Clause 112 - Penalties for late stamping

Finance Bill – in a Public Bill Committee at 5:15 pm on 18th June 2002.

Alert me about debates like this

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 5:15 pm, 18th June 2002

I beg to move amendment No. 171, in page 90, line 12, leave out subsection (3).

As members of the Committee will be aware, at present it is possible to avoid stamp duty if the documents involved are executed outside the United Kingdom. Until the Budget, the deadline for stamping such a document if it was brought into the UK was 30 days after it was brought in for the purposes of penalties. That was changed in the Budget, with effect from Royal Assent, so that penalties will be levied 30 days after the date of execution, irrelevant of where the document has been executed.

As we are talking about an anti-avoidance measure, there is little critical that can be said. However, tax experts are looking for some clarification about the fact that subsection (2) uses the words ''relate'' and ''relates'' but subsection (3) uses the word ''involves''. We would welcome clarification as to whether a distinction is intended.

The amendment is from the Law Society, and seeks to ensure that contracts only incidentally related to land for the sale of worldwide businesses, for example, are not accidentally caught by the new provisions of the clause.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

The clause is another element of the anti-avoidance package. It aims to discourage the avoidance of stamp duty by the offshore execution of documents relating to UK land and buildings. The current practice of executing documents offshore ensures that, if the document is ever needed in the UK, a penalty for late stamping only runs from 30 days after the date when the document entered the

UK. That is not in line with the penalty regime for documents executed in the UK, where a penalty for late stamping runs from 30 days after the date of execution.

To tackle that variance, the clause extends the onshore penalty regime to the offshore execution of documents relating to UK land and buildings. From Royal Assent, the time limit for stamping those documents will be the same regardless of the place of execution. Subsection (3) ensures that every document that relates to a transaction that to any extent involves land in the UK is included in the extended penalty regime.

The amendment would limit the extended penalty regime to documents that related only to land in the UK. That would mean that another type of property could be included in the document, merely to ensure that the document would not be caught by the new rules. That would undermine the whole effect of the measure, as it would allow the make-up of instruments to be manipulated in order to remain outside the extended penalty regime.

The clause, including subsection (3), removes the protection of offshore execution for documents that transfer UK land and buildings. It is consistent with the Government's overall approach to tackling anti-avoidance. Therefore, I urge the hon. Gentleman to withdraw the amendment, or the Committee to reject it.

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

I shall go into greater detail. The Law Society pointed out that the Budget day press release advised that the new provisions relating to penalties for late stamping applied to agreements for the transfer of land, but the proposed legislation goes further than that. New section 15 B of the Stamp Act 1891 applies the new rules to every instrument that relates to a transaction that to any extent involves land in the United Kingdom. The effect may be that, when an agreement is entered into for the sale of a business that does not relate to land and there is a separate agreement for the sale of the land, the new penalty rules will apply to an agreement for the sale of the business because it relates to a transaction that to some extent involves land. Is that what is intended by the Bill? If so, it is not in accordance with the Budget announcement.

The Law Society's view is that new subsection (1)(a) is unnecessary and should be deleted, which would mean that the new penalty rules would apply to any instrument that relates to land in the United Kingdom. The Law Society's view is that the meaning of the words would then be clear and would not cause the new rules to apply to an agreement which, while relating to a transaction in connection with land, did not relate to the land itself. We are merely seeking the confirmation, which I thought I saw the Minister giving, that the clause does not do what the Law Society fears that it does.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I am aware of the criticisms and worries that have arisen in relation to the clause. Applying the revised penalty regime only to instruments relating to

land in the United Kingdom would have allowed those companies and individuals who wanted to execute avoidances offshore to do so without facing a stamp duty penalty. The clause is phrased so as not to catch free-standing transfers of assets that do not involve United Kingdom land. It protects transfers of debts, for example, from falling under the new penalty regime, while ensuring that those transfers that involve land come under the new rules.

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

I thank the Minister, but I am still not clear what she is saying, because she has not answered my specific question. Two agreements may happen in parallel, one agreement for the sale of land owned by a pension fund and the other for the sale of a business owned by someone else, for example. Will the new penalty rules apply to the sale of the business when the business relates to land being sold at the same time? I think that the Minister is saying that they will not apply, but her words were unclear. This probing amendment seeks clarity on the matter.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I understand the hon. Gentleman's point. He seeks an understanding from the Government as to whether a deal involves or includes United Kingdom land, and what the relationship is between the two. It is my understanding that if the transfer of business includes United Kingdom land, that does not come under the new subsection, which is drafted in such a way as to ensure that free-standing transfers of assets that do not involve United Kingdom land are protected from the new measure.

On the point that the hon. Gentleman raises about whether land is included in the transaction, clearly the measure must apply if the transaction includes United Kingdom land. [Interruption.] I hope that the hon. Gentleman will allow me to write to him on the specific point of the interrelationship between two different deals, one of which includes United Kingdom land while the other does not. However, it is a minor point and the legislation is relatively clear.

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

I am grateful to the Financial Secretary for giving way. The point that I make actually arises fairly frequently because of the problem of the stamp duty charge. I should be grateful for a copy of the letter that the hon. Lady proposes to write in clarification.

There may be a transaction and two agreements, one relating to land and the other to business assets other than land when the business is carried on on the land. It would be welcomed if the Government would explain to the Committee in due course that the second agreement relating not to the land but only to the other assets of the business is not caught by the charge.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I will certainly consider the points that have been raised and will circulate a letter to Committee members so that the matter is absolutely clear.

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

The hon. Member for Torridge and West Devon may have explained with even greater legal clarity than I could what the amendment is all about. It is clear what we and the Law Society are seeking. As stated, the purpose of the amendment is to ensure that in the situation described by the hon.

Gentleman, which I also described, business assets that are not land and subject to a separate contract will be covered by the new penalty provisions. The reason for lack of clarity is that if the land and property subject to separate contracts are used by the business there is an argument that they would be caught because they relate to it. I look forward to clarification of the issue but if it comes back the other way, we may want to raise it on Report. In the meantime I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.