.
This action will not affect the vast majority of charities and donors who organise their affairs in a straightforward and ordinary way. The Government continue to believe that charities make an important contribution to our society and do not deserve having their reputation called into question by such offensive tax avoidance.
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): Today I am publishing the Government Fraud report for 2008-09. Copies of the document entitled, "Fraud report 2008-09: an analysis of reported fraud in Government departments" have been deposited in the Libraries of the House and will be available on the HM Treasury website at: www.hm-treasury.gov.uk.
The Minister for Housing (John Healey): I am publishing today the Government's response to their consultation on the proposed changes to the Growth Fund for 2010-11. Copies have been placed in the Library of the House.
The Growth Fund provides capital and revenue funding to the 75 growth partnerships in Growth Areas and Growth Points across 163 local authorities in England, supporting their planned housing growth, enabling housing development to be brought forward, tackling barriers to delivery and ensuring that new development is planned as sustainable communities. Provisional funding allocations for 2009-10 and 2010-11 were published in December 2008.
The exceptional economic circumstances and global recession have affected the availability of finance, credit and mortgages. The Government have taken action to help people stay in their homes, stay in work, and to help firms stay in business. The Government have also continued to focus on providing the affordable homes that people need. The Government are clear that getting
house building across the country started, and providing the affordable homes that people need, is a priority during the current exceptional economic circumstances.
The Government set out the housing pledge as part of Building Britain's Future on 29 June, with a £1.5 billion package of measures to build an extra 20,000 new affordable homes in 2009-10 and 2010-11, of which over 13,000 will be for social rent, and 10,000 open market homes. As a result, the Government are now investing £7.5 billion in 2009-10 and 2010-11 to deliver up to 112,000 affordable homes and around 15,000 private homes.
While the majority of funding for the pledge comes from other Government Departments' programmes, given the importance attached to stimulating the housing market, I also reviewed our own investment programmes in Communities and Local Government to support the pledge. As such, the Government have switched £128 million capital funding from the Growth Fund in 2010-11 to support the pledge. All regions have benefited from the pledge funding, which has been considerably greater than the impact of the 2010-11 switch from growth funding.
Given the impact of the exceptional economic circumstances on the delivery of homes and infrastructure, there is uncertainty that it will be possible to use Growth Funds in the way envisaged when multi-year allocations were made before the global recession. Switching some
grant money from the Growth Fund will mean it is still used for housing purposes and that the fundamental aims of the Growth Fund-to support housing growth-will still be met.
I wrote to the leaders of all local authorities in the Growth Areas and Growth Points about the housing pledge on 17 July, highlighting the opportunities for additional funding, and set out the planned adjustment to the Growth Fund. The Government's preferred approach was to make a pro-rata reduction to the provisional 2010-11 capital allocation of each Growth Area and Growth Point. Provisional revenue allocations for 2010-11 remain in full. The Government believe this approach would provide certainty on funding decisions in a timely manner, is fair and transparent. Consultation on the proposed changes lasted six weeks.
The consultation showed that although respondents did not welcome any reduction in funding they did show general support for the Government's preferred approach of a pro-rata reduction for every growth area local authority and the Government will therefore revise funding allocations for 2010-11 as set out below. Revised funding allocations will be paid by the Homes and Communities Agency to the nominated accountable body for each Growth Area and Growth Point in the first quarter of 2010-11. Local authorities in growth locations will still have the flexibility to prioritise how funding is used to best support local priorities.
|Revised Funding Allocations for 2010-11|
|Location||Provisional 2010-11 Revenue Allocations||Revised 2010-11 Provisional Capital Allocation||Total 2010-11 Provisional Capital and Revenue Allocation||Total Capital and Revenue Funding 2008-09/2010-11|
|(*)Did not bid for capital funding in 2010-11 as part of their programme of development.|
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