Schedule 10 - Chargeable gains: taper relief: minor amendments

Finance Bill – in a Public Bill Committee on 21st May 2002.

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Amendment proposed [this day]: No. 30, in page 179, line 30, at end insert—

'Conditions for shares to qualify as business assets

1A (1) Paragraph 4 (conditions for shares to qualify as business assets) is amended as follows.

(2) In sub-paragraph (2) for ''if at that time'' substitute ''if at the time it was acquired''.

(3) In sub-paragraph (3) for ''if at that time'' substitute ''if at the time it was acquired''.

(4) In sub-paragraph (4) for ''if at that time'' substitute ''if at the time it was acquired''.'.—[Mr. Flight]

Question again proposed, That the amendment be made.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 4:30 pm, 21st May 2002

On a point of order, Mr. Gale. The acoustics in this Room are absolutely appalling. I have average hearing for a man of my age and am finding it difficult to hear some hon. Members make their contributions in Committee. Talking to other members of the Committee over lunch, I found that they are having similar difficulties. I wonder whether the House could do something to improve the acoustics in the Room because the microphones are for the use of Hansard, not for boosting sound levels.

Photo of Roger Gale Roger Gale Vice-Chair, Conservative Party

I am tempted to say that hon. Members who are having difficulty should have voice training. The microphones are indeed for the use of Hansard only and there are no loudspeakers in the Room. However, I heard what the hon. Gentleman said—indeed, I heard what he said very clearly. Perhaps hon. Members will remind themselves of the need slightly to project in this Room. Nevertheless the hon. Gentleman has made a serious point that I do not wish to treat frivolously, and I shall draw it to the attention of the Serjeant at Arms.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I will bellow as far as it is possible, Mr. Gale. It crossed my mind that the point just raised might have something to do with the subject matter.

Amendment No. 30 deals with one of the injustices in the business taper rules. It also deals with the issue of those who acquired business assets before 2000 being taxed more than those who acquired them after 2000.

We have raised the issue before, and the Government presented a pragmatic argument, but it is important to remember that perceived fairness among individuals in the workplace is an important issue that allows a company to function well and its work force to be homogenous. Those who have been at a company for the longest, have put in more over time and have had their business assets longest perceive it as unfair that they should pay more tax.

We are not going to persuade the Government and, if it were possible, we would like to put the issue to a vote, but for various reasons amendment No. 84 has remained starred. We have raised the issue, and a pragmatic answer is not sufficient given the reality of the workplace. We shall not put the matter to a vote, however, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I beg to move amendment No. 31, in page 181, line 16, leave out 'means' and insert 'includes'.

This is a technical amendment to cure a drafting defect. Schedule 10(5) defines the term ''interest in shares'', which is welcome because the acquisition or disposal of an interest in shares is often a significant taxable event. The definition in the Bill is probably too restrictive, however: it is confined to cases of co-ownership. It excludes cases in which an individual acquires a less than full interest in shares because, for example, legal title is lodged with a trustee, nominee or separate contractor under a separate contractual arrangement.

Circumstances in which that could occur include an award of shares to an employee subject to the risk of forfeiture, a case on which the Chancellor of the Exchequer introduced a new income tax regime in 1998. If that were not regarded as an interest in shares, an individual would not be regarded as having ownership for the purposes of taper relief and would be exposed to the full rate of capital gains tax upon the shares' sale. That would sabotage the thinking behind the Chancellor's reforms to the tax and penalise a large number of employees. I trust that the Economic Secretary to the Treasury will either tell me that there is a miraculous interpretation of the schedule that we have missed, or confirm that there has been a mistake in drafting, which the amendment would correct.

Photo of Ruth Kelly Ruth Kelly Economic Secretary, HM Treasury

Welcome to the Chair this afternoon, Mr. Gale. The hon. Member for Arundel and South Downs (Mr. Flight) has moved, as he said, a technical amendment. His concern, however, is not valid and I hope that I can persuade him of that.

The definition of an interest in shares that will be introduced into the taper relief rules by schedule 10 corresponds exactly to that which applies to the new substantial shareholdings provisions, and does not represent any change for taper relief. It focuses on an interest in shares that people have if they own them together with someone else, which is exactly what we had in mind when we framed the taper rule. The reason why we have included a definition in the substantial

shareholdings provisions is because we were urged to do so by representative bodies that commented on the draft legislation that was published at the time of the pre-Budget report—they wanted clarity, and we have given it to them. Schedule 10 provides the same clarity for taper relief.

The hon. Gentleman suggested that a person who holds shares subject to forfeiture holds an interest in those shares as distinct from holding the shares themselves. The Inland Revenue's view is clear: for tax purposes the taxpayer holds the shares, and what matters is the beneficial ownership of the shares. The amendment would create uncertainty in an area in which we are bringing clarity, as it would leave wide open the question of what constitutes an interest in shares for taper relief. On those grounds, I suggest that the Committee rejects the amendment. I hope that the hon. Gentleman accepts my points and withdraws it.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I am delighted to be advised that the concerns that our tax counsel raised about drafting have been covered. The second point is slightly grey on the area of law, but, if I understand correctly, it is covered by an Inland Revenue statement of practice. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 10 agreed to.