David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)

Thank you, Mr. Hood. It is a pleasure to serve under your chairmanship once again.

Clause 53 ensures that anti-avoidance legislation applies fairly where a partnership carrying on the business of leasing plant or machinery transfers that business to a  single company. As such, we welcome it. It corrects schedule 10 of the Finance Act 2006, which addressed a concern about how leasing arrangements could be used as a tax-avoidance mechanism, incurring losses in the early years and then transferring them so that there was a permanent deferral of tax. The mechanism ensured that sellers would face a charge, with relief being provided to the purchasers of the leasing company. That worked well in a partnership-to-partnership arrangement but, due to various technical reasons and definitions, it did not work for a partnership-to- single company arrangement, as there would be a charge to the departing partners but it would not deliver relief to the successor company.

During a debate on the Finance Bill two years ago, a concern about the internal restructuring of partnerships was raised in relation to paragraph 23 of schedule 10. Whereas paragraph 13 of schedule 10 of the Finance Act 2006 contained an exemption from the regime for a group of companies, there was no equivalent provision regarding a group of partnerships. With a further two years’ experience following the 2006 Act, and given that wrinkle regarding partnerships, will the Minister say whether any concerns have arisen on that issue and whether any group of partnerships involved in an internal restructuring has been caught, perhaps inadvertently, within the regime although that was not the original intention? Subject to that query, we have no other concerns about the clause.

Jane Kennedy (Financial Secretary, HM Treasury; Liverpool, Wavertree, Labour)

It was acknowledged in the pre-Budget report that the schedule was having a detrimental effect on some transactions where there is no risk of a tax loss. It is difficult to deal with such transactions without opening up new opportunities for tax loss, and any action that we take must be taken in close consultation with the industry. We intend to do that, and we are looking closely at the problem.

The hon. Member for South-West Hertfordshire asked some thoughtful questions. The legislation in schedule 10 dealing with partnerships is complex because the partnership structures used by companies are complex, and the schedule had to deal with those complexities. Where a business is carried on by companies in partnership, the charge and relief are allocated to the partner in proportion to their shares in the partnership profits. That gives the right result as long as the business continues to be carried on by a partnership, but not where a business is transferred from a partnership to a single company. In that situation, the selling partners are charged for tax, but there is no mechanism for delivering relief to the successor company because it is not a partner.

More generally, clause 53 makes minor amendments to the anti-avoidance provisions introduced by schedule 10 of the 2006 Act. A minor defect means that the schedule does not work fairly when the whole trade is transferred by a partnership to a single company. The clause will ensure that schedule 10 operates fairly, even in that unusual situation. Furthermore, to ensure that no one can have been adversely affected, the changes introduced by the clause will be deemed always to have had effect. That degree of retrospectivity has been warmly welcomed.