Schedule 7 - Accounting practice and related matters
Finance Bill
6:30 pm
Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
The amendments are an attempt to change the rules about the interaction of the regime with the capital gains regime both when shares first satisfy the condition to be treated as debt and then when they cease to satisfy those conditions.
The basic rule is that there is a deemed disposal for capital gains purposes when shares start to satisfy the conditions to be treated as debt, and another deemed disposal when they cease to satisfy those conditions. When the conditions are satisfied on Budget day, the gain arising at that date is held over until the shares cease to satisfy the condition. As a further measure of relief, to encourage companies to unwind schemes, where companies were first caught by the rules on Budget day but unwind before 1 January 2006, the heldover gain does not crystallise at the date of the unwind and will be held over until the shares are subject to further disposal. That is a generous treatment, given that we were dealing with pure tax avoidance.
The three amendments seem to be designed to relax further the capital gains treatment by doing two things. If the schemes were unwound before 1 January 2006, there would be no deemed disposal once they were seen to satisfy the conditions. That would raise the question of the future treatment when there was a final disposal of the shares, since the shares would have been deemed to be disposed of on satisfying the condition but would never have been treated as re-acquired for capital gains purposes. There is no mechanism in what the hon. Gentleman is suggesting to calculate the final capital gain. For schemes that are unwound after 31 December 2005, I assume that the aim is to carry forward the heldover gain until a final disposal of the shares occurs, but the amendments would not achieve that.
As arranged, the provisions could be considered generous given the circumstances in which the schemes are created. I say to the hon. Gentleman that they go far enough, and I do not believe that a case has been made for relaxing the system further and giving avoidance even longer to run.