'.—(1) This section applies where a company ("the transferor company") disposes of shares or an interest in shares ("the transferred shares") in another company ("the second company").
(2) If the first, second and third conditions (as defined below) are fulfilled, stamp duty under Part I of Schedule 13 to the Finance Act 1999 (conveyance or transfer on sale) shall not be chargeable on an instrument executed for the purposes of or in connection with the transfer of the transferred shares.
(3) An instrument on which stamp duty is not chargeable by virtue only of subsection (2) 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.
(4) The first condition is that the transferor company satisfies the requirements relating to an investing company, and the second company satisfies the requirements relating to the company invested in, set out in Part 3 of Schedule 7AC to the Taxation of Chargeable Gains Act 1992 ("the 1992 Act").
(5) The second condition is that, were the disposal of the transferred shares to give rise to a gain, that gain would not be a chargeable gain by virtue of the terms of Schedule 7AC to the 1992 Act.
(6) The third condition is that the disposal 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, income tax, corporation tax or capital gains tax.
(7) This section applies to any instrument which is executed after the day this Act comes into force, unless it is executed in pursuance of an unconditional contract made on or before that day.'.—[Mr. Flight.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
New clause 13 introduces stamp duty exemption to mirror the Government's new capital gains tax exemption for the disposal of substantial shareholdings. One of the main obstacles preventing companies from acquiring the shares of another company is the cost of stamp duty reserve tax at 0.5 per cent. of the value of the shares. The Government said, when they introduced the substantial shareholding legislation in March, that they wanted to move to a system under which tax was not the driver in commercial decisions. Hence an exemption from tax has been introduced on the disposal of qualifying shares. However, tax is still a driver in the form of stamp duty. If a company makes a disposal of an asset that the Government accept is free from corporation tax—[Interruption.]
Order. I am sorry to interrupt the hon. Gentleman. Could hon. Members who are not taking part in this debate withdraw from the Chamber or resume their seats? We are discussing the Finance Bill.
Thank you, Mr. Deputy Speaker.
If a company makes a disposal of an asset that the Government accept is free from corporation tax, surely there is an argument for the asset being exempted from SDRT. The Government may respond that 0.5 per cent. SDRT is cheaper than 4 per cent. stamp duty on assets. However, since this Finance Bill, stamp duty is levied only on land and buildings. Therefore, acquiring assets used in a trade would cost the acquirer 4 per cent. of the value of the land and buildings. This may be significantly lower than the cost of 0.5 per cent. levied on the value of the whole of the trade if the shares are acquired, particularly if the company trades from rented premises.
The Bill contains the new corporation tax exemption regime for gains and losses made when groups dispose of substantial shareholdings. A substantial shareholding broadly means 10 per cent. or more of the ordinary share capital of the company being disposed of. There are a number of other conditions that have to be satisfied before the new exemption applies and which ensure that it is properly targeted.
The purpose of the new clause is to make the disposal of a substantial shareholding also exempt from stamp duty. Corporation tax on gains and stamp duty are quite different in nature. Corporation tax on capital gains is a tax on the gain made when an asset is disposed of. In contrast, stamp duty is paid at a much lower rate, on the consideration given when an asset is transferred. Corporation tax on capital gains is paid by the seller of an asset, stamp duty is paid by the purchaser.
The purpose of the new substantial shareholdings exemption is to facilitate corporate restructuring by, for example, removing a cost for trading companies that wish to restructure by disposing of part of their business by way of a disposal of shares. However, there is no reason why the acquiring group should be given a stamp duty exemption based upon the extent of the previous owner's investment. Such an exemption would be unfair to persons investing in other companies which were not substantially owned. Indeed, in its recent paper on stamp duty on shares, the Institute for Fiscal Studies recommends against an exemption for acquisitions activity.
I can see no reason to make transactions that benefit from the new substantial shareholdings exemption also exempt from stamp duty, and I urge Mr. Flight to withdraw the new clause.
The essence of the argument is that the new exemption on substantial disposals in relation to capital gains tax is to stop tax driving commercial decisions, as, in nearly all cases, capital gains will be involved. We are making the point that, in group restructuring—which we are looking to encourage—there is still the drive in the form of stamp duty. This is an issue of principle, depending on what the Government are seeking to achieve.
These clauses have been proposed by the non-political and unbiased Chartered Institute of Taxation, which meets regularly with Labour, Liberal Democrat and Conservative Members of Parliament. The institute seeks to support the efforts to simplify the tax system where material costs are not involved, one way or the other. It is the proper role of the House on Report to consider reforming proposals from such neutral tax bodies. It is entirely proper and sensible to hear whether there are issues that the Government—whoever is in power—feel it makes sense to address. With the greatest of respect, the hon. Gentleman's comment is entirely off-beam as to the new clauses.
This issue is not appropriate for a vote, and we have moved the new clause as a probing measure in the context that I have just described. There may be further discussions between the Revenue and the Chartered Institute of Taxation.
I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.