Schedule 8
Finance Bill
Public Bill Committees, 2 June 2009, 6:15 pm
Angela Eagle (Parliamentary Secretary, HM Treasury; Wallasey, Labour)
It may be helpful if I explain briefly the problem that we were trying to address in paragraph 1 of schedule 8, before setting out why amendment 27 is unnecessary and undesirable.
Under the enterprise investment scheme, an investor may take the proceeds from the sale of an asset and invest them in shares. Any capital gains tax payable on gains from those proceeds is then deferred, but not cancelled. If the shares are exchanged for new shares, the deferred gain is brought back into charge. That was always intended. However, capital gains tax can also arise on the exchanged shares at the same time as the deferred gain comes into charge, which was not intended. That would happen for an EIS shareholder but not for a non-EIS shareholder exchanging their shares. The result could be a gain with tax to pay or a loss that could be set against other gains or against income. Therefore, EIS shareholders could be placed at either an advantage or a disadvantage compared with other shareholders.
The hon. Gentleman seems to be concerned that if a loss cannot be crystallised immediately, it is gone forever, but that is not the case. I hope that I can reassure him by saying that any loss arising from subsequent disposal of the new shares received in the exchange will be able to be set against other gains. I hope that the hon. Gentleman will agree that what I suspect was the reason for the amendment in the first place is actually mitigated by the current arrangements.
Allowing enterprise investment scheme investors to choose to disapply a part of the tax rules, which amendment 27 would do, would be unfair to other investors, to whom the relevant sections of the 1992 Act—sections 135 and 136—would apply. However, it would create a fundamentally wrong tax position, with the investor able to opt out of paying tax on a gain, but able to opt in to obtaining relief on a loss.
I ask the hon. Gentleman to withdraw the amendment in the hope that he is reassured that what I think is the reason why it was tabled is already covered.