(Except clauses 1,3,7,8,12,20,21,25,67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 27
Finance Bill
9:00 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
I beg to move amendment No. 31, in clause 27, page 17, line 28, at end insert—
‘(A1) The purpose of this section is that relief for allowable losses shall not be granted where a person deliberately and knowingly enters into complex arrangements intended to avoid liability to capital gains tax, income tax or corporation tax.
(A2) This section shall be construed purposively in line with the principles set out in the statement of principles issued by Her Majesty’s Revenue and Customs on 6 December 2006.’.
I welcome you to the Chair, Mr. Illsley. I also welcome the return of the hon. Member for Wolverhampton, South-West, who was sadly missing on Tuesday. I know of his keen interest in all matters environmental, so he would have enjoyed the debate that we had about zero-carbon homes. Perhaps he has already caught up with it.
The clause introduces a targeted anti-avoidance regime for capital losses, and it might assist the Committee if I make some general remarks about it to give some context to the amendment and the other amendments to the clause. It is fair to say, from conversations and from representations that have been made to members of the Committee by outside bodies, that no one questions the fact that capital losses are being used as part of tax avoidance schemes, so we do not oppose the clause in principle. However, there are issues about its operation to which it is important to draw the Committee’s attention and on which it is important for Ministers to comment.
The clause is relatively short, just a page in length, but its provisions are broad and could capture a large number of fairly standard transactions. Proposednew section 16A(1), “Restrictions on allowable losses”, states:
“For the purposes of this Act, ‘allowable loss’ does not include a loss accruing to a person if—
(a) it accrues to the person directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and
(b) the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage.”
That is broadly drafted and could capture a large number of transactions. One transaction that the Institute of Chartered Accountants believes it could capture is a fairly straightforward tax planning scheme whereby if someone has a significant capital gain on, say, a property, they could decide to realise a loss on shares and that capital loss could be offset against the gain, reducing the tax payable.
Such schemes could be caught by the clause and we know from the guidance notes that accompany it that they will not be. However, the casual reader of the Bill would not appreciate that there are guidance notes underpinning the clause. There is no reference to them in the clause, but there are 10 pages of guidance setting out 14 examples that will help taxpayers steer their way through the breadth of the clause. It is inappropriate for guidance to be used as a substitute for effective primary or secondary legislation.
I shall set out the concerns of the Chartered Institute of Taxation as they were expressed to Her Majesty’s Revenue and Customs. The institute said:
“We are unhappy that our concerns as to the scope of the legislation have been dismissed”.
That is in response to a consultation that took place at the time of the pre-Budget report.