New clause 16 - Limited liability partnerships: general
Finance Bill
6:15 pm
Mr John Burnett (Torridge and West Devon, Liberal Democrat)
I am grateful to the Paymaster General for referring to the points that I raised on the Floor of the House earlier today. I shall add only one or two points to those.
The Paymaster General referred to when capital gains are deferred because of held-over relief. In those circumstances, the gains, by virtue of new clause 16, become charged when the business of the LLP comes to an end. I assume that the same goes for assets that receive roll-over relief, and when cash has been applied to the purchase of a business asset used by the LLP. Is the Paymaster General telling us that if the trade of the LLP comes to an end, the assets that have been rolled over will incur a charge to capital gains tax? Does the charge to capital gains tax arise if the asset in question is still used for a trade that may not be the trade of an LLP?
I do not know whether I have explained that adequately to the Paymaster General. Let me try again. If assets are purchased by a LLP and roll-over relief is applied for and given, what is the tax position of those assets when the LLP comes to an end? That is the simple question.
Additionally, will the Paymaster General comment on assets for which there is a deferred gain, for example because of a hold-over relief claim? Will she confirm that if the LLP changes its business rather than ceases to trade, there will be no attempt by the Inland Revenue to charge capital gains tax? Does the deferred charge tax crystallise only if and when the LLP ceases to trade, not if it changes its trade?
I raised one or two other points on the Floor of the House, and I am glad that the Paymaster General has confirmed that the tax principles behind LLPs should mirror those of existing partnerships. She will remember the 1998 Finance Act, when changes were made to the taxation of professions that were on the cash basis of assessment. In those circumstances, such professions must go on to the full earnings basis, and there are transitional provisions in that connection. In fact, the professions go on to a full earnings basis from a cash basis during a transitional period of about eight years.
Will the Paymaster General confirm that if a professional group—for example, a firm of solicitors—is four years down the road in that transitional period and becomes a limited liability partnership, there will be no adverse tax consequences, and transitional relief will still apply? I should say at this stage that I am a solicitor and was a partner in a firm. We were assessed on the cash basis, but I have not practised for some three years. I do not have a personal stake, but the points have been made to me by other members of my profession. Will she also confirm that members of an LLP will be taxed under capital gains tax in accordance with their beneficial interests in the disposed assets, rather than on their shares in the LLP?
[Dr. Michael Clark in the Chair]
I welcome you to the Chair, Dr. Clark.
Finally, certain extra-statutory concessions and statements of practice apply to partnerships. Will the Paymaster General confirm that they will still apply to LLPs? I ask particularly about assets that are owned by a member of an LLP and leased to that LLP. I hope that if the other conditions apply, those assets will attract 100 per cent. business or agricultural property inheritance tax relief. Similarly, on capital gains tax, I hope that those leased business assets will comply with and qualify for roll-over relief as well. Those are a couple of the fairly esoteric points that have been made to me about taxation of LLPs, and, as I mentioned them about an hour ago, I look forward to hearing the Paymaster General's response.