Clause 163 - Avoidance affecting proceeds
Finance Bill
5:15 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I shall ask my hon. Friends to oppose the amendment to the anti-avoidance provision in clause 163, which seeks to limit the clause's potential deterrent effect. It would allow a business entering into a tax avoidance scheme a balancing allowance equal to the amount that the allowance might have been had the avoidance scheme not been entered into. That is the amendment's purpose, although its precise meaning was not entirely clear until the hon. Gentleman spelled it out.
Perhaps it would help if I explained the avoidance mechanism: if we allowed the avoidance scheme to continue it would cost the British taxpayer some £500 million in lost revenue over the next three years. This is how the scheme operates: company A owns an industrial building that qualifies for capital allowances with, for example, a value of £1 million. Company A borrows 110 per cent. of the unencumbered market value of the property—in the example, £1.1 million—from company B, which is another group member. The loan is secured by way of a charge over the property. Company A then sells the property subject to the charge to another group member, company C, for £1. The liability under the loan remains with company A. Company C then grants company A a lease of the property at a peppercorn rent. The effect of the scheme is to trigger a balance in allowance of the whole, unrelieved, qualifying expenditure: £1 million less £1. The broad effect is thus equivalent to an immediate, upfront allowance of 100 per cent. of the unrelieved capital charge. We are not prepared to tolerate that. That is not the purpose of the provisions that are in effect.
The scheme occurs in an area of tax law that gives some £25 billion of relief through capital allowances each year. The hon. Member for Arundel and South Downs wants it both ways. If a company gets caught using the avoidance scheme, we would pretend that it was not using it, but still allow it to have the balancing allowance. I quote from Lord Green in the case of Lord Howard de Walden v. Commissioners of Inland Revenue, from page 134 of ''25 Tax Cases'':
''It scarcely lies in the mouth of a taxpayer who plays with fire to complain of burnt fingers.''
The anti-avoidance provision is intended to send a clear message to deter people from engaging in the scheme. If they persist in using it, and the Inland Revenue reveals that, it is wholly inappropriate that they would get access to the balancing allowance, and I ask the Committee to reject the amendments.