I beg to move amendment No. 19, in schedule 39, page 548, line 36, at end add
'which constitutes a chargeable interest'.
Amendment No. 19 applies to new paragraph 12 in schedule 39. Under the provision as drafted, stamp duty land tax will be applied to the transfer of a partnership interest that holds land; however, it should be limited to partnerships holding United Kingdom land. The amendment would restrict the charge to UK property held by partnerships, and it assumes that UK land interests held by a partnership that are not subject to stamp duty land tax—I am thinking probably of licences or mortgages—are not caught.
Paragraph 12 could affect "every interest in land", presumably anywhere in the world. I suspect that that cannot be the intention, and the amendment seeks to correct what is probably an oversight. If it is not, will the Financial Secretary explain the reasoning and how the law could be enforced?
I understand the reasoning behind the amendment—that the charge should apply only to UK land—and I emphasise that at no point has anyone sought to claim that stamp duty land tax will apply to land other than that in the UK. However, parliamentary counsel are aware of this issue and we are currently debating whether the definition is sufficient. We will fully consider it while the Bill is in Committee, and if an amendment is needed I shall certainly table one. On that basis, I hope that the hon. Gentleman will withdraw his amendment.
I am grateful to the Financial Secretary for her very positive response. This is an important issue and although a degree of pedantry can be involved in these matters, it is important to ensure that the primary legislation is crystal clear. We are dealing with a very complex area, and the danger of—dare I say it?—avoidance, loopholes and so on exists, particularly where international partnerships are concerned. In the light of what the Financial Secretary has said, I hope that she will ensure that such an amendment is tabled. On the basis of that assertion, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
I beg to move amendment No. 20, in page 549, line 7, at end insert—
'(c) any interest in land wholly or partly situated in disadvantaged areas which would be exempt from charge if disposed of at market value'.
Amendment No. 20 again refers to paragraph 12 of schedule 39, into which it seeks to insert a sub-paragraph (c). I understand from a wide range of professionals—including organisations such as the British Property Federation—that the Inland Revenue said during the consultation process that where land held by a partnership is situated in a disadvantaged area, disadvantaged area relief will apply to the transfer of an interest in a partnership, to the same extent that the underlying land would attract DAR if the land itself were transferred.
I suspect that the tax authorities feel that paragraph 22 achieves that purpose, but I and many professionals in the marketplace are concerned that the argument is not clearly accepted by legal opinion in the United Kingdom and, therefore, by those who advise our enterprises.
I admire greatly my hon. Friend's desire, as shown in the previous amendment, to establish these matters beyond doubt; that is very important in a Bill such as this. In that spirit, is he satisfied that the term "disadvantaged", as used in his amendment, is a sufficient term of art to be accurate? Does it not require a capital D? As it stands, could it not be more widely interpreted than my hon. Friend intends? I should be grateful if he enlightened me on that point, and I shall keep my other question in reserve for just a moment.
I am very grateful to my right hon. Friend for making that intervention, because in doing so he highlights a particular problem. We have to use the language of the legislation, and, of course, the term "disadvantaged" is embedded in it and does not necessarily have the wider meaning about which my right hon. Friend is perhaps concerned. It is specific to the Bill, and my right hon. Friend may decide whether that is a good or a bad thing.
I shall ponder my hon. Friend's reply. Will he help me further, because I am even more concerned about the "wholly or partly situated" provision in his amendment? That strikes me, if I may say so, as strikingly and alarmingly vague. Let us suppose for the sake of argument that the land in question was 1 per cent. situated in the so-called "disadvantaged" area and 99 per cent. outside it. In those circumstances, would my hon. Friend be satisfied that it should still be covered by the terms of his amendment?
I am grateful to my right hon. Friend for helping me and, indeed, the Committee to identify weaknesses not only in the Bill but in the amendments tabled to it. It is always important that more recent arrivals in the House should listen with due care to their elders and betters. I am certainly happy to do so on this occasion.
There is a danger that a corner of an office block, for example, could be caught within the Government's definition of a disadvantaged area and be appropriate for relief. However, I understand that it is the whole address rather than any part of the hereditament that counts. I am therefore reasonably convinced that the concerns expressed by my right hon. Friend are needless. I am, of course, grateful to him for his contribution.
Will the Financial Secretary confirm that disadvantaged relief would be available in respect of a transfer of a partnership interest to the same extent as it would be if there were a transfer of the underlying property by the partnership? This is a probing amendment, with all the strengths and weaknesses rightly identified by the Committee, and I hope that the Financial Secretary will be able to provide sufficient clarification.
I accept the spirit of the amendment tabled by my hon. Friend Mr. Prisk and which stands in the name of many other eminent colleagues; I hope that they all read it before they signed it. Probing amendments are an honourable part of our proceedings—long may that remain so—but I hope that, as well as probing, they help to tease out the original intention of the provisions.
I must admit that I always worry when I see the word "disadvantaged". It may now be well established for all I know, but I worry that we should be giving such apparently wholehearted support to that concept in a Bill as important as this one. I am very much an even playing field sort of man and I have always had the gravest doubts about the philosophy that lies behind discrimination of almost any kind—whether it be in regional policy, local policy or whatever.
It is my hope that this great Conservative party, believing in—as I hope, in the 21st century, it still does—the virtues of capitalism, the ebb and flow of capital and other economic factors, would have at least some doubts about concepts such as "disadvantaged". Instead of accepting and embracing such a concept and building it into a probing amendment, I would hope that, even at this stage, we would be in the business of challenging it from time to time. For every plus to that sort of policy, there may be even more minuses or negatives. Has my hon. Friend given any thought to that? My first worry about the amendment is that we seem all too readily to be accepting the philosophy behind the term "disadvantaged", and then going even further by building it into our own amendments.
My second worry, as I implied in my earlier intervention, which my hon. Friend graciously accepted, is the rather loose terminology of "wholly or partly situated". I know that, in an attempt to satisfy me, my hon. Friend made a brave attempt at explaining it. However, you, Sir Nicholas, and I both know—and my hon. Friend also knows it—that, when we are dealing with amendments to something as important as the Finance Bill, words matter. Were this amendment to be accepted—the flaws that have already been identified leave me unconvinced that it should be—I should be worried about the interpretation of the phrase "wholly or partly", which seems to me to be loose in the extreme.
There is a risk, to put it no more strongly, that accepting the amendment into statute would lead to a beanfeast for the tax lawyers. The members of that group in society need little help from the House, as they get enough help as it is. I need to be convinced that the use of the phrase "wholly or partly" would do more than provide ample scope for endless arguments and disputes that would require expensive legal opinion and might even end up in our courts.
I came here full of good will for my hon. Friend, but it has ebbed away rather more quickly than either of us would have wished. Whether or not the amendment is a probing one, if there were the slightest risk that it might be accepted we could find ourselves in very dangerous territory. I look to the Financial Secretary to help the House and say whether the amendment holds water. If she persuades me that it does not, I hope that my hon. Friend will have a stiff word with those other Conservative Members who put their names to the amendment, and ask them to do better next time.
I shall endeavour to help the House at the end of what has been a surprisingly entertaining debate on disadvantaged area relief.
The amendment would mean that interests in land that is wholly or partly in a disadvantaged area would not form part of the partnership property for the purpose of the charge on a transfer of interest within a partnership. The effect would be that a transaction undertaken by an individual to obtain a part-interest in several land interests, and a similar transaction undertaken through the vehicle of a partnership, would be treated differently for stamp duty land tax purposes. That could arise because the amendment takes land in a disadvantaged area fully out of consideration for a partnership, even though it is not taken out of consideration for an individual. That could mean that land that is partly in a disadvantaged area could be chargeable on an individual, or that it could change the rate of tax applicable to a composite transaction, but that there would be no effect in a partnership.
As Mr. Prisk will understand, our proposals on partnerships are an attempt to increase transparency: we want to bring the treatment of tax for partnerships more into line with that for individuals. I am sure that the hon. Gentleman has also taken note of the comments from Mr. Forth, who pointed out the extraordinary possibility that the amendment could mean that an entire property might be exempt from tax even if only 1 per cent. of it was situated in a disadvantaged area. However, the hon. Gentleman asked a specific question about transfers of an interest within a partnership. I can assure him, and the Committee, that disadvantaged area relief will apply to such transfers.
I hope that that assurance, and the wise words of the right hon. Gentleman, will cause the hon. Gentleman to see fit to withdraw the amendment.
I will not provoke my right hon. Friend, as there have been refreshingly open and supportive comments from both sides of the House to ensure that we get the right legislation. However, I must say that, in terms of Back-Bench support, I feel wholly disadvantaged.
I listened to what the Financial Secretary said about partnerships and property. She made a fair point, but I hope that she will bear in mind the underlying thesis of the amendment—which will certainly be emblazoned on my memory, as the comments of my right hon. Friend are still ringing in my ears.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
These amendments affect paragraph 12 of schedule 39 and they have the aim of making the chargeable consideration equal to the actual consideration. Paragraph 12 makes the transfer of an interest in a partnership a chargeable transaction for stamp duty land tax purposes if the partnership property includes an interest in land. Without the specific provision, the acquisition of an interest in a partnership would not constitute a land transaction and so would not be within the scope of the tax.
Paragraph 12(4) and (5) would fix the amount of the chargeable consideration for the transfer of an interest in a partnership by reference to a proportion of the market value of the underlying land held by the partnership. During the consultation that has underscored the Bill and other elements related to it, a wide range of property experts have referred a specific problem to me. They have argued that an interest in a limited partnership should be equated to shares in a company or to shares in other collective investment vehicles. The purchaser or investor would be acquiring an interest in an investment vehicle rather than a direct interest in the underlying assets of the partnership. That would mean that tax should be levied on the consideration given for the partnership share and not a deemed consideration fixed by reference to the market value of the gross assets of the partnership. That of course ignores any loans taken out by the partnership for acquiring property. The official Opposition believe that amendment No. 21 would probably make the Bill not only clearer but fairer, and suspect that it better reflects real commercial practice.
In our view, amendment No. 23, which would amend paragraph 13(2) of the schedule, is required because otherwise it might be argued that, to take the best example, ordinary tenants' covenants contained in a lease could be deemed consideration and therefore could be deemed to be liable to tax.
During the debate on amendment No. 20 there was some discussion of the principle of transparency, which I believe applies equally to this amendment. Amendment No. 21 would apply stamp duty land tax to the consideration paid for the transfer of an interest in a partnership rather than the market value of the underlying land forming that interest. To return to the principle of transparency for a moment, that, I would argue, dictates that the market value is the correct measure to use because that looks through to the underlying substance of the transaction. The price paid by a partner for a share or an increased share also takes account of any loans or other assets in a partnership and cannot be taken to be a suitable measure of any transaction involving land. Were we to move from a definition based on the substance of the transaction to one based on the price paid, we would, I believe, be issuing an invitation to people to structure quite ordinary transactions through a partnership vehicle and thus pay stamp duty land tax on a lower consideration than would have been used.
I can indeed clarify that I do mean open market value and, as the hon. Gentleman knows, that will be valued in the same way as any other market value.
Amendment No. 23 alters the first condition for a lease to be excluded from the definition of partnership property as a market rent lease. It achieves this by amending the definition of consideration paid for a lease to make it only chargeable consideration that would exclude the lease from the definition of market rent lease. It is again easy to conceive of circumstances where consideration had been given for the grant of a lease that was not chargeable consideration. The market rent of such a lease may well then be below that which would be payable, had the other consideration not been given. For these reasons, I request that the hon. Gentleman withdraws his amendments.
I am glad we have clarified the meaning of market value. The Financial Secretary seemed to assume that open market value was taken to be the same as market value, but hon. Members who have been engaged in the market will understand that a market value with a number of covenants on it that may restrict the value is not the same as open market value. I am grateful that the Minister has put the matter clearly on the record. It is a small but important point. I am therefore willing to beg to ask leave to withdraw the amendment, which was, after all, a probing amendment.
Amendment, by leave, withdrawn.
The three amendments are closely related. Their aim is to reduce the compliance burden by amending paragraph 13, which is designed to ensure that leases that were granted to a partnership and which had no capital value at the time of the grant are excluded from being partnership property. That would typically include premises in which a partnership carried on a business. The purpose of the Government's provision is to reduce the compliance burden for trading and professional partnerships that may otherwise have to carry out lease valuations whenever a partner retires or a new partner is admitted.
The concept is welcome, but one of the concerns is that the detail is unduly restrictive. Amendment No. 22 would amend the language of the paragraph in order to allow amendments Nos. 24 and 25 to take effect. Paragraph 13(4) would mean that only leases that have a rent review mechanism could be excluded from partnership property. Therefore fixed price leases, leases of less than five years and leases where the rent is increased in line with the retail prices index would not be excluded. It is unclear that there is a good policy reason for this. The purpose of amendment No. 24 is to delete that sub-paragraph.
Paragraph 13(3) requires the rent payable under the lease to be a market rent—meaning an open market rent—at the time of grant, which ought to be the only concern of the Revenue. A lease with no provision for the rent to be reviewed would tend to carry a higher initial rent. Amendment No. 25 would delete sub-paragraph (6). I am grateful to a number of experts in the field, which I confess was not one with which I was professionally familiar beforehand. These are important matters, and I hope the Minister will clarify the Government's purpose and intent.
Market rent leases are excluded from the definition of what is partnership property for the purposes of determining the land interests that are chargeable to stamp duty land tax on transfers of partnership interest. Amendments Nos. 22, 24 and 25 seek to remove one of the conditions for a lease to be identified as a market rent lease. Taken together, they would substantially change the definition of market rent lease, and could be used to take out of account leases that were not at market rent. I am sure the hon. Gentleman did not have that intention.
The exclusion of market rent leases in paragraph 13 is, as he recognises, a deregulatory measure, ensuring that such leases do not have to be valued when there is a transfer of partnership interest. The amendments remove the condition that such leases should have a rent review to market rent within five years of the start of the term of the lease. From the consultation on taxation of leases, it became apparent that most commercial market rent leases have rent reviews every five years, and a relaxation was requested by industry representatives. Removing the condition would allow leases that were initially granted at market rent, but on which rent was subsequently reduced, to be excluded from land interests included in the partnership property for stamp duty land tax charge purposes. Such leases could have a very substantial market value, and I think that the hon. Gentleman would agree that it would be anomalous to exclude from consideration any leases that genuinely have a market value. He raised the particular case of fixed-rent leases. A fixed-rent lease would acquire a market value over time, so it should not be ignored.
I believe that this is a deregulatory measure. It is intended only to reduce the compliance burden for genuine market rent leases, so I recommend to the hon. Gentleman that he seek to withdraw his amendment.
I am intrigued by the Financial Secretary's response on fixed rents. I am not entirely sure whether it concurs with what I admit is a somewhat hazy recollection of my land management course at Reading university some 20-odd years ago, but I understand the underlying point that she makes, although I think that there is a genuine worry that the way in which the legislation is affecting the market is not entirely as the Government and the industry anticipated. I hope that the Government will closely monitor the situation. In those circumstances, I would consider seeking to withdraw the amendment, but perhaps she could confirm on record that they will do so.
I can of course confirm to the hon. Gentleman and to the Committee that we will continue to monitor the stamp duty land tax measures very closely over coming months and years.
I beg to move amendment No. 31, in schedule 39, page 550, line 12, at end add—
'(4) The provisions of sub-paragraph (1) do not apply where the provisions of paragraph 10 apply'.
The amendment relates directly to the question of provisions about exchanges. Paragraph 14(1) of the schedule has been designed to apply where A—this is the usual terminology in such cases—transfers an interest in the partnership to C, who is not a partner, in return for their having transferred land to A. Paragraph 5 of schedule 4 of the Finance Act 2003 would ensure that A and C each paid stamp duty land tax at 4 per cent. on the open market value of the interest received. However, as currently drafted, paragraph 14 of schedule 39 would also apply where A contributes the property to the partnership. Paragraph 10 sets out special rules that apply in those circumstances. Stamp duty land tax is charged on the acquisition of the land transferred to the partnership by reference to the open market value of the proportion of the interest transferred to the other partners. The incoming partner does not pay stamp duty land tax on the proportion of the market value of the underlying land represented by an interest in the partnership that is acquired.
It therefore appears that paragraph 14 does not fulfil what I understand to be the Government's stated aim. The purpose of the amendment is to correct that error. I am aware that the matter is open for discussion, so my principal purpose is to tease out the detail from the Financial Secretary so that those seeking to implement the legislation can do so properly.
I understand that the amendment is inquisitorial and has been tabled to probe the Government's intention.
The amendment would disapply the exchange provisions where land was transferred into a partnership in exchange for the acquisition of an interest in a partnership from an existing partner. If a partnership interest so acquired included an interest in land, the acquisition of the interest in the partnership would not be treated as the acquisition of a major interest in land, so the market value rules for such acquisitions would not apply.
We recently debated the principle of transparency, which also applies in this situation. It dictates that, for transactions in partnerships, stamp duty land tax is paid on the land interest acquired. As partners are connected to each other, market value must be imposed to ensure that the transaction undertaken is subject to similar duty as a transaction undertaken by an individual, otherwise partnerships would be an attractive vehicle to reduce stamp duty land tax on transactions.
Let me put a different anomaly to the hon. Gentleman: it would be particularly invidious to penalise a person who enters into a transaction whereby they obtain a partnership share for cash and pay stamp duty land tax on the market value of the underlying land in the partnership, but to exempt a person who enters into the same transaction but who, instead of paying cash, transfers land to the partner from whom they receive the partnership interest. It is more sensible to treat each transaction similarly. We are, after all, trying to identify the substance of the transaction, and to treat partnerships in essentially the same way as we treat individuals who are not in partnerships.
The amendment also allows for the possibility of avoidance when the interest in the partnership does not itself constitute a major interest in land. That would disapply the market value rule for transfer of partnership interest where the land under consideration is given for that interest. I therefore ask the hon. Gentleman to withdraw the amendment.
We are beginning to get to the heart of the problem, which is that the tax system treats individuals in one way and partnerships in another, and I am sure that we will re-examine the issues on both sides of that argument very shortly. I am particularly grateful for the Financial Secretary's comments on the application of market value, because some professionals are unclear about the true applicability of market value. In the light of those comments, and given that the amendment is, indeed, inquisitorial and probing, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Temporary Chairman:
With this it will be convenient to discuss the following amendments: No. 27, in page 552, line 28, leave out "20th October 2003" and insert "8th April 2004".
No. 28, in page 553, line 2, leave out "19th October 2003" and insert "7th April 2004".
No. 29, in page 553, line 3, leave out "19th October 2003" and insert "7th April 2004".
No. 30, in page 553, line 39, leave out "19th October 2003" and insert "7th April 2004".
The five amendments concern paragraph 18 of schedule 39 and the potentially retrospective character of the legislation. Paragraph 16 deals with a transfer of land from a partnership to a partner, an outgoing partner or, for that matter, a person who is connected with either such person. Paragraph 16(3) states:
"The chargeable consideration . . . shall . . . be equal to the chargeable proportion of the market value of the interest transferred."
Paragraph 18, with which we are principally concerned, provides for how the chargeable proportion is then calculated.
Broadly speaking, paragraph 18 operates to fix the chargeable proportion as 100 minus the purchaser's partnership share. For example, if A, B and C are equal partners, and a property with a market value of 100 is transferred to C, C would pay stamp duty land tax on 67—in other words, 100 minus 33. However, the benefit of those provisions is obtained only where the transfer of land into the partnership occurred before
If the land was transferred after
Most people accept that the concept of excluding from tax the proportion of the market value of the underlying land represented by the purchaser's interest in the partnership is fair. However, excluding from the benefit of those rules land that was transferred into the partnership on or before
I am sure that we will want to explore retrospectivity in some detail and at some length. It always merits that treatment.
I am grateful to my hon. Friend for citing a simple example, because I was just about able to follow it, but has he considered what would happen in a complicated case involving the transfer of land with considerable variations in value among a large number of partners?
I am grateful to my right hon. Friend. I tried to interest the Committee in a simple example, but he is right that matters may be more complex. Particularly in larger partnerships of 500 or 600 members, there is a danger that a very complicated series of transactions might be taking place before
The amendment would remove the element of retrospectivity. I do not claim that the date that it specifies is ideal—it is primarily a probing amendment—but it would be useful for us to hear the Financial Secretary's views on the matter.
I am left wondering whether my hon. Friend has gone remotely far enough. If I followed his argument, as I hope that I did, his amendment leaves an element of retrospectivity that I would have hoped to challenge. As it stands, the Bill is clearly retrospective in that the relevant date is
In the 21 years since I came to this place, Sir Alan—of course, I am a mere newcomer compared with yourself—I have always been led to believe that retrospection in legislation is to be avoided. That is the political milk of my elders and betters on which I was raised. Here we have a double example of that, because not only is there retrospection in the original draft of the Bill, but blow me down if there is not retrospection in my hon. Friend's amendment. I am therefore trying to probe my hon. Friend—and, by implication, the Minister—in trying to establish whether, by seeking to introduce this element into the Bill or to reinforce it or alter it, we would be materially better off using my hon. Friend's date of
I am grateful to my hon. Friend for pointing out that he speculates that the original date was in the provisions because that was when the Bill first saw the light of day. I hope that that is a reasonable interpretation of what he said. He went on to suggest that a better reference point would be the publication date of the Bill. That leaves me mystified, because I am not sure that I can see a material or helpful distinction between what he described as the date of the "original draft legislation"—I altered that slightly when I described it as the Bill's first seeing the light of day, because that is a more comfortable phrase for me—and the date in his amendment.
The reason that I make this distinction is that, if we are concerning ourselves with people who might wish to pre-empt the legislation, either of those dates is invalid. If I became aware of the Bill on the date of the original draft's publication, that would be one thing, but I would also become aware of it on its publication date. In either case, by the time that we reached Royal Assent, I would have been able to avoid its provisions. I do not see how the amendment materially alters the retrospective element in the Bill, with which I thought we were taking issue. All that I am saying is that I need my hon. Friend to help me by explaining why the amendment makes a material difference.
In case the Minister thinks that my hon. Friend is bearing the brunt of my critical remarks, I am not leaving her out of this. I hope that she, too, will seek to justify to the Committee why the date on the Bill was chosen. What was the justification for that date among all other dates? Is it tied to anything in particular? Has it been conjured out of thin air with no apparent rationale, as are so many dates that appear before us? I would have thought that most unlikely, but it is incumbent on the Minister to share with the Committee the provenance of her preferred date of
I am left in a cloud of uncertainty and I am sure that the massed ranks of the Committee will want to be reassured that the rationale behind the dates before us is beyond doubt, so that those who are to suffer the penalties or advantages of the provision will be able to do so with certainty and confidence. That is all I ask and it is not an unreasonable request. I hope that the Minister, and perhaps my hon. Friend, will be able to set my mind at rest.
The amendments change the dates in paragraphs 18 and 19 of schedule 39. Those dates determine when ad valorem stamp duty or stamp duty land tax, rather than just the £5 fixed stamp duty, has to have been paid to benefit from a reduced charge on a transfer of land from a partnership to a partner or former partner. The amendments seek to move the date from
At that time, the Inland Revenue published draft legislation for consultation, and clauses similar in nature to clauses 18 and 19 were included in that draft legislation. That was considered expedient to forestall the £5 fixed stamp duty being used to frank land transactions in partnerships after the draft legislation was announced, thereby reducing any stamp duty land tax on an eventual transfer of that land out of the partnership to a partner.
I would consider changing the date now to
We have had another surprisingly eventful and positive debate. One of our concerns in tabling probing amendments of this character is teasing out the answer to questions such as why the Government chose a particular date. Fortunately, we have had that answer in the debate, yet it was not clarified before.
I am extremely grateful to my right hon. Friend Mr. Forth, who has added to the debate in many respects. Although I appreciate that his mind was not at rest at the beginning of these deliberations, the cloud may have lifted an inch or two, but no more—I am but a modest man, so I would not hope to achieve more than that—in clarifying the Government's thinking in terms of the date chosen.
Our amendments are by no means perfect; I wish that they were, Sir Alan, as how easy things would be then. I hope that we have been able to establish exactly the thinking behind the Government's principles. Our purpose in choosing the date that we did relates to the final publication of the Bill, the essence of which is before us. We felt, rightly I think, that the draft Bill was indeed merely a draft. However, I am encouraged in many ways by what the Minister has said. On that modest basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
These amendments would delete paragraphs 23 and 24 of the schedule, which retain the stamp duty charge on instruments transferring interests in partnerships. That is in addition to the imposition of stamp duty land tax in relation to landowning partnerships. Further to that, paragraph 24 modifies the calculation of any stamp duty charge to remove from charge any land value also taken into account in arriving at the stamp duty land tax liability.
All the professional bodies involved in the consultations with the Revenue and the Treasury have reported to me considerable concern about those two paragraphs, especially paragraph 23. Following the introduction of stamp duty land tax, stamp duty was retained as a temporary measure in relation to partnership transactions. It was understood by all those concerned that once the partnership provisions were implemented, stamp duty would apply only to transactions of stock or, for that matter, marketable securities.
All the professional bodies involved have therefore expressed surprise to me that the old rules are being retained with no warning or signal from the Revenue that that would be the case. I have done my best to ensure that this is indeed the view of the whole profession. I have to say to the Minister that it is and that there is a genuine feeling that the proposal has come forward without warning. I am sure that Ministers appreciate that that can be damaging to the process involved in the relationship between the Government and business.
Retaining the stamp duty charge in this way has been described adversely by many professionals, but I shall quote just one, Kevin Griffin of Ernst and Young, who uses the phrase
"unheralded, unreasonable and ultimately unproductive".
There is much merit in that point. I shall briefly explain why.
Retention is unheralded because the businesses involved were given no warning, and no indication during the consultation process that it would happen. Paragraph 2.6 of the Government's consultation document stated:
"The Government's intention is to apply stamp duty only to transactions related to UK land, and to transfers of shares and securities".
Nothing has been said since that document was issued to suggest any change of heart. No warning was given, and no information provided. By acting in this way, the Government are undermining what remaining confidence business has in engaging in a dialogue with the Treasury.
Last year, we had the fiasco of the business lease consultation. Now we have this about-face. I appreciate that it is U-turn season for the Government, but surely the Financial Secretary will recognise how this kind of approach undermines people's confidence in any consultation in the future.
The policy is unreasonable because it is difficult to see a real policy reason for charging duty on transfer of non-landowning partnerships. The main assets of such partnerships are likely to consist, for example, of good will, stock in trade or receivables. Such assets are inherently outside the charge to stamp duty on transfer. An interest in a business comprising such assets could therefore be purchased from an individual free of stamp duty. If it was transferred in the form of a partnership interest, however, a charge could arise. The charge to stamp duty land tax on underlying assets, on the transfer of an interest in a partnership, effectively treats the partnership as transparent. Charging stamp duty on the transfer of an interest in a partnership effectively treats it as opaque—we return to the issue of transparency on which we touched in earlier debates. Surely it is unreasonable to tax the same entity twice by treating it in two contradictory manners.
In practical terms, there are some potentially serious impacts for family partnerships. The Law Society has highlighted one example whereby a father might enter into a partnership with his son on a 50:50 basis. If it were a farming family, he might contribute, say, farmland worth £500,000 to that partnership, so a charge to stamp duty land tax would arise on his half, £250,000. If the partnership is subsequently dissolved, and the land is distributed in equal shares to father and son, it appears that a further charge will arise on £500,000 after the paragraphs in the schedule are applied. The aggregate amount charged to would therefore be £750,000. As I said, that is not simply my view or the view of my party, but the view of the Law Society experts in the field. If, however, the father had merely gifted half interest in the land to his son, outside of a partnership, there would be no stamp duty land tax to be paid. The Committee, and all Members of the House, will realise that that gives an absurd result, and it will be a severe disincentive to farming businesses and any other business with a significant land asset to engage in or carry on within a partnership.
Thirdly, and perhaps most importantly, the result could well prove unproductive because the amount of stamp duty land tax currently collected on transfers of partnership interests is, by all professional accounts, tiny. That is because it is often possible to avoid the need to pay significant stamp duty, perhaps by transferring interests without the need for a stampable document, or by minimising the value of partnership interests through debt finance.
We fully understand, from all the information that has come through, that this has been retained at the last minute to clamp down on avoidance. Tackling avoidance is the watchword of this Bill. But the original purpose of the tax—as the then Economic Secretary, now the Financial Secretary, told us—was to reflect modern commercial practice. This arrangement does nothing of the sort. Retaining what is basically a fruitless stamp duty charge makes it necessary to retain a whole raft of pages of legislation that would otherwise come close to being redundant.The decision to retain the charge has dismayed a large number of professionals. It undermines confidence both in future consultations and in the commitment of the Government to modernising the duty.
We believe that neither paragraph should be included, particularly paragraph 23. That is the view of the outside experts, of the thousands of professionals in partnerships affected by it, and of Conservative Members. It would be wrong to proceed with the paragraphs as they stand, and I hope the Minister will accept that we should vote against including them.
We support the amendments. Mr. Prisk explained very clearly why the two paragraphs had caused so much concern to all the professional bodies, and I shall not repeat all that he said. However, I should like to quote from the Law Society's representations to the Treasury. Like many other professional bodies, it pointed out that the Government seemed to be treating certain assets inequitably, depending on whether they were in or outside partnerships. It said of paragraph 23
"This could have the absurd result that in the case of a partnership holding assets the transfer of none of which would be subject to stamp duty, SDLT or stamp duty reserve tax, the transfer of a share in that partnership would be subject to stamp duty at rates of up to 4 per cent. whereas the transfer of the underlying assets of the partnership would have given rise to no charge to stamp duty whatsoever."
PricewaterhouseCoopers has raised a point made by the hon. Member for Hertford and Stortford—that whereas business goodwill, for example, would normally be exempted from stamp duty altogether, it would appear to be charged stamp duty if it is in a partnership. The Financial Secretary smiles warmly: perhaps she is going to reassure us that we have misunderstood, and that the Government do not intend that the same assets should be treated differently depending on whether they are in or outside a partnership. That, however, seems to be the effect of the legislation as it stands, not just in our view but in that of the professional bodies. We believe that stamp duty on the transfer of partnership interests should be abolished with effect from the operative date of the SDLT partnership provisions.
I hope that the Financial Secretary will either accept the amendments or tell us that she intends to table amendments of her own.
Clauses 23 and 24, I believe, although the hon. Gentleman may be right. They retain stamp duty on partnership transactions and modify the consideration where that partnership has land assets. The amendments would effectively abolish stamp duty on partnership transactions.
It has been pointed out that the original draft legislation had that effect, and that that would create opportunities to structure transactions so that, through use of a partnership vehicle, stamp duty on stock and multiple securities, and stamp duty reserve tax on chargeable securities, would not be due. It became apparent that partnerships would be used to avoid stamp duty and stamp duty reserve tax on shares and securities. In view of the late stage at which we became aware of this avoidance scheme, we decided to retain stamp duty; however, we also reduced the charge to stamp duty for the SDLT charge by taking out of account land that has been taxed to SDLT.
The hon. Gentleman is no doubt aware that avoidance schemes in a variety of sectors come to our attention all the time. When they do so, we tend to take action in respect of that avoidance.
I understand all that but why was there no discussion with the professions? All of them reported to me that they went through the whole process of consultation, yet suddenly the provision was reintroduced, with no word, no signal, no e-mail—and, heaven knows, e-mails formed a part of consultations on the legislation, unfortunately, as the Financial Secretary knows. It seems peculiar that suddenly we were told, "We have had to put this in because there was a last-minute tax avoidance scheme. We did not manage to mention it to the profession." Surely that undermines any hope that there can be meaningful dialogue between the profession and the Government.
The hon. Gentleman well knows that, not these particular measures, but stamp duty land tax reform has been under discussion with the industry for many years. It is complex legislation. It completely overhauls the previous stamp duty regime to bring it up to date, and to ensure that it is compatible with e-conveyancing and that a fair share of revenue is paid by the industry. Clearly, there are always going to be teething problems with the introduction of such a major change. I should perhaps—or perhaps I should not—point out the many examples of late changes to complex tax legislation under the previous Government. He will no doubt appreciate the complexities of these issues. Of course, it would be preferable to give the industry plenty of time to examine particular issues. It has made its representations to him and he is putting those before the Committee. I argue that this is a tax-avoidance scheme and that we should ensure that that tax-avoidance opportunity is not available. We should take action.
I have no doubt that Governments of all hues have made mistakes, or discovered information that led them to amend legislation, but we had the Budget in March. The Bill was published on Maundy Thursday. Surely the Financial Secretary, who is normally very reasonable, will recognise that it was not a good idea not to send information to those consultees, who have been playing a part in the development of the legislation, perhaps on the day or the day before the Bill was published. Does she not accept that that was a bit of a mistake and that it would have been more helpful to give them that information?
I do not accept the hon. Gentleman's view that this is a significant change. It replicates the system under the old regime. It is regrettable if people did not interpret our intention and made such representations to him. However, because of tax-avoidance opportunities that have become apparent to us, it is necessary to retain elements of the old regime. For that reason, I recommend that the Committee resist the amendments.
That was a disappointing response. The Financial Secretary is normally better able to provide a persuasive argument. The purpose of amendment No. 33 is primarily to probe, but amendment No. 32 is important. I have listened carefully to what the hon. Lady said. I regret, and I suspect that the industry will regret, that she was not able at least to admit that it would have been wiser for the Government to involve its consultee partners. Therefore, we wish to press amendment No. 32 to a vote.
I beg to move amendment No. 34, in page 555, line 46, after the first 'the', insert
'capital profits or (if no separate allocation is made of capital profits) the residuary allocation (after prior charges and allocations)'.
Amendment No. 34, which is concerned with the treatment of income and capital in partnerships, would change paragraph 25(2) of schedule 39. It is a probing and somewhat technical amendment, but I shall endeavour to explain it to the Committee; I am sure that I shall receive its rapt attention.
The issues underlying the amendment have been brought to my attention by a number of expert solicitors and by the Country Land and Business Association. Stamp duty land tax is to be paid on the land value of transfers into or out of partnership, and in respect of changes in partnership share. The problem is that the legislation provides that in ascertaining that share, regard should be had only to the income-sharing proportions. That ignores two problems, as Members are doubtless particularly interested to learn.
First, the division of income between partners is rarely done by reference to a predetermining percentage, as Members will appreciate, let alone by reference to one that is then linked to capital subscription. Furthermore, a prior charge on trading profits frequently arises in the case of most family businesses. That is especially so when one partner devotes his full time to the business while the others do not, or when one partner has an expertise or qualification that the others do not. In both circumstances, which are certainly very common in family firms, it would not be appropriate for other than super-profit-sharing ratios to be taken into account.
The second problem occurs when certain partners have contributed most of the assets, which then have to be segregated on an event such as death. In that case, the appropriate measure of the partnership share would be the capital-profit-sharing ratios. It is thought by many legal experts, who are far more knowledgeable about these matters than me, that as drafted the Bill will produce a stamp duty land tax charge on 90 per cent. of the land value. That applies where a farmer has put in 90 per cent. of the assets and is entitled to only 10 per cent. of the income. He may then decide to withdraw from the partnership. The question to which the Financial Secretary should respond is whether, in those circumstances, he should pay on the 10 per cent. rather than the 90 per cent.
The problem seems to be compounded where the land is either put into partnership after Royal Assent or injected into the partnership between
To conclude this technical but important point, the danger is that parallel partnerships might then have to be formed in order to own the land. That is not simply my view, but that of many of the leading professionals in the field, and of the Country Land and Business Association, which advises many people on such matters. It is an important issue, if somewhat technical and remote to the uninitiated. I do not profess to be an expert on the specific matters, but the concerns seem legitimate. This is a probing amendment and I hope that the Financial Secretary will provide some assurance that the issue either has been or will be dealt with either during the passage of the Bill or immediately thereafter.
I am most grateful to my hon. Friend Mr. Prisk for giving the Committee time to dwell on this matter, which has the potential to create some problems. We are always reluctant in this place to embark on even a brief analysis of matters as complex as those he has brought to our attention, particularly when the provenance is outside expertise. Having said that, it must be beyond dispute that it is our duty to do so. After all, that is why we are here—the experts on these matters do not have the same privileges as we have. It must be our duty to seek to draw out and elucidate any problems.
As I followed my hon. Friend's argument, I saw that it stemmed from the fact that the basis on which the benefits within partnership arrangements are distributed is not always as clear as it should or could be. I deliberately use the word "benefits" in a generic and rather general sense. It is those benefits of the partnership that may be shared from time to time. That is where my hon. Friend started his argument.
One has only to glance at the original words in the Bill and then the wording of my hon. Friend's amendment to see immediately that the Bill refers to the "income profits" of the partnership, whereas the amendment refers not only to the "capital profits", but to
"the residuary allocation (after prior charges and allocations)".
Even I as a layman can see immediately the difficulties that might arise from that.
One has to distinguish within a partnership between the concept of income profits as opposed to capital profits—and there is the added complication of residuary allocations. That is further complicated when the timing of the different elements in schedule 39 is introduced. We see the potential for considerable complexity. I am not sure from the wording of paragraph 25(2) on page 555—and nor is my hon. Friend—whether a rather simple reference to share in the "income profits" could be adequate to cover all the different possibilities that might arise from the complexity of partnerships.
My hon. Friend mentioned another element that needs to be taken into account. We are not talking only about large, professional partnerships, but about family partnerships. They can sometimes be relatively simple, but the ramifications of any given family can also make them more complicated, as the relationships inside a family can be laid on top of the partnership relationship. That is not true of more conventional professional partnerships.
The amendment could improve the Bill, and it would certainly make clear the different possibilities that could arise. The Financial Secretary faces a problem if the Government's case rests on the very simple concept of a partnership's income profits, as that appears to be inadequate for the purpose of the schedule. The amendment could therefore be of considerable help, as the aim is to clarify the Government's intention. It will also ascertain whether the words used in the Bill fulfil that intention, and whether the schedule can be implemented properly.
I hope that the Financial Secretary will say whether she thinks the distinction between income profits and capital profits is relevant. The same applies to the allocation—explicit or not—of those profits. Moreover, does she agree that the time factor must be relevant as well? I confess that I am not totally familiar with the concept of residuary allocation, but I can see that it could become crucial in some circumstances.
This apparently straightforward and innocent provision could contain a large number of traps and complications. We would not want to leave them unchallenged, and I hope that the Committee will be grateful to my hon. Friend for tabling the amendment, which seeks to clarify matters. I shall be interested to see whether the Minister can give us that clarification, or whether the matter will remain an unsatisfactory element in the Bill that requires much more examination at a later stage.
This probing amendment is interesting. It attempts to clarify the economics of a transaction, and I emphasise that the Bill's underlying principle is that the treatment of a transaction should be as transparent as possible. Moreover, our aim is to ensure that the treatment of taxation and stamp duty land tax follows as closely as possible the substance of the underlying transaction, and that it reflects the transaction's economic or commercial reality.
The correct taxable measure reflects the economics of the underlying transaction—in this case, the right to receive income from the land. When the land, and the right to receive income from it, is transferred, the tax follows that transfer of right. That is an example of the transparency principle at work. When the right, as shown by income, has been sold to the partnership, buying it back is another taxable transaction.
Therefore, I believe that the correct principle is enshrined in the schedule. An entitlement to capital profits does not reflect participation in the use of those land assets in the business of a partnership. In any event, arrangements could be entered into that meant that the capital profits of a partnership might never be realised. Although I understand that representations have been made on these issues, I would recommend to the hon. Gentleman that he withdraws his amendment.
Unfortunately, the Minister might have inadvertently forgotten a couple of elements. I mentioned the transitional aspect—the question whether the land was put into partnership after Royal Assent, or was injected into the partnership between
I take it from the Minister's reply that the Government have no plans to make adjustments or reflect the concerns expressed. Is that the case? She remains in her seat, so we take it that the Government have no plans to adjust the paragraph. The representations of the Country Land and Business Association and many others have much sense, so I am disappointed that she has not chosen to respond more positively. I hear from my right hon. Friend and a number of others a concern that not only have we ignored the question of income and capital, but the mix of the two is awkward. Surely the Minister will understand that in a family business—the obvious example is farming—the interplay between the capital assets and the profits from income must be recognised more clearly. At the moment, paragraph 25(2) does not achieve that.
I am fully aware that my amendment is by no means perfect. It has many elements that might create confusion if they appeared in the Bill. The purpose of this probing amendment was to draw from the Minister a clearer answer, but so far, unless she wishes to respond further, I have been very disappointed by her response. That is a great shame and unfortunately it suggests that the Government are deaf to reason. Given that there are, as I am well aware, a number of legal problems with my amendment, I shall withdraw it, by leave of the Committee, but I do so with the deepest disappointment that the Minister has not chosen to be more positive and more helpful in dealing with the issue. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, that the schedule be the Thirty-ninth schedule to the Bill.
We have had some very strong and useful interventions and discussions on the schedule as a whole—it is a very significant schedule—and I wish to consider the broader implications of the Government's tax policies on partnerships. The schedule covers transfers of land to partnerships, transfers of partnership interests and transfers of land out of partnerships, all of which are to be charged with stamp duty land tax.
First, we accept that stamp duty land tax should be charged where the relevant partnership is a property investment partnership, but trading partnerships should not be treated as though they were the same. The compliance burden on trading partnerships—particularly professional partnerships, which regularly change partners on introduction and on retirement—would be disproportionate to the tax collected.
Secondly, many professionals are concerned that consultations on partnerships have not accurately reflected the concerns of business. I have received many representations from professional bodies, and from professional practices and partnerships. Let me briefly quote but one from the practice, Grant Thornton, which says:
"We are particularly disappointed that the measures to introduce stamp duty land tax on partnership transactions have not been substantially revised. We understand that there is an anti-avoidance motive behind these measures, but a commerciality test could have dealt with this issue."
"Our view is that it is unacceptable for 'grapeshot' legislation to be introduced which penalises innocent gifts and commercially driven transactions, under the guise of preventing tax avoidance."
Our third concern is that the stamp duty land tax provisions have been introduced since last year's Finance Bill, and in a way that confirms the need for a single piece of legislation for stamp duty. Instead, the Government have adopted a piecemeal, ad hoc approach to their legislative programme. I shall quote but one organisation, of which I am a professional member—the Royal Institution of Chartered Surveyors. Its comments provide for me and for many organisations the best summary of the way in which the tax has been implemented. It states:
"If the Government had not hurried the implementation of stamp duty land tax, then the need for extensive, further SDLT legislation in three concurrent Finance Bills would have been mitigated and the tax law would have been better shaped, more transparent and less burdensome to the taxpayer."
That is the view of the professionals affected by the provisions, and it is shared by the Opposition and the country at large.
I recognise that, where a measure brought before the House is aimed at tax avoidance or evasion, a difficult balance must be struck between consultation and a pre-emptive strike. Listening to my hon. Friend Mr. Prisk, and hearing what so many respectable and legitimate bodies and organisations have said, it strikes me that the Government have probably got the balance completely wrong; today's debates have reflected that.
Of course the Government must take a view. As the primary collector and dispenser of taxpayers' funds, they bear the main responsibility, but we in the House share that responsibility—a responsibility that I hope we have been discharging today and will continue to discharge by examining whether the Government are acting properly. When the Government have such a large majority, and in a unicameral environment—which is what we are in matters of tax and finance, because we do not have the safety net of the other place—we are responsible for ensuring that taxes are properly and fairly levied, and properly and fairly collected, and that evasion does not occur. I hope that that would be unarguable.
It is equally incumbent on the Government, especially one with such a large majority in this place, to make sure that what they do is reasonable and based on a knowledge and understanding of the circumstances. In today's debate—my hon. Friend Mr. Prisk should take the credit for this—we have tried to identify whether that process has properly been observed. From my brief and superficial participation in events today, I remain to be convinced of that. Indeed, I would go further and say that it does not appear to me that the Government have properly discharged their responsibilities. Surely they would want to make sure that their tax policies are seen to be fair and viable.
As usual, my right hon. Friend is giving a powerful exposition of the Government's weaknesses. Does he share my bemusement at the fact that the Government fill a 574-page Finance Bill with the aim of trying to close down tax avoidance, yet they make it so complex that it must encourage further such activity?
That is always a difficult judgment for the Government of the day to make, and it was an argument about tax rates—if he can, my hon. Friend will have to cast his mind back to when we had penal rates of taxation—that encouraged the tax avoidance industry and caused many upper income people to flee the country or to employ expensive experts to avoid tax. We brilliantly found the answer by cutting tax to what was regarded as a fair and reasonable level, and, lo and behold, tax revenues went up. Of course, that argument is an eternal verity, and it still applies now.
We are getting to the heart of the point. The problem is a pincer movement. The Government are not only stealthily increasing the tax burden, but adding complexity. I think that it was Monsieur Colbert—I would be grateful if my right hon. Friend confirmed this—who decided that the best way of taxing a goose was to pluck the maximum number of feathers without it hissing. Am I right in saying that the current Chancellor is indeed trying to pluck the goose while generating the least possible amount of hissing?
I do not often do this, but I am prepared to pay a reluctant tribute to the current Chancellor, in this case for his skill in implementing stealth taxes. After all, that is the modern expression for the phenomenon that my hon. Friend has just described. However, we will not go into that issue in detail because, as ever, Sir Alan, your extremely expressive face and eloquent body language warn me that, if I were to attempt to say much more about it, I would get into some trouble, and you know that I will go to any lengths to avoid that.
Will my right hon. Friend return to his point about fairness? Fairness is possible only if the tax system is clear enough for people to see why it applies to them. Is that not the fundamental explanation of why much of what is before us is so unfair?
I am grateful to my right hon. Friend. Like me, he will have studied the schedule, and he will know that it is lengthy and complex, and that it is, sadly, occasionally opaque, as has been identified in the debate.
The schedule deals with the very difficult issue of partnerships, and we have considered the different sorts of partnerships that may exist, examined the complex relationship between income and capital, taken a sideways glance at implementation dates and dwelt very briefly on the rationale behind the dates set out in the Bill. My conclusion is that the Minister has been unable to satisfy us, try though she has, on many of those points.
I return to the point about fairness made by my right hon. Friend. Not only are legitimate outside interests unhappy about the direction in which we are being taken and about the fact that they feel that they have been inadequately consulted in many cases, but we are getting the sense that this very important measure is being introduced on the hoof. We get a sense of constant adjustment to the principles that are being applied in the details, and the impression that that will lead to the phenomenon on which he touched: a sense of injustice and unfairness.
Nothing could be worse in the world of taxation than that very feeling among those who are being taxed. We heard earlier from my right hon. Friend Mr. Redwood that it is anticipated that the measure will yield an additional amount approaching £2 billion. That is a lot of taxpayers' money. When such moneys are involved, I do not think that we can allow the Chancellor to repeat the exercise that he carried out in 1997, when he skilfully removed £5 billion from the pensioners of this country, as he has done in every subsequent year. We do not want to see that repeated under the guise of schedule 39. We want a measure of fairness, transparency and, it is to be hoped, comprehensibility.
The other worry that has haunted this debate and that lurks behind the schedule is our old friends the tax lawyers. I use the word "friends" in the loosest possible sense. To the extent to which the Financial Secretary is unable to convince us, legitimate outside interests and the individuals from whom £1.9 billion more is apparently going to be extracted, and to the extent to which none of the arrangements is as clear as it should be or can be easily implemented, all we are doing is creating yet another opportunity for tax lawyers, whom I concede are a necessary part of our society, to grow rich on the back of schedule 39 and the £1.9 billion.
All in all, a number of points—sadly, few of them are positive, and too many of them are negative—have been raised in the debate, and we are left in an unhappy state. We are reaching the end of today's proceedings, which point the way ahead and should encourage outside interests to look even more closely at the provisions. Perhaps hon. Members on both sides of the House will take an even closer interest than they have hitherto in improving the Bill. Even if we cannot reduce the £1.9 billion extra tax burden that will be thrust on taxpayers, at least we can make the process more transparent and, if possible, fairer. That must be our objective.
My closing thought is that when the Conservative party is in government, we seek ways to reduce tax. I favour reducing tax evasion—avoidance is a different matter—but I hope that our aim is to reduce tax, not to increase it. I leave that thought with my hon. Friend the Member for Hertford and Stortford.
Stamp duty land tax was successfully implemented on
We have had a full consultation on the clauses and schedules before the House. Indeed, to provide suitable time for consultation on how stamp duty land tax should apply to certain transactions undertaken by partnerships where interests in land form part of the partnership's assets, such transactions were specifically excluded from stamp duty land tax by part 3 of schedule 15 to the Finance Act 2003.
On that specific point, if the consultations were so successful, why have most of the representations made to me by those self-same consultees been negative about the outcomes?
I shall go on to discuss the principles that inform schedule 39. People do not always like paying tax, and often argue that it should be levied in a different way from that considered appropriate by the Government and Parliament.
Following the consultation announced on
The schedule will apply the principle of transparency to transactions undertaken by and within partnerships, and will therefore equalise the tax treatment of land transactions undertaken by an individual and by a partner in a partnership so that neither one enjoys a different stamp duty land tax treatment compared with the other.
The charge will be on the proportional market value of any land forming or underlying these partnership transactions, and we have listened to consultees on that point. Market value is used for partnership transactions to replicate the bargain struck by an individual with an arm's length seller. The proportion is equal to the underlying change in ownership as represented by a partner's share in partnership income for transactions moving land into or out of a partnership or on the increase in share of partnership income for those transactions involving changes in partnership share. As that reflects the underlying proportional change in ownership, it is consistent with the transparency principle.
As a result of those measures, the commentator whom I referred to earlier has been quoted as saying that the number of transactions on which full duty is paid will rise from 80 to 90 per cent.
On the principle of transparency, paragraph 24(6) defines net market value as market value less the loan outstanding. Does, or can, the loan outstanding include accrued interest on the loan?
I believe that the loan outstanding is treated as it generally is in tax legislation. If the hon. Gentleman wants an exact definition, I shall of course write to him with it.
For the reasons of fairness and transparency that I set out, I urge hon. Members to support the schedule.
Question put and agreed to.
Schedule 39 agreed to.
Clause 289 ordered to stand part of the Bill.
Bill (Clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289 and Schedules 1, 3, 11, 12, 21 and 37 to 39) reported, with amendments; to lie upon the Table.