Section 86: Special Cases

Orders of the Day — Finance Bill – in the House of Commons at 4:54 pm on 17th July 1986.

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`(1) An instrument on which stamp duty is not chargeable by virtue of—

  1. (a) section 127(1) of the Finance Act 1976 (transfer to stock exchange nominee), or
  2. (b) section 83(1A) or (2) above,
shall be disregarded in construing section 86(4) and (5) above.(2) Subsection (3) below applies where the chargeable securities mentioned in section 86(1) above are constituted by or transferable by means of an inland bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the Stamp Act 1891, which—
  1. (a) is exempt from stamp duty under that heading by virtue of exemption 3 in that heading, or
  2. (b) would be so exempt if it were otherwise chargeable under that heading.
(3) In such a case section 86 above shall have effect as if the following were omitted—
  1. (a) in subsection (2) the words from "unless" to the end;
  2. (b) subsections (4), (5) and (8).'.—[Mr. Ian Stewart.]

Brought up, and read the First time.

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury

I beg to move, That the clause be read a Second time.

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

With this it will be convenient to discuss the following: Government new clauses 27 to 30.

New clause 32—Acquisition of target company's share capital`(1) Stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the Stamp Act 1891 shall not be chargeable for an instrument transferring shares in one company (the target company) to another company (the acquiring company) if the conditions mentioned in subsection (3) below are fulfilled.(2) An instrument on which stamp duty is not chargeable by virtue only of subsection (1) above shall not be taken to be duly stamped unless it is stamped with the duty to which it would be liable but for that subsection or it has, in accordance with section 12 of the Stamp Act 1891, been stamped with a particular stamp denoting that it is not chargeable with any duty.(3) The conditions are that—

  1. (a) the registered office of the acquiring company is in the United Kingdom,
  2. (b) the transfer forms part of an arrangement by which the acquiring company acquires the whole of the issued share capital of the target company.
  3. (c) the acquisition is effected for bona fide commercial reasons and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to stamp duty, stamp duty reserve tax, income tax, corporation tax or capital gains tax,
  4. (d) the consideration for the acquisition consists only of the issue of shares in the acquiring company to the shareholders of the target company,
  5. (e), after the acquisition has been made, each person who immediately before it was made was a shareholder of the target company is a shareholder of the acquiring company,
  6. (f) after the acquisition has been made, the shares in the acquiring company are of the same classes as were the shares in the target company immediately before the acquisition was made,
  7. (g) after the acquisition has been made, the number of shares of any particular class in the acquiring company bears to all the shares in that company the same proportion as the number of shares of that class in the target company bore to all the shares in that company immediately before the acquisition was made, and
  8. (h) after the acquisition has been made, the proportion of shares of any particular class in the acquiring company held by arty particular shareholder is the same as the proportion of shares of that class in the target company held by him immediately before the acquisition was made.
(4) In this section references to shares and to share capital include references to stock.(5) This section applies to any instrument executed on or after 1st August 1986.'. Government amendments Nos. 179 to 182 and 189.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

The new clauses are designed to ensure that where a transaction is exempt from stamp duty it is also exempt from stamp duty reserve tax. Perhaps the Minister will confirm that.

The new clauses and amendments do nothing more than rectify obvious omissions from the original provisions. However, the new clauses are among over 40 new clauses and amendments to the part of the Finance Bill that deals with stamp duty. In debating this part of the Finance Bill in Committee we also dealt with many new clauses and amendments to the Government's original proposals. This is the Government's third or fourth attempt to set out their objectives in changing stamp duty and stamp duty reserve tax.

It is a disgrace that the Bill has been so badly drafted. The Minister seems to have some kind of parliamentary record for the number of new clauses and amendments to Bills, or to parts of Bills, for which he has been responsible. As one example of this I divert temporarily to cite the Building Societies Bill. The Minister must have the all-time record for the number of times that he changes his mind —or his officials change their minds—and drafts and redrafts to fill up holes, add explanations and deal with omissions from the various Bills for which he has been responsible.

In the Finance Bill we are deluged with amendments and new clauses from the Minister. It is time that he learnt how to decide what he wants and to get it right in the first place. Legislation as poor as this should not go through the House time after time. There is no guarantee that the Minister has got this particular set of amendments and new clauses right. Perhaps he will comment on what I have said.

Photo of Mr Robert Rhodes James Mr Robert Rhodes James , Cambridge 5:15 pm, 17th July 1986

Unlike the last new schedule, new clause 32 has the merit of being comprehensible and written in the English language. There are no Xs and Ys. The clause seeks to provide exemption from ad valorem stamp duty for certain types of company reorganisation falling within the scope of the exemption provided by clause 75, but apparently not falling within the terms of the exemption provided.

The Bill provides a much needed reduction from 1 to 0·5 per cent. in the rate of stamp duty on share transfers. The cost of the reduction is covered in part by the withdrawal of exemptions for takeovers, schemes of reconstruction, amalgamation and demergers.

Clause 75 provides for an exemption to continue to be given for schemes of reconstruction where there is no real change of ownership. The exemption is restricted to reconstruction which involves the transfer of the whole or part of an undertaking from one company to another. It is a condition of the exemption that the consideration for the acquisition of the undertaking must consist of, or include, the issue of shares in the acquiring company to all the shareholders of the company whose undertaking is being acquired.

The exemption in clause 75, which I welcome, could apply where the reorganisation involves a transfer of a trading subsidiary from one group member to another, provided the consideration consists of shares and the shares are issued to the shareholders of the target company. They cannot be issued to the target company itself. There is, therefore, no exemption where a group wishes to restructure itself and to put a new holding company on top of the existing group. In this situation the acquiring company would need to issue shares to the target company and not to the shareholders of the target company.

This problem first came to my attention when a company in my constituency tried to make itself more efficient by planning a reorganisation to involve the creation of a new holding company. No change in ownership of the group was involved. Before the Budget introduced by my right hon. Friend the Chancellor of the Exchequer the reorganisation would have been exempted from stamp duty under the provisions of section 55 of the Finance Act 1927, when Mr. Winston Churchill was Chancellor. The group had obtained the necessary clearances from the Revenue to carry out the proposed reorganisation. The Revenue accepted that the reorganisation was for genuine commercial reasons and that there was no question of tax avoidance.

I am a layman in such matters, although after my experience of the new schedule I may become more interested in them. To me, as a layman, the reorganisation seemed to be precisely what my right hon. Friend the Chancellor of the Exchequer had in mind when he announced that an exemption was being preserved for reconstructions. However, the case — there are many others—does not fall within the terms of exemption provided by clause 75.

The House may reasonably ask why the group could not modify the reconstruction so as to bring itself within the terms of the exemption provided by clause 75. Transferring a business from the ownership of one corporate organisation to another is not, however, a simple matter. Contracts of employment may well have to be renegotiated with unions and employees. Contracts with customers may also have to be renegotiated. Transferring a business from one company into a group may present accounting problems, because trading entities could be separated from reserves held or liabilities incurred in connection with the business. It can also affect the date on which corporation tax is paid. Where the reorganisation otherwise meets the conditions set out in clause 75, it seems not unreasonable that in those cases there should be a stamp duty exemption.

As I said, a particular constituency case brought this problem to my attention. My new clause 32 would meet a much wider problem, which perhaps was not foreseen when the Finance Bill was originally introduced, and I hope that my hon. Friend the Economic Secretary will look benignly on it.

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury 5:30 pm, 17th July 1986

The hon. Member for Thurrock (Dr. McDonald) is correct in her interpretation that the exemptions for stamp duty also apply to stamp duty reserve tax. As usual, she has done her homework efficiently and I compliment her on that.

My hon. Friend the Member for Cambridge (Mr. Rhodes James) has raised a most interesting point in new clause 32. I congratulate him on the way in which he has explained the problem. It is not necessary for me to add to what he said in explanation of his new clause.

Clause 75, which deals with reconstructions, does not take into account the possibility of placing a holding company over the top of an existing group. We think, like my hon. Friend, that that is a legitimate extension of the spirit of clause 75 and that in certain practical cases, rather like the one that he has drawn to our attention, representing a company in his constituency, it is something for which the Bill should cater.

Usually the problem with this sort of proposal is one of drafting, but my hon. Friend shrewdly decided that it would be sensible if he and the company concerned were to contact my officials and those in the Revenue to see whether it could be put into wording which would satisfactorily deal with the problem. I am glad to say that that has been possible.

Therefore, I had to try out my hon. Friend's new clause on three further grounds. First, did it contain any algebra? It passed that test. Secondly, did it contain any reference to 1 April? It passed that test too. Thirdly, did it come up to the literary style that we expect from my hon. Friend the Member for Cambridge? Relatively speaking, considering the subject, it probably passes that test, and, therefore, I recommend the House to accept it.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

In that case, the hon. Gentleman should ask the hon. Member for Cambridge (Mr. Rhodes James) to write all his clauses and amendments for him.

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury

That is an interesting suggestion, and it enables me to come to the third point with which I want to deal. The hon. Lady complained that there were a considerable number of new clauses and amendments on stamp duty. They represent not only some changes of substance — although relatively small changes of substance, considering the number of amendments to which they have given rise—but show the difficulty of expressing provisions on stamp duty in a simple form which are internally consistent. I defend myself. I am slightly caught between my hon. and elegant Friend from the university, who wants to have everything rewritten in the clearest possible way, and the hon. Lady, who chides me for having these new clauses and amendments on the Amendment Paper.

New clauses 26, 27 and 28 are no more than a slightly tidier rearrangement of provisions which are already in the Bill in clause 87, and that is why one of the amendments omits clause 87. We do our best to try to strike a balance between the conflicting desires of the House. I am sorry that that adds to the material that the hon. Lady, and, I might say, I, have to deal with.

As I said in Committee, I thought that I had drawn the short ministerial straw when I found myself dealing with the stamp duty clauses, and the hon. Lady drew the short Opposition straw in being allocated this wicked subject. I conclude by complimenting her on the way in which she has dealt with these confusing and highly technical matters, not only in Committee, but on Report.

I can plead that, more than most of the measures in the group, these are designed to simplify the Bill and make it easier to understand and use. I hope that in that spirit the hon. Lady will find the group acceptable.

Photo of Mr Robert Rhodes James Mr Robert Rhodes James , Cambridge

With the leave of the House, I should like to express my profound gratitude to my hon. Friend and his officials over this matter. It was a complicated one, which has been satisfactorily resolved, and I and my constituent and many others are grateful.

Question put and agreed to.

Clause read a Second time, and added to the Bill.