New clause 16 - Limited liability partnerships: general
Finance Bill
12:00 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I understand the Committee's enthusiasm to conclude its business this evening, but it is appropriate for me to make a few comments on Government new clauses 16 and 17 and Government new schedule 2. The hon. Member for Torridge and West Devon (Mr. Burnett) raised some points on the Floor of the House earlier today, which I am sure that he will be anxious to put on the record in Committee, and to which I shall reply.
New clause 16 confirms that, in general, limited liability partnerships will be treated for tax purposes as partnerships. It will stop chargeable gains held over on business gifts from falling out of charge when the LLP goes into liquidation. The Government's intention has always been to ensure that existing trading and professional partnerships can convert to LLP status without generally incurring a tax penalty or obtaining a tax advantage. If LLPs were taxed as companies, partnerships would face tax complications and possibly tax penalties on conversion to LLPs.
New clause 16 amends some of the tax legislation originally introduced by the Limited Liability Partnership Act 2000 to give greater certainty for businesses adopting LLP status. It clarifies and makes explicit the general rule introduced by the Act so that, in general, LLPs are treated as partnerships for tax purposes. It gives clear legal backing to the exceptions to that rule. The new clause does not represent a change in our policy on the taxation of LLPs carrying on a trade or profession. That is illustrated by the fact that the guidance published by the Inland Revenue in the December edition of ``Tax Bulletin'' about LLPs that carry on a trade or profession with a view to profit remains unchanged. That guidance was issued after discussions between the Revenue and accountancy bodies. It has been well received.
There is a tidying-up provision in new clause 16 to deal with held-over gains on business gifts. It has a similar effect to the existing legislation introduced by the Limited Liability Partnership Act relating to gains deferred under the business asset roll-over relief provision. The new measure ensures that any gains deferred on the gift of business assets to partners do not fall out of charge when the LLP ceases to carry on a trade or other businesses with a view to profit. Without the measure, tax on the deferred gain would be lost.
When the guidance was sent to the parliamentary draftsman for inclusion in the Bill, there was discussion about how extensive the legislation needed to be. Parliamentary counsel considered that, even though new clause 16 represented the practice and translated it, it was not adequately underpinned with the necessary legislative backing. At the time, I was confronted with a large piece of legislation to be added to the Bill. Knowing how members of the Committee take exception to long pieces of legislation that may be unnecessary, I took some time to be convinced that the longer route now before us was correct. I apologise to the Committee, because that means that we have had to discuss the procedure today under a Ways and Means motion. I hope that members of the Committee will agree that, taking on board the comments that they have made to me over many years when discussing the Finance Bill, I needed to be sure that that was how we should proceed. The lesson that I have learned is that parliamentary draftsmen are always right. I follow their advice.
New clause 17 and new schedule 2 are designed to prevent tax loss when an LLP carries on the business of making investments generally, and property investments in particular. The Limited Liability Partnership Act 2000 sets out the rules for the registration and conduct of LLPs, although it does not restrict the sort of business that may be carried on by an LLP. It has never been the Government's intention that LLPs should provide opportunities for tax savings over the current entities used by business.
New clause 17 and its associated schedule are intended to prevent tax loss through investment and property investment LLPs. The provisions have no relevance to LLPs whose principal income is derived from carrying on a trade or profession.
Everyone appreciates that wide consultation has taken place on the proposals, and they have been welcomed. If a comment was made, it was about why the provision was not included in the Finance Bill when originally published. I hope that the Committee will accept that my role in creating that delay was motivated by the best interests of all members of the Committee in considering a long Bill. I commend Government new clauses 16 and 17 and new schedule 2 to the Committee.