These four amendments substantially alter the rules which require disposal value to be brought into account when a fixture is treated as no longer belonging to someone for capital allowance purposes.
The difficulties at which the amendments are aimed arise because the value of fixtures turns very much on the value of land to which they are attached. At the extreme, the fixtures in a building may be very valuable, but they are not worth much to someone whose lease has only one day to run. The rules which we had originally intended are contained in paragraph 9 of schedule 15. Paragraph 9 provides a general set of rules which require the adoption of a notional sale price based on an apportionment of some arbitrary assumptions about the open market value of the interest in the land to which the fixtures are attached.
Originally, this approach was regarded as necessary so that on the basis of that open market valuation at least some capital allowances could be recovered from the old owner and the fixtures at the same time as the new owner began to receive allowances.
It has been widely suggested by the British Property Federation, the CBI, all the accountancy bodies and the Institute of Taxation that the rules should give greater recognition to the actual consideration — the hon. Member for Sedgefield referred to this — if any, of the fixtures which passes between the parties concerned, assuming that they are acting on an arm's length basis. It is that which the amendments do.
The amendments in practice will considerably reduce the extent to which open market value calculations have to be made and correspondingly will increase the extent to which the actual sale proceeds which pass between the old and new owners of a fixture can be brought into the old owner's capital allowances computation.
We believe that, even though it is longer than the present set of rules, this alternative approach to dispose of value can be widely welcomed by those concerned with this difficult subject, whether directly or as professional advisers, since a great deal of work on valuations and apportionments will be avoided altogether.
I have a brief question. I was interested to hear the Minister's explanation in which he suggests that we de-couple certain fixtures from assets like land and other assets which should not be taken into account in deciding values when computing the capital allowances. I am wondering whether, in carrying out the computations, this de-coupling exercise might be susceptible to abuse. Land is a fairly cut and dried issue, but there must be other examples where it would be necessary for the Inland Revenue to de-couple the assets in such a way that the boundary becomes blurred and a judgment therefore more difficult to make. Can the Financial Secretary say whether he thinks that in some of the other examples where this exercise will need to take place there might be the opportunity for abuse?
I shall examine very carefully the hon. Gentleman's point. We are very conscious of the problem of avoidance. The hon. Member for Workington (Mr. Campbell-Savours) raised in Committee a similar point and we gave assurances upon it. I am happy to give assurances on this point. However, I shall look at the matter again and will write to the hon. Gentleman if I find that there is any need to consider the matter further.
No. 77, in page 148, line 4, leave out from beginning to 'the' and insert—
'(1A) Subject to sub-paragraph (3A) below, if the occasion of the fixture ceasing to belong to the former owner is the sale of the qualifying interest, the price referred to in sub-paragraph (1) above is that portion of the sale price of the qualifying interest
which falls (or, if the purchaser were entitled to an allowance, would fall) to be treated for material purposes as expenditure incurred by the purchaser on the provision of the fixture.
(1B) If the fixture ceases to belong to the former owner by virtue of sub-paragraph (5) of paragraph 7 above, the price referred to in sub-paragraph (1) above is so much of the capital sum referred to in sub-paragraph (1)(c) of paragraph 5 above as falls to be treated for material purposes as expenditure by the lessee on the provision of fixture.
(2) If neither sub-paragraph (1A) nor sub-paragraph (1B) above applies.'.
No. 78, in page 148, leave out lines 14 to 22 and insert—
'(3A) If the sale referred to in sub-paragraph (1A) above is at a price lower than that which the qualifying interest would have fetched if sold in the open market, that sub-paragraph shall not apply unless the purchaser's expenditure on the acquisition of the fixture can be taken into account as mentioned in section 44(6)(b)(i) of the Finance Act 1971.
(3B) If the occasion of the fixture ceasing to belong to the former owner is the expiry of the qualifying interest, then, except in so far as the former owner receives any capital sum, by way of compensation or otherwise, by reference to the fixture, the disposal value of the fixture which falls to be brought into account under section 44 of the Finance Act 1971 shall be nil.
(3C) In any case where—
that paragraph shall apply as if the reference therein to paragraph (a) and paragraph (b) of that subsection were omitted; but if the event which follows the discontinuance of the trade is the sale of the qualifying interest, the disposal value of the fixture to be brought into account under that section shall be that portion of the sale price referred to in sub-paragraph (1A) above.
(3D) If the disposal value of the fixture falls to be brought into account in accordance with section 44 of the Finance Act 1971 on its beginning to be used wholly or partly for purposes which are other than those of the trade, paragraph (f) of subsection (6) of that section shall apply as if the reference to the price which the machinery or plant would have fetched if sold on the open market were a reference to that portion of the price referred to in sub-paragraph (2) above.
(3E) If, on the occasion of the fixture being treated, by virtue of paragraph 7 above, as ceasing to belong to the former owner, another person incurs expenditure on the provision of the fixture, there shall be disregarded for material purposes so much (if any) of that expenditure as exceeds the disposal value which the former owner is required to bring into account in accordance with section 44 of the Finance Act 1971.'.—[Mr. Moore.]