Clause 113 - Contracts for the sale of an estate or interest in land chargeable as conveyances

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

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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. 118, in page 90, line 21, leave out subsection (1) and insert—

'(1) This section applies to a contract or agreement for the sale of an estate or interest in land in the United Kingdom where—

(a) at the time the contract or agreement is made or at any time thereafter while the contract or agreement is capable of completion by transfer of the legal estate to the purchaser or to any person nominated by the purchaser, the legal estate is vested in a nominee or trustee and the sole or main benefit that may be expected to accrue from the separation of the legal estate from the beneficial interest is the deferral or avoidance of a charge to ad valorem stamp duty, and

(b) the amount or value of the consideration exceeds £10 million or the instrument forms part of a larger transaction or series of transactions in respect of which the amount or value, or aggregate amount or value exceeds £10 million.'.

The Chartered Institute of Taxation commented that the clause constitutes a major extension of the tax base, which is being slipped in without attention being drawn to it. It kills subsale relief, which has existed since 1782. Pitt introduced that statutory relief and it is now contained in section 58(4) and (5) of the Stamp Act 1891. It limits the stamp duty payable when property is on-sold, either in whole or in part, to a sub-purchaser so that, subject to anti-avoidance, stamp duty is paid only once according to the consideration paid by the sub-purchaser.

Clause 113 will block subsale relief following Royal Assent when the consideration for the sale of property exceeds £10 million—that is, around £8.5 million plus VAT—by imposing a stamp duty charge on the initial sale contract. It is argued that the clause, subject to what I am describing being a correct understanding of it, represents an overreaction to the need to block the split legal and beneficial title avoidance scheme. That is no doubt the aim, which could have been addressed more efficiently with a clause denying the exemption from stamp duty for property sale agreements when the legal title is held separately and it appears that the purpose, or one of the main purposes, in so doing is to defer or avoid the payment of ad valorem stamp duty on a sale of the beneficial interest.

The blunderbuss approach will close off a relief that has existed for some 200 years and plays an important role in facilitating the efficient operation of the commercial and residential property market in Britain. Typical uses of subsale relief include the house-building business when land is acquired by developers and then subsold to customers with a completed building erected. Any denial of subsale relief will tend to lead to house price cost inflation as

developers inevitably pass on the cost of their stamp duty in the price charged to customers, which will bear stamp duty on the sale of the house. In addition, the commercial property sector, both private and public, is increasingly moving towards outsourcing, which often involves sales and leasebacks. To achieve necessary rates of return and to finance further purchasing, a leaser may invest on contract and in due course parcel up surplus land to sell on to investors and developers using subsale relief to limit the total stamp duty to one hit on the price from the sub-purchasers. Again, general experience is that some outsourcing sale and leaseback proposals may not be economically viable if a stamp duty double hit arises on both the initial restructuring and the intended on-sale.

There is therefore a strong case in favour of recognising the important and valuable role that property intermediaries play in promoting the better and more efficient use of property through outsourcing and investment structures that enable an existing user better to utilise a smaller proportion of their estate while releasing surplus land for more efficient utilisation by others. Stamp duty subsale relief encourages that sort of better utilisation and recognises that the intermediary in such situations should not properly bear their own stamp duty on the grounds that it effectively provides liquidity and promotes the more efficient utilisation of property, which is in scarce overall supply. Procedure exists for such a release in the exemption from stamp duty in section 88 of the Finance Act 1986 for the sales of shares to stock exchange intermediaries.

If it is not possible for the Government to recast clause 113 in terms of a specific blocking of the split scheme, which I assume that it is intended to do, it should be amended to preserve subsale relief and the new charge on sale contracts in excess of £10 million should not apply where the purchaser is a property intermediary. That term would need to be defined more precisely after consultation, but would broadly equate to commercial property and investment professionals who acquire property in the course of their business activities, which include sales, leasebacks, property development and refurbishment.

Amendment No. 118 seeks to deal with that territory. Specifically, rather than recasting clause 113 to include a specific lock-in, it follows the route of ensuring that subsales would be preserved and the new charge on sale contracts in excess of £10 million would not apply where the purchaser is a property intermediary. I do not know whether Government amendment No. 247, which I have not yet had a chance to see, addresses the point, but I hope that it will. The clause will undermine subsale and there will be both undesirable knock-on economic effects and unfairnesses.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury 5:30 pm, 18th June 2002

Clause 113 is another element of our anti-avoidance package. It aims to discourage companies from deliberately not completing large deals in land and buildings to avoid paying stamp duty.

Property transactions have two stages—contract followed by completion—and stamp duty normally applies on completion. Companies have been using contracts, which they believe are not stampable under existing legislation, to transfer ownership of land and buildings by resting at the contract stage and not completing the transaction in the ordinary way. That is clearly an artificial means of transferring land and buildings that is not generally available to individuals who traditionally complete the transaction, for example when they buy a house, and pay stamp duty.

To tackle that practice, the clause brings contracts for the sale of interests in land and buildings with a consideration of more than £10 million into charge. From Royal Assent, that will ensure that for high-value deals in land and buildings stamp duty is payable where a transfer rests on contract. It should be clear that although the type of stamp duty avoidance described in amendment No. 118, which is commonly described as title splitting, is indeed one of the forms of stamp duty avoidance tackled by clause 113, it is by no means the only form of avoidance that the Government are addressing in the clause.

Amendment No. 118 would not therefore cover the avoidance that the Government are combating. It would undermine the spirit of the clause and allow companies to continue to rest on contract as a means of avoiding stamp duty. For those reasons, I cannot recommend that the Committee accept the amendment.

We have carefully considered the point about subsale relief made by the hon. Gentleman and other representative bodies. I make it clear that we did not intend clause 113 to remove the benefits associated with subsale relief, and forthcoming amendments will put that beyond doubt. In broad terms, where a contract or contracts is or are within the scope of the clause but a subsequent conveyance attracts stamp duty, subsale relief will be available in the ordinary way. I hope that hon. Members will appreciate our intention to introduce Government amendments in due course. I urge the hon. Gentleman to withdraw his amendment.

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

I am delighted to hear that the Government have taken up the subsale point. I am slightly disappointed that they have not focused on it before, given its antiquity, but it is important that they do so now. The easiest example of its importance relates to builders breaking land into plots and selling it on. On the basis that the Financial Secretary said that on Report subsequent amendments would be made to protect subsale, 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. 172, in page 90, line 23, leave out 'the consideration' and insert

'so much of the consideration as is attributable to the estate or interest in land'.

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

With this it will be convenient to take Government amendment No. 247, in page 90, line 26, after 'value,' insert

'of the consideration attributable to land in the United Kingdom'.

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

Without revisiting the territory, amendment No. 172 would specifically ensure that the clause applies only to sales of land of more than £10 million, and not to land sales that are only a small part of the transaction that exceeds that amount. The Law Society raised that point.

Press releases on the Budget indicated that the new charge would apply only where the consideration for the land concerned was in excess of £10 million. However, the legislation goes beyond that. The effect of the clause will be that an agreement on the sale of a business with non-land assets of £9 million and land assets of £2 million will be subject to stamp duty as though it were a conveyance on the sale; because the agreement would be for the sale of an interest in land, together with other assets, the instrument would form part of a transaction in which the value exceeded £10 million. I do not believe that that was the Government's intention; it is certainly not what they said that they would do, which is the reason for the amendment. Perhaps Government amendment No. 247 covers the same point. I look forward to the Financial Secretary's response.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

It is unusual in forums such as this for the Government to recognise the case made by the Opposition. I am delighted to say that the case put forward by the hon. Member for Arundel and South Downs was indeed persuasive.

The Government intended clause 113 to apply only to contracts where the consideration of the land and building exceeded £10 million. I therefore recommend that the Committee accept the amendment. For the sake of completeness, I should like the Committee to accept Government amendment No. 247, which ensures that the effect of the amendment No. 172 is carried through the rest of clause 113.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

This is a memorable occasion, the significance of which none of us on the Committee should understate. I am conscious that celebrated members of the Committee have considerable experience of earlier Finance Bills. There is very little new in government, and much continuity, so I do not wish to exaggerate the case. Neither, however, do I wish the extent of the achievement of my hon. Friend the Member for Arundel and South Downs to be understated. In that context, is the Financial Secretary aware of the most recent precedent for his achievement?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I thank the hon. Gentleman for his contribution. While it is unusual for the Government to recognise the case made by the Opposition, I think that the hon. Gentleman now realises that that is not unique. An Opposition amendment was indeed accepted only recently, during the course of this Finance Bill. On the grounds that I have set out, I encourage the Committee to accept the Opposition amendment and Government amendment No. 247.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

It extends the hon. Gentleman's point through the entirety of the clause.

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

What can I say? Many thanks. I am pleased that this important point has been taken on board. Without banging on about it, I think that the whole territory of changing stamp duty is quite tricky. When we debated other clauses our points, although comprehensive, were not always accepted. I am pleased that the Government have seen the point here.

Amendment agreed to.

Amendment made: No. 247, in page 90, line 26, after ''value'', insert—

''of the consideration attributable to land in the United Kingdom''.—[Ruth Kelly.]

Clause 113, as amended, ordered to stand part of the Bill.