ALLISON PLAGER reports on the thirteenth and fourteenth sittings of the debate of the Finance Bill 2002 by Standing Committee F.
THE THIRTEENTH SITTING was notable for a particularly unusual occurrence in recent standing committee debates, and this was an Opposition amendment being agreed to by the Government. This was the second Opposition amendment agreed to in this Finance Bill, and in this instance related to stamp duty avoidance.
ALLISON PLAGER reports on the thirteenth and fourteenth sittings of the debate of the Finance Bill 2002 by Standing Committee F.
THE THIRTEENTH SITTING was notable for a particularly unusual occurrence in recent standing committee debates, and this was an Opposition amendment being agreed to by the Government. This was the second Opposition amendment agreed to in this Finance Bill, and in this instance related to stamp duty avoidance.
Stamp duty groups
Clause 109 introduces anti-avoidance rules into the stamp duty régime relating to stamp duty group relief under which stampable assets can be transferred within a 51 per cent group free of duty. The new rules state that where an asset is sold by a group within two years via the disposal of shares rather than a direct sale of the stampable asset, then regardless of lack of intent at the time of transfer, the group relief is clawed back. Howard Flight introduced an amendment to insert a motive clause to counter potential unfairness.
Ruth Kelly reiterated the fact that the Government intended to 'modernise' the stamp duty régime, and claimed that it was 'widely recognised that companies have been abusing the rules for stamp duty group relief by transferring United Kingdom land and buildings into special purpose vehicles in order to sell the shares in that vehicle rather than the land and buildings direct'. This was an abuse of the 'spirit' of the rules. As to including a motive test in the legislation, this would create complexities, and it was simpler, said Ms Kelly, to have a 'two-year time period to tackle abuse'. She said that the measures were 'interim' and would be considered as part of the fundamental reform of the duty.
Mr Flight withdrew his amendment, and the clause was ordered to stand part of the Bill.
The Government tabled two amendments to Schedule 34: Stamp duty; withdrawal of group relief; supplementary provisions. Firstly, Ruth Kelly said that the Government wanted to ensure that group relief was not withdrawn when a transferor company went into liquidation. The amendment would apply equally in the case of the liquidation of the transferor company or company that was above the transferor company in the group structure.
Ms Kelly's second amendment ensured that interest would apply only to any amount of the clawback charge that remained unpaid after 30 days. Both amendments were agreed to. Schedule 34, and clauses 110 and 111, were ordered to stand part of the Bill.
In relation to Schedule 35: Withdrawal of relief for company acquisitions; supplementary provisions, Ruth Kelly tabled an amendment which would ensure that section 76 relief was not withdrawn where there was a change of control due to the interest of a lone creditor, providing that the original shareholders still control the company. The amendment and Schedule 35 were agreed to.
Late stamping
Howard Flight took issue with clause 112: penalties for late stamping. He reminded the committee that it was possible to avoid stamp duty if the relevant documents were executed outside the United Kingdom, but that once the documents were brought into the United Kingdom, they had to be stamped within 30 days for the purpose of penalties. The new clause had changed this, to the effect that penalties would be levied after 30 days, regardless of where the document had been executed. He requested that the clause be clarified to ensure that 'contracts only incidentally related to land for the sale of world-wide business, for example, are not accidentally caught'.
Ruth Kelly said that the clause extended the penalty régime to the offshore execution of documents relating to United Kingdom land and buildings, and that it included every document that related to a transaction that to 'any extent involves land in the United Kingdom'. Mr Flight's amendment would limit the new régime to documents relating only to United Kingdom land, with the result that 'another type of property could be included in the document, merely to ensure that the document would not be caught by the new rules'. This, she said, would 'undermine' the measure, and allow for its manipulation.
It was her 'understanding' that if the transfer of business included United Kingdom land, it would not be caught, and that the clause was phrased in order not to 'catch free-standing transfers of assets' that did not include United Kingdom land.
Mr Flight, although not satisfied that business assets were not subject to the new provisions, withdrew his amendment.
Subsale relief
The destruction of subsale relief which has existed since 1782, when it was introduced by Pitt, and is now contained in section 58(4) and (5), Stamp Duty Act 1891, was Howard Flight's next concern. Some might say that this is precisely why the Act needs 'modernising', but nonetheless Mr Flight pressed an amendment. He explained that subsale relief limited the stamp duty payable when property is on-sold, either in whole or in part, to a subpurchaser so that stamp duty is paid only once according to the consideration paid by the subpurchaser. Clause 113 (contracts for the sale of an estate or interest in land chargeable as conveyances) would block this relief when the consideration for a property exceeded £10 million (inclusive of VAT), by charging stamp duty on the initial sale contract.
He understood that the idea was to block the split legal and beneficial title avoidance scheme, but said that this could have been achieved 'more efficiently with a clause denying the exemption from stamp duty for property sale agreements when the legal title is held separately' for the purpose of deferring or avoiding ad valorem stamp duty on a sale of the beneficial interest.
Ruth Kelly confirmed that the aim of the clause was to 'discourage companies from deliberately not completing large deals in land and buildings to avoid paying stamp duty', and said that amending the clause would not achieve this aim. It was not intended to remove the benefits of subsale relief, however, and amendments would be made to the clause to take this into account. Apparently 'delighted', Mr Flight withdrew his amendment.
Opposition success
Howard Flight next tabled an amendment which would 'specifically ensure that clause 113 applied only to sales of land of more than £10 million, and not to land sales that were only 'a small part of the transaction that exceeds that amount'. He explained that the effect of the legislation would be that an agreement on the sale of a business with non-land assets of £9 million and land assets of £2 million would be subject to stamp duty as though it were a conveyance on the sale, and because the agreement would be for the sale of an interest in land together with other assets, the instrument would form part of a transaction in which the value exceeded £10 million. He did not believe this to be the Government's intention.
Proving that there is some worth in the time spent in the standing committee debating the Bill, and that not all Opposition amendments are hopeless, Ruth Kelly was 'delighted' to say that Mr Flight's case was 'indeed persuasive', and agreed with what he surmised the Government's intentions to be. She therefore recommended that the committee accept the amendment. Flabbergasted, Mr Flight gave his thanks.
The amendment was agreed to and the clause stood part of the Bill.
Goodwill
Clause 114: abolition of duty on instruments relating to goodwill, fell briefly before the committee next. Welcoming the clause, Howard Flight asked why assets which could also have been taken out the 'net of stamp duty' could not be taken out now, rather than after a delay of over a year.
Ruth Kelly said that this issue would be addressed 'in the context of a full examination of the scope of stamp duty under modernisation'. The amendment was withdrawn. Clause 114 and Schedule 36 were agreed to.
Inheritance tax
Querying the reasons for increasing the inheritance tax nil rate band to £250,000 in clause 115: inheritance tax rate bands, Michael Jack said that the value of this in relation to property varied according to where people lived. There followed a discussion as to the merits of the existence of inheritance tax at all, which resulted, not surprisingly, in clause 115 being ordered to stand part of the Bill.
The debate moved on to clause 116: inheritance tax; powers over, or excisable in relation to, settled property or a settlement. John Bercow surmised that the clause dealt with the recent decision in Melville, which had led to uncertainty for trustees. The purpose of the clause appeared to be to reverse the decision. Mr Bercow said that the tax bodies sought clarification in some respects.
Ruth Kelly referred first to the concern that trusts could be caught by the anti-avoidance provisions because of innocent reorganisation. The clause said that 'powers over trusts should not count as property for inheritance tax purposes'. If this were not obvious, said Ms Kelly, 'effective protection against such avoidance' would be needed. She agreed that any reconstructions involving new powers would have to take account of the new anti-avoidance provisions, but she believed that 'skilled advisers' would be able to 'steer their way around any issues' that arose from clause 116.
Clause 116 was ordered to stand part of the Bill.
The committee then adjourned.
More mundane matters
The fourteenth sitting of the committee centred largely on landfill tax and the climate change levy.
In respect of the landfill tax, doubts were raised as to vagueness of the wording of clause 119: landfill tax; rate, in so far as it said that the Government expected that the rate for landfill tax would need to be raised 'significantly in the medium term'. John Healey said that the aim of those words was to enable the Government to continue its review of the operation of the tax, bearing in mind that it was not just industry that created waste, but also private householders.
Clauses 120 to 125 relating to the climate change levy were all ordered to stand part of the Bill. The committee adjourned in the middle of a debate on the aggregates levy.
