Schedule 25 - Capital gains tax: taper relief: business assets
Finance Bill
10:00 am
Mr Howard Flight (Arundel and South Downs, Conservative)
I beg to move amendment No. 42, in page 217, leave out lines 11 to 14 and insert
`the trustees of the settlement'.
This is a simple drafting amendment. As drafted, the words are redundant. Having both sub-paragraph (2)(i) and (ii) is unnecessary. The words:
``(ii) any one or more of the persons who at that time were the trustees of the settlement''
must surely automatically include all the trustees. Therefore, all that needs to be retained is sub-paragraph (2)(i) since for capital gains tax purposes trustees are a single body, and if one trustee is a member of a partnership, so are all trustees.
I should be grateful for an opportunity to comment on other aspects of schedule 25 in a brief stand part debate.
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I recognise that the hon. Gentleman was simply trying to simplify the text of part of schedule 25. Unfortunately, amendment No. 42 would knock a hole in the relief we are trying to give. If right hon. and hon. Members can bear with me, I shall touch on trust law and the differences between the law in England and Wales and in Scotland, which is pertinent to this point. I realise that the hon. Gentleman was trying to achieve a straightforward simplification, but it creates problems.
There are a variety of circumstances in real life to which the tax law must adapt. I can illustrate one reason for the complexity of much tax law, which we all criticise at times. At present individuals may claim business asset taper relief if they use assets in their own trade or in a trade carried on by a partnership, of which they are a member. Trustees of a settlement may also claim business asset taper relief on assets that they use in a trade they carry on. However, they may not claim that relief on assets that are used in a trade carried out by a partnership of which they are a member. The hon. Gentleman has accepted that. We want to extend business asset taper relief to them in those circumstances. Throughout the United Kingdom individual trustees, acting in that capacity, may be members of partnerships. Even if all the trustees are members of a partnership, they will normally be partners as individuals. In Scotland, however, the trustees of a settlement as a body may be members of a partnership. The two sub-paragraphs are designed to cover both cases. The amendment would confine the extension of the business asset taper relief to those cases in Scotland in which trustees as a body were members of a partnership, because references to the ``trustees of a settlement'' in capital gains legislation are references to the body of trustees.
That is a complicated point, but I presented it as clearly as I could. The wording covers both eventualities. I do not believe that the hon. Gentleman intended to confine relief to specific cases, and I appreciate that he was trying to undertake a simplification. I hope that he will now see that the situation is more complicated than it first seemed, and the proposed new schedule should remain intact—and I hope that he will withdraw the amendment.
Mr John Burnett (Torridge and West Devon, Liberal Democrat)
I have one small point. If trustees act in their capacity as trustees and qualify for relief, may they be in partnership with either a limited company or a limited liability partnership, and still receive relief?
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I am freely prepared to admit that, rather than respond now, I will need to write to the hon. Gentleman about that. I hope that hon. Members will forgive me for that; I try not to do that in Committee, and I will ensure that the letter is circulated to all Committee members. Of course, if the hon. Gentleman is unsatisfied with the answer, he may come back to me.
Mr John Burnett (Torridge and West Devon, Liberal Democrat)
I am exceptionally grateful to the Paymaster General for her kind offer.
Mr Howard Flight (Arundel and South Downs, Conservative)
I thank the Paymaster General for a most clear exposition of an obscure point involving English versus Scottish law, and she is right that I do not want to disqualify any party from business relief. However, that point and other issues readily demonstrate the need for a simplification of capital gains tax and a reduction in the rate; the Conservative party is pledged to that. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That this schedule be the Twenty-fifth schedule to the Bill.
Mr Howard Flight (Arundel and South Downs, Conservative)
Although the issue was debated last year and the relevant amendment has not been selected, I want to raise again the unfairness of the way in which the new business asset rule affects people who retire or leave their employment through no fault of their own. The Paymaster General will argue that, as with synchronising business and taper relief, the policy is driven by revenue considerations. It does not need to be so driven. When people leave or retire, they sell their shares in the business for which they have worked, to maximise their enjoyment of the combined business and taper relief. Therefore, revenue is not at stake. Would it not be much fairer at least to consider amending the rules so that there is a sort of freezing of the status of the shares by reference to when they were acquired and how long they have qualified for business and taper relief at the time employees leave or retire, and for them to benefit from whatever that is whenever they sell them? It is somewhat unfair to force people to sell when they retire or are thrown out—and that, effectively, is what the tax regime does at present.
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
That was discussed at length last year both in Committee and on the Floor of the House. I will not go through the entire debate again. I simply remind the hon. Gentleman that the purpose of the business asset taper relief on employee shareholdings is to promote productivity by aligning the interests of employees with those of the company for which they work. The benefit therefore cannot arise in the case of people who are no longer working for the company, whether that is because they have retired or because they have moved on to another job.
Business asset taper relief for non-employee investors is designed to encourage investments in productivity and to enhance trading companies by compensating for risk. If the companies cease to trade and become companies that exist only to hold the director's personal assets, or if the risk falls away, the special relief is no longer justified. That is the central case of the changes that the Government have made to date. I entirely accept that the hon. Gentleman will continue to make this point, because it feeds into a much wider point about the taper relief. However, despite the eloquent way that he advances his case, the Government are still not persuaded.
Mr Howard Flight (Arundel and South Downs, Conservative)
Whereas there was a logic to the argument for continuing with the complex rules over different starting dates for business and taper relief, the logic that the Paymaster General cited does not stand up in relation to the type of change that we feel it would be fair to make. The time period will have been duly rewarded during the period of employment. The only practical effect of the rules as they are would be that people would inevitably sell when they ceased to be employed—and that may not even be in the interests of the company for which they have been working. At the bottom of the heap there is some decent clothing in relation to arguments about revenue. I do not see that there would be any loss of revenue, but that is not a reason to oppose the entire schedule.
Question put and agreed to.
Schedule 25 agreed to.