Select Committee on Economic Affairs Third Report



  4.1  The Finance Bill introduces the modernised regime for the taxation of property announced in the 2002 Budget. Stamp Duty is Britain's longest-surviving tax. The present legislation dates from 1694 and it has not been consolidated since 1891. The major change proposed in the present Finance Bill is the introduction of Stamp Duty Land Tax (SDLT). This was described by Simon McKie, speaking for the Institute of Chartered Accountants in England and Wales (ICAEW), as probably the most significant new tax for 30 years (Q 308).

  4.2  The Budget Note says that the Budget "confirms the details of and changes to a package of reforms to the taxation of residential, commercial and investment property. These reforms are a major step towards modernising the tax treatment of UK property, and will close loopholes, remove distortions and enhance the sector's contribution to economic growth, development and regeneration". The Government has in our view rightly decided to widen its anti-avoidance powers. Our job is not to second-guess what it is doing, but to work within the framework which it is setting up.

  4.3  In relation to SDLT, the Budget Note shows the main changes as including:

    (i)  rolling out the modernised stamp duty regime for UK land and buildings, including new compliance and enforcement powers, tougher anti-avoidance measures, and a proposed new regime for leases, from 1 December 2003;

    (ii)  subject to further consultation, the existing charge applying to leases will be replaced with a single one per cent charge on the net present value of rental payments, and a new exemption for commercial leases under £150,000 will be introduced;

    (iii)  further consultation on the stamp duty treatment of complex commercial transactions including on property held through partnerships, to ensure that the charge is levied fairly;

    (iv)  from 15 April, changes to strengthen the anti-avoidance measures involving group and acquisition relief clawbacks in the existing stamp duty regime;   significant changes for commercial property transactions, including:

      — from 10 April, relieving stamp duty on all non-residential property transactions in the 2000 Enterprise Areas;
      — from 1 December, an increased zero rate band upper threshold of £150,000 for commercial property transfers and leases; and
      — a commitment to consider the commercial and residential markets separately in future decisions on stamp duty;

    (vi)  retrospectively exempting from stamp duty tenancy agreements between Registered Social Landlords and tenants entered into under arrangements with housing authorities to house the homeless;

    (vii)  from 1 December, ensuring that property purchases by individuals funded through alternative arrangements are put on a level footing for stamp duty purposes with purchases funded through

    conventional mortgages:

    (viii)  from 1 December, abolition of stamp duty on transactions involving property other than land, shares and interests in property.


  4.4  Most of our private sector witnesses had been involved, albeit to different extents, in the consultation on SDLT. The earlier stages of the consultative process were generally thought to have been acceptable. But our witnesses were unanimous in their view that latterly it had fallen well below the normal standards of consultation observed by the Inland Revenue, in particular because it had been abruptly ended. John Whiting of PricewaterhouseCoopers (PwC) and Simon McKie speaking for The Institute of Chartered Accountants in England and Wales (ICAEW) went so far as to suggest that it fell short of the government's own guidelines on consultation (QQ 206, 336). Draft clauses had been published for only a minority of the clauses. Moreover, although they thought that these had been improved in the light of the views expressed, Michael Quinlan of Deloitte & Touche suggested that there should have been more consultation on draft clauses (Q 8, 95). Alan Barr of the Law Society of Scotland was concerned that none of the legislation dealing specifically with Scotland had been exposed in draft (Q 473).

  4.5  These witnesses, and in particular Liz Peace, Chief Executive of the British Property Federation and the witnesses from the Law Society of Scotland (QQ 395 et seq and QQ 477 et seq) argued that, even though a new round of consultations had just opened, there was now little time for consultation on the matters covered by primary legislation in the current Bill. They pointed particularly to the new rules for lease duty which might replace those in Schedule 5. Similarly, they thought that there was insufficient time before the tax was due to be introduced on 1 December 2003 for proper consideration of the matters to be covered by the very wide range of secondary legislation. They were also very concerned that consultations had not begun on the treatment of complex commercial transactions. They thought that there could be a huge disadvantage to the functioning of the property business, especially the financing of it, if changes were not made in the short time still available. The Law Society (David Lewis)were also concerned that it might not be possible to train solicitors adequately if large sections of the new legislation were missing, especially as changes to conveyancing through the Land Registration Act were due to come into effect in October 2003. (Q 563).

  4.6  Most of these witnesses believed however that, if the provisions were withdrawn and reintroduced in 2004 with a starting date in April or on the Royal Assent, they could be redrafted to take account of the way in which the market operated in practice. By that time the provisions on partnerships, which are in any event not to be enacted this year, might be ready. As a result, a much clearer and more accessible tax would reach the Statute Book (QQ 11, 172, 262, 317, 396, 497, 538). Michael Quinlan suggested that it might even be possible to bring together all the stamp duty provisions in one Finance Act (Q 11). Malcolm Gammie (Institute for Fiscal Studies) suggested an alternative means to the same end, that the provisions should be kept in the current Bill but not brought into effect until after the opportunity of further amendment in next year's Bill (Q 590).

  4.7  Our witnesses from the private sector suggested that any delay need not necessarily reduce the yield of the tax greatly, if at all. This was partly because of the extent of recent anti-avoidance legislation, including that in Clauses 126 and 127 of the current Finance Bill. It was also partly because the weight of lease duty was in any case uncertain (QQ 20, 195, 256, 450, 477, 538, 591). In any event, the provisions were being introduced to modernise stamp duty on land and buildings and to make it fairer. They were also designed to prepare for the introduction of electronic conveyancing systems in 2006. But they were not intended to increase the yield. In this connection the British Property Federation drew our attention to the minutes of the meeting on 20 September 2002 of the Steering Group on Modernising Stamp Duty in which the "Inland Revenue emphasised that modernisation is aimed to go beyond the development of anti-avoidance legislation but that Ministers had not commissioned any work as part of this activity aimed at raising additional revenues".[7]

  4.8  For the Inland Revenue, Dave Hartnett said that the consultation had been hugely useful. Since stamp duty was still, to a considerable extent, a voluntary tax, the Revenue was unsure about some of the avoidance mechanisms which were never reported to them. However, they had had valuable help from people seconded to them from private sector law firms. As a result of that assistance and of the consultations, changes had been made to the original proposals: as one example, the Revenue had been satisfied that the original proposal for a time limit of 36 months for enquiries to be made after a transaction had been reported could reasonably be reduced to 9 months (QQ 676, 682).

  4.9  He explained that the consultation had had to be halted in January for two reasons: much of the work then remaining related to tax planning, where experience suggested that it might be counter-productive to consult further, and also because Ministers needed time to weigh up all that had been said in the consultations. Some of the representations made had been conflicting and some required extensive economic analysis before decisions could be made. It had not been possible to continue to consult on technical matters without exposing the policy issues which were under review. Nevertheless, by the time that the consultative meetings had stopped, the Revenue believed that it had a very reasonable understanding of what had been said (Q 676). In response to the suggestion that both the need to tackle anti-avoidance and the likelihood that Ministers would need time to consider the issues had been predictable, Dave Hartnett said it had not been possible to plan for the scale of avoidance and the voluntary nature of the tax (Q 682). He also apologised to the organisations concerned for the abrupt note which had been issued when the consultation was halted (Q 676).

  4.10  Against the background of the amount of consultation which had already taken place, Dave Hartnett also asserted that the introduction of the tax on 1 December 2003 was very reasonable, and that the Revenue would be able to operate it (QQ 678, 736). Craig Lester added that there would be further consultations on lease duty, on complex commercial transactions and on the regulations. There would be a simpler structure for the consultation than previously, and it would be necessary to work around the issues of avoidance. It had already been announced, however, that the treatment of partnerships under the tax would be left over to next year's Finance Bill (QQ 683, 697-8, 717). Nevertheless, neither Dave Hartnett nor Craig Lester was confident that the tax would be 100% right because of the development of avoidance schemes (Q 684). Experience showed that some process of refinement would be necessary in the future (Q 711).

  4.11  The Revenue witnesses thought that the difference between them and our witnesses from the private sector was not so much a product of timing as of the struggle between aggressive tax planning and the Revenue departments (Q 684). The Revenue had a big team of able people working on the tax. Although it recognised that not everyone liked the timing, it had also received letters asking it to get on with the introduction of the tax. Yet for others the introduction of the tax on 1 December would interfere with plans which were already in hand (Q 678).

  4.12  We also noted the recommendation of the Treasury Committee in the House of Commons which in its Seventh Report[8] for the current session said: "The Committee notes that tax avoidance in the property market is an important issue for the authorities to address. We recommend that the proposed consultation process focusing on the reform of the stamp duty treatment of commercial leases should be allied to a wider ranging review of the taxation of commercial property transactions. In this context, we note the current consultation on stamp duty and await its outcome with interest."

  4.13  We welcome the introduction of Stamp Duty Land Tax as a major opportunity to modernise the tax system relating to property transactions. However, we have heard the strength of the essentially unanimous views of our private sector witnesses urging that the tax would not be in a fit state to introduce on 1 December 2003. This has to be set against the confidence of the Inland Revenue witnesses that it would be ready in time. Against this background, we note in particular that some of the main provisions of the tax have already passed through the Committee stage of the Finance Bill in the House of Commons without being discussed or scrutinised.

  4.14  We are aware of the very large task which this modernisation work involves. Given the weight of the different views we have heard, we recommend that the Government should review early in the Autumn of 2003 whether the tax can be got right in time. For our part, we should be particularly concerned if such a review were to indicate a danger that, if events were allowed to take their course, commercial transactions would be likely to be put at risk increasingly by the uncertainties surrounding the charging regime as 1 December 2003 approached.


  4.15  Our private sector witnesses were concerned about the nature and extent of the secondary legislation for which the Finance Bill provides. There were two issues. The first related to Clauses 109 and 112. Clause 112 paves the way for secondary legislation introducing a different charging structure for lease duty in place of that in Schedule 5 if, in the light of further consultation, a suitable alternative could be found before 1 December 2003. Simon McKie thought that it was a very broad power to make changes, extending even in relation to rates of tax, where there was no proper Parliamentary scrutiny (Q 337).

  4.16  The main criticism of these witnesses however related to Clause 109. This Clause provides for regulations to be introduced to counter avoidance devices as they arise, and for reliefs to be introduced, with immediate effect, provided that these are confirmed in the following Finance Bill. Unlike Clause 112, these regulations cannot affect rates, thresholds or amounts. Kevin Griffin of Ernst and Young, Robert Maas for the Institute of Indirect Taxation, Simon McKie for the ICAEW, Edward Troup for the Law Society (who described it as "not much short of a disgrace") and Malcolm Gammie all thought the use of regulations in this way excessive: even though their effect could only be temporary there would be no Parliamentary power to amend the provisions (QQ 112, 255, 337, 538, 598).

  4.17  The second issue raised by these witnesses was the number (over 20), and extent of the regulation making powers in this Part of the Bill. Many of these powers relate to administrative or machinery provisions which are normally covered by secondary legislation. But, they believe that other powers expand the base and will impact adversely on the accessibility or administrative burden for taxpayers. In their original evidence, and in the supplementary note by Michael Quinlan, Deloitte & Touche, referred in particular in this respect to the powers contained in Clauses 50(2), 76, 78, 90(3) and 102.[9].

  4.18  Dave Hartnett recognised the concern about the use of secondary legislation, but he did not think that it was either unusual or excessive. He believed that it provided flexibility and that, without it, SDLT would not bed in as fast as would otherwise be possible (Q 694). The Henry VIII power under Clause 109 would help the Revenue to move rapidly as new schemes of avoidance appeared and help with the current discussions. Regulations also provided certainty which other approaches would not (Q 677).

  4.19  In our view, the power contained in Clause 112 is only required because a revised regime for lease duty may be substituted for that in the Finance Bill. If the introduction of the tax were to be postponed, the need for it would disappear. Otherwise, provided that the regulations are published in good time and following adequate consultation, there can be a good case for secondary legislation if it is appropriately used. We recognise that, where it is necessary to tackle avoidance very quickly, which is one of the circumstances for which Clause 109 is designed, public consultation may not be appropriate. In such cases we believe its use should be kept to a minimum.

  4.20  More generally, we are concerned by the extensive use of regulatory powers proposed under this Bill. We note that orders under Finance Acts are not customarily laid before this House and that order-making powers are not subject to scrutiny by our Select Committee on Delegated Powers and Regulatory Reform[10]. On the other hand it is clear to us from the advice we have had from the Clerks[11] that the question of Commons financial privilege does not affect the ability of this House to debate financial or fiscal matters or to scrutinise them in Select Committees.


  4.21  One of the features of stamp duty is that it is possible, after the transaction has taken place, to obtain certainty as to the duty due on a document by requesting that it be adjudicated. Once the Stamp Office has adjudicated the duty, there can be no subsequent question that the correct duty may not have been paid. We were told that this certainty is imperative for commercial transactions and that, for example, without it the value of property interests for financing could be impaired. But there is no exactly corresponding provision within SDLT. As a result, the amount of duty could be challenged long after the completion of the transaction.

  4.22  Michael Quinlan of Deloitte & Touche, Kevin Griffin of Ernst and Young, Robert Maas for the Institute of Indirect Taxation and Alan Barr for the Law Society of Scotland thought as a matter of good administration therefore that a system of post-transaction, if not also pre-transaction, clearances would be essential (Q 31, 103, 264, 506). Indeed, when we asked Patrick Cannon and John Whiting of PwC, they said that it would be acceptable to have to pay for the cost of providing them (Q 216). David Lewis of the Law Society also suggested that there might be room for payment, at least for pre-transaction rulings, but not in the early years of the tax when people would need all the help they could get (Q 541). Malcolm Gammie, however, was not sure that the need for a pre-transaction clearance system would be greater under the new tax than it had been (Q 599).

  4.23  The Inland Revenue witnesses responded that adjudication no longer worked in the way in which it used to do. Dave Hartnett said that people now sent Stamp Offices crates of documents and started asking for a response within seven or eight days. Self-assessment would provide its own certainty (Q 686). There was a need to strike a balance between the need for certainty and the need to protect the Revenue (Q 691).

  4.24  Craig Lester added that the standard textbook on stamp duty, Sergeant & Sims, set out three reasons for adjudication under the present code. Firstly, it was part of the appeal system. However the new appeal system, which had yet to be set out in regulations, would be cheaper and simpler, as an appeal would go to the Special or General Commissioners rather than direct to the High Court. Nor would it require that the duty was paid up front. Secondly, some documents needed to be adjudicated in order to be properly stamped. However, the need for this was withering away, for example because of the relief for charities. Thirdly, it provided evidence for third parties. Moreover, a number of pitfalls for the unwary were being removed and under the new system the liability would remain on the original person (Q 686).

  4.25  Craig Lester also said that for the vast majority of cases the new system would feel identical with the old in the terms of the certainty which is provided because of the certificate which would be provided showing the consideration on which duty has been charged and on which agents and others can go to the Land Registry. Indeed, he thought that in due course the process should become a little faster and smoother (Q690). Thereafter, there would be the nine month window of enquiry (Q 691). The Revenue would revert to the length of the enquiry window and see, in the light of experience, if there might be room for a shorter period (Q 735).

  4.26   We took great comfort from the Revenue statement that in the vast majority of transactions there would be as much certainty as now. We recommend that this should be reflected in a formal procedure. In the interests of providing certainty wherever possible, we recommend that this procedure should provide that within 30 days of the notification of a transaction, the Revenue should inform the taxpayer either that it would not be making any enquiries or (and this would generally be in the more complex cases) that it wished to keep open the opportunity to make an enquiry in the remainder of the nine month period.

  4.27  Otherwise, our concern is primarily that commercial transactions should not be impeded for lack of certainty about their taxation implications. Particularly in the early days of the tax, before either the Inland Revenue or practitioners have much experience of it, there will certainly be a case for reducing uncertainty so far as possible. We recommend therefore that the Revenue should consider whether some form of clearance procedure might be introduced, especially in the light of the suggestion that taxpayers might well be prepared to pay towards the cost.


  4.28  We have already noted that the provisions relating to lease duty in Schedule 5 to the Finance Bill will be withdrawn if a satisfactory alternative can be found before they are due to come into force on 1 December 2003. The British Property Federation is deeply critical of the current proposals and is looking at alternatives. According to Liz Peace, the expressed rationale of the changes is to remove distortions, particularly around the different levels of the current slab system; to stop leases being used as avoidance (something she would challenge); to bring the duty more into line with accounting practices and with how property transactions are carried out (Q 456). It had not been said, she averred, that the purpose was to increase the yield (see paragraph 4.7 above).

  4.29  Graham Chase, Chairman of the Royal Institution of Chartered Surveyors (RICS), was also concerned about the commercial consequences of the changes (Q 645) especially for longer leases. He suggested that the charge should be based on the rent for the first five years because it was too difficult to foresee what would happen after that (QQ 453-456). Isobel d'Inverno for the Law Society of Scotland argued that with Schedule 5 the government had chosen the option which had been least preferred by those who had been consulted, one that would not work in practice, and that it would be very difficult for solicitors to calculate the duty payable. This would make it difficult for clients to decide whether to enter into transactions or calculate how much rent should be paid (QQ 499).


  4.30  Stamp duty is very largely a one-off tax with no requirement to adjust the amount due in the light of subsequent events. One major issue raised with us by Patrick Cannon, Simon McKie, Martin Poole and Alan Barr related to the administrative difficulties which would arise under the current proposals in making returns and paying duty where the consideration is contingent or uncertain (QQ 185, 343, 419, 500). This can arise where the rent to be paid for a lease of a property depends on the turnover of the business occupying the property: for example, in the case of a motorway service station or an hotel. In these cases Clause 51 provides for a reasonable estimate to be made at the outset of the total consideration to be paid and for tax to be paid accordingly. Thereafter, under Clause 80 a return has to be made whenever the amount of the consideration increases and further tax has to be paid. A return may be made, and tax repaid, if the amount of the consideration is reduced. In the case of a complex transaction this will involve tenants and managing agents in very significant tracking and administration of lease portfolios. Moreover, any difference in rents from the original estimate will not only affect the tax immediately arising, but may also require a further estimate of the total consideration which will be received.

  4.31  Similarly under Clause 51, where the consideration for a transaction due at the outset is contingent (for example, because it depends on the outcome of a planning application), tax is due on the basis that the contingency will happen. A return may then be made, and the tax repaid, if the contingency does not happen.

  4.32  Our private sector witnesses put forward different answers to the significant uncertainty and compliance costs that will be incurred as a result of these provisions. Simon McKie for the ICAEW argued that the tax would have been simplified if it had been based on the receipt of consideration rather than as a tax on contract (Q 312). Patrick Cannon of PwC, speaking also for the Chartered Institute of Taxation, suggested that a reasonable estimate at the outset should be treated as final at the taxpayer's option, possibly denying him the opportunity of a repayment (Q 186). Martin Poole and Eli Hillman for the British Property Federation suggested that returns should be required at much less frequent occasions, say only every three years (QQ 420, 425).

  4.33  Dave Hartnett's response to these proposals to reduce what was seen as a very heavy compliance burden was to point out that it was a matter which the Revenue understood well because issues of uncertain value also arose in other taxes. Craig Lester explained that in the very large majority of cases under SDLT the point would not arise. But, where it did, there were two approaches under the self assessment provisions of the tax. A taxpayer could choose either to estimate at the outset the amount of tax payable, which could be adjusted later; or the tax could be paid by instalments. Precisely how the latter—which would not apply to lease duty—would work would be set out in regulations yet to be published in draft and discussed. But the Revenue would be looking for a pragmatic solution. The aim was to find a practical and effective way that was fair to everybody, but did not involve anything approaching monthly reporting and record keeping (Q 699, 704-5, 709).

  4.34  Dave Hartnett added that the Inland Revenue was seeking to improve its advice to taxpayers generally, especially through the use of electronic guidance. Taxpayers would be able to seek guidance electronically, and on the back of the questions which were asked, the Revenue hoped to be able to improve the guidance which it gave (Q 705).

  4.35  We believe that as much certainty as can practically be provided should be given in the case of leases for uncertain consideration. We do not ourselves presume to be competent to suggest how the outstanding issues should be resolved. But we are concerned with the uncertainty which any failure to resolve them very quickly, well before 1 December 2003, would have on the property market. This is an area to which the Autumn review of progress towards the introduction of the tax, which we have already suggested, should pay particular attention.


  4.36  On a particular aspect, the British Property Federation drew our attention to the absence of any machinery to allow a claim to a refund, relating to the unexpired part of a lease, where it was brought to an end through no fault of the tenant. They thought that, if the aim was to promote greater flexibility in leasing and in the relationship between landlord and tenant, this was a very important change to make. The absence of a reclaim might discourage parties from reaching consensual surrender arrangements (QQ 424, 426).[12] We found this point of interest, but decided not to pursue it given the lack of time we had available.


  4.37  Complex commercial transactions was a term of art introduced, Liz Peace told us (Q 449), by the Inland Revenue to cover matters such as those involving securitisation, sale and leasebacks, site assembly arrangements and sub-sales. The detailed provisions for these and similar transactions do not appear in the Finance Bill and are to be the subject of further consultation. Since it is highly unlikely that there will be any further primary legislation before 1 December 2003, our witnesses were anxious to know how, if the tax generally is to be introduced by then, these complex transactions would be taxed. There was little time for proper consultation before then, and the inevitable uncertainty about the extent of the charge could affect commercial transactions which would otherwise have taken place.

  4.38  Martin Poole stressed that there should not be double taxation, for example in the case of site assembly, and that financing type transactions should remain outside the scope of the charge (Q 445). Edward Troup was concerned that without certainty there could be a significant effect on the willingness of financiers to enter into financing transactions (Q 560). Graham Chase argued that a charge at the commencement of a development process based on an estimate of the end value would be unfair and inappropriate. Instead he suggested either a charge should be made at the outset of a development process only on the values which had at that time been established, or that there should be a charge only at the end when the final value could be assessed (Q 668).

  4.39  The Inland Revenue witnesses said that there had already been some consultation on these complex commercial transactions. The purpose of further discussions would be to ensure that ordinary commercial transactions such as financing transactions and sub-sales would not be affected without opening up tax avoidance possibilities (QQ 712-714).

  4.40  One of the critical issues in relation to securitisation was to find, given the variations which might be possible, the dividing line between what was solely a financing transaction and what was essentially also a property transaction. On sub-sales, there was at present no general relief comparable with that under the stamp duty provisions and the consultations would cover how far there might be wider and more specific reliefs. Similarly the Revenue accepted the need to find through consultation an appropriate tax regime for sale and leasebacks where the issues arising under stamp duty had recently become of greater concern (QQ 712-716). The witnesses accepted the need for early guidance, but believed that the regulations would be published in good time (Q 717).

  4.41  We are concerned by the level of uncertainty surrounding complex commercial transactions, especially where the time scale for consultation has been foreshortened by the break in the consultative process. We would not wish to make any recommendation which would limit the ability of the Inland Revenue to deter or counter tax avoidance. At the same time, we believe that there should be no impediment to legitimate commercial transactions. It is essential therefore that the right balance is found, and sufficient time should be allowed to do this properly.


  4.42  Clause 57 of the Bill provides for the exemption from SDLT of acquisitions of land in nearly 2000 disadvantaged areas of the United Kingdom. Acquisitions of residential property in these areas are exempt up to a cap of £150,000, as are acquisitions of non-residential property without any cap. This exemption follows a determination of the European Commission that the abolition of the cap on acquisitions of non-residential property does not amount to a state aid. But this determination applies only until 31 December 2006. This date, Martin Poole and Ros Rowe told us, is already on the time horizon of the largest and most complex deals, and will become ever more relevant as time passes, giving rise to uncertainty for valuations and hence maybe difficulty in funding projects (QQ 469, 670[13]).

  4.43  The British Property Federation witnesses also told us of difficulties which could arise in relation to bare land where there was no post code. It would be necessary to rely on the wards listed in regulations, but there were no conclusive ward maps. The Federation therefore asked for greater certainty to cope, for example, with boundary changes (Q 466).

  4.44  These matters also raised the issue of uncertain or contingent consideration referred to in paragraphs 4.30 to 4.35 above. The reinstatement of the cap for acquisitions of non-residential property in any area, or ward changes, could give rise to the need to notify liability to the Inland Revenue. The Federation suggested that in the latter case the purchaser might be unaware of the need to notify liability which was clearly unacceptable. They proposed that the liability should be fixed on the basis ruling at the time of the transaction.[14]

  4.45  The RICS was concerned also that the use in England and Wales of ward boundaries to determine the extent of the relief, as opposed to post codes which were used in Scotland, was too blunt an instrument. It allowed relief for successful properties in areas which were otherwise deprived and, maybe, to suck in development from elsewhere (QQ 641-2).

  4.46  Dave Hartnett accepted that he was not sure what could be done about the current cut-off of the relief on 31 December 2006 as it was related to the wider review of state aid (Q 718). Ian Rogers said that the Treasury was taking an active part in the review of state aids; and that, as a general proposition, which was in line with the views of other committees of this House, there were reasons for the time limit and the need to evaluate the policy (QQ 725-726). However, Dave Hartnett agreed to think about the possibility that liability should be fixed on the basis ruling at the time of the transaction (Q 719).

  4.47  The Revenue did not believe that the use of either ward boundaries or postcodes was a perfect means of precisely identifying deprived areas. Craig Lester pointed out that the postcodes in use in Scotland covered very large areas. He and Dave Hartnett accepted that there could be problems identifying qualifying properties precisely, whatever basis was used, but the disadvantaged areas themselves remained unchanged (QQ 720-725).

  4.48  Several of the issues arising regarding disadvantaged areas relief are on the edge of, if not outside, our terms of reference. We can do little more therefore but to draw the points that were made to the attention of the Government and, through it as appropriate, to that of the European Commission. We welcome the Revenue's willingness to review the possibility of removing some of the uncertainty by fixing the liability on the position at the date of the ruling, and look forward to that happening.


  4.49  One major change introduced by SDLT is that it follows the direct taxes and introduces self-assessment. Our witnesses argued that this reinforced the need for the tax to be simple and accessible for practitioners generally and not just for specialists. Eli Hillman argued in this connection that the provisions for notifying transactions needed to be clear. In particular, transactions which would not have fallen within the scope of stamp duty might now need to be notified under Clause 77 even though there was no liability: for example, where a particular property passed for a nominal consideration as part of a wider package (QQ 458-461). Kevin Griffin also suggested that unnecessary compliance costs would be incurred by the requirement to send in two returns in respect of the same transaction, one at the time of economic completion and the other at the time of formal completion. The former, it was said, should be sufficient (QQ 97-102).

  4.50  One issue raised, for example by Michael Quinlan and Kevin Griffin, was the 30 day notification time limit from the date of a transaction. While this limit contained in Clause 76 should be long enough for straightforward cases, they suggested that in the case of complex commercial transactions sufficient second order issues might not have been settled within 30 days of the agreement to enable an assessment of the tax payable to be made. This issue is the more important with a new and complicated tax. (QQ 39-43,114).

  4.51  Moreover, although curiously there is no reference to it in the Explanatory Notes, sub-clause (2) gives the Inland Revenue power to introduce regulations reducing this notification period. Kevin Griffin gave us to understand that the intention was to reduce it to perhaps 10 or even 5 days on the introduction of electronic conveyancing (Q 112).

  4.52  Kevin Griffin and Patrick Cannon also pointed out that under Clause 82 a return or document which is lost is treated as having not been delivered even if it was lost in the hands of the Inland Revenue. They claimed that losses in this way were not uncommon. But, even if they were occasional, our witnesses thought that it was not right to penalise taxpayers on account of administrative failures (QQ 120-1, 210-1).

  4.53  David Lewis was concerned that in the original consultative document it had been suggested that the land transaction return would require considerably more information than was presently required. He thought that, although such matters were normally proper to secondary legislation, this issue was so important, especially for solicitors, that it should be contained in the Finance Bill itself (Q 554). A draft of the return form itself was shown to practitioners only towards the end of our Inquiry. One private sector witness, Ros Rowe, pointed out that it could not be completed electronically because it needed to be scanned in by a piece of software with a unique bar code number (Q 646). She suggested that there should be a unique number for each company (Q 661). Considerations such as these would be the more important if frequent returns had to be made for leases for uncertain consideration (see paragraph 4.30 above). By contrast, in paragraph 53 of the Partial Regulatory Impact Assessment, the Inland Revenue said that they did "not consider that the provision of the required information will be significantly more onerous than the current requirements".[15]

  4.54  The Inland Revenue witnesses told us that they believed that under SDLT the administration and management of the tax would enable a simpler and faster process for most transactions, but as a modern tax it would require greater openness on the part of the taxpayer in order that artificial planning might be exposed. Nevertheless, they accepted that in the case of more complicated transactions there might be a need for more than one notification and more than one liability. How exactly the rules would work in these cases was a subject for consultation (QQ 731-735).

  4.55  Craig Lester said that the Revenue was considering the treatment of lost returns or documents under Clause 82 (Q 787). However, both he and Dave Hartnett believed that the way in which SDLT would be administered (in particular that all papers would need to be sent to a central location where they would be scanned electronically before being sent to a local stamp office) should allow much better document chasing. While it might not be a perfect solution, it offered more confidence that there would be certainty whether and when a document had been received by the Department (QQ 787-790).

  4.56  We are concerned that the machinery provisions of the new tax should work well. Clearly the Inland Revenue must have all the information it needs expeditiously. At the same time, proper regard has to be had to the particular requirements of the property market. The further consultation period should be used to ensure that an appropriate balance has been found, and that the compliance costs are kept to a reasonable minimum.

  4.57  We welcome the assurances which we received about improvements in customer service. The proof will come in the light of experience, and we recommend that there should be regular monitoring of the extent to which returns and documents are lost, and can then be found. We also welcome the assurance that the Inland Revenue's right to treat a lost return or document as not having been delivered (Clause 82(2)) is being reconsidered.


  4.58  Michael Quinlan, Patrick Cannon and Robert Maas had somewhat different views on the detailed implications of the transitional rules for the commencement of the tax. (QQ 18, 180-4, 269). The suggestion was both made that there could be a double charge or that transactions might fall out of charge altogether—or that there would be a single charge. David Melhuish said that contradictory messages had been out at the time of the Budget (Q 669), and he subsequently sent us further details from the Budget and Finance Bill Press Notices and the Partial Regulatory Impact Assessment.[16]

  4.59  The detailed commencement rules are an example of but one of the very many detailed points which need to be ironed out in the consultation in the weeks ahead. Along with the major points to which we have drawn attention, it provides further evidence of the very heavy consultative load to fit into the next few weeks or months, depending on whether or not the issue has to be settled, and if need be amended, in the current Finance Bill or whether it is a matter for regulations.

  4.60  We conclude this section of our Report by restating our concern that the Government should carry out a review in the Autumn of this year to assess whether there is sufficient time for the task to be properly completed by 1 December 2003, while providing reasonable certainty for anyone currently planning or carrying out commercial transactions. In our view, it is more important to find the right balance between collecting a proper amount of tax, curbing avoidance, reducing compliance costs, removing uncertainty, and maintaining the functioning of the property industry than that the tax is brought in on a particular day, right or wrong.

7   See evidence by British Property Federation (Volume II, HL Paper 121-II). Back

8   HC 652-1, Para.57. Back

9   See evidence by Deloitte & Touche (Volume II, HL Paper 121-II). Back

10   House of Lords Companion to Standing Orders 2003, page 103, para 6.32 and page 190, paras 9.46 & 9.47. Back

11   See para 3.1 and footnote 4. Back

12   See also evidence by British Property Federation (Volume II, HL Paper 121-II). Back

13   See evidence by Royal Institution of Chartered Surveyors (Volume II, HL Paper 121-II). Back

14   See evidence by British Property Federation (Volume II, HL Paper 121-II). Back

15   Inland Revenue: Partial Regulatory Impact Assessment (RIA), Modernising Stamp Duty, 16 April 2003. Back

16   See evidence by Royal Institution of Chartered Surveyors (Volume II, HL Paper 121-II). Back

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