Clause 45 - Contract and conveyance: effect of transfer of rights

Finance Bill – in a Public Bill Committee at 4:30 pm on 3rd June 2003.

Alert me about debates like this

Question proposed [this day], That the clause stand part of the Bill.

Question again proposed.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

Sir Nicholas, I bid you a good afternoon on behalf of the whole Committee.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

I am sorry, we are discussing clause 45. I am trying to make progress.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

We can take a hint, Sir Nicholas. I think that we all feel a bout of co-operation coming on. [Interruption.] Maybe we do not. Certainly you can rely on the co-operation of Government Members, as ever, Sir Nicholas.

Let me give evidence of that at the outset by responding to the hon. Member for Billericay (Mr. Baron). I promised that I would reflect over lunch on his contribution to the morning's deliberations. I did

that. I had a take away, he will be glad to hear, such was the extent of my reflection and deliberation and, as a result, I owe him an apology.

There has been what is best described as a fundamental transposition. There are two words in the wrong place—I fear two rather vital words. The first sentence of paragraph 9 of the explanatory notes, which currently reads

''A enters into a contract to buy land from B for £100,000'', should read ''A enters into a contract to sell land to B for £100,000''. As a result, all should now be clear, where before I fear it was not only less than clear but positively erroneous. I apologise to the Committee and the hon. Gentleman for having inadvertently misled them through that unfortunate, fundamental transposition.

On the further point of substance that was raised, I want to make clear the practical effect of clauses 44 and 45 by reference to the figures in the example in paragraph 9, as corrected. C will be charged to stamp duty land tax on a total chargeable consideration of £110,000, which is the aggregate of the £20,000 he pays to B and the £90,000 he pays to A. In other words, C is charged on the same amount as if A had conveyed to B and then B to C.

As regards the charge on B, we have recently received representations about situations in which a subsale relief might be legitimately incorporated in stamp duty land tax. We accept many of the concerns that have been expressed. Let me make this crystal clear for the benefit, in particular, of the hon. Member for Torridge and West Devon (Mr. Burnett)—I indicated earlier that I hoped that I would be able to put his mind at rest. It is not the Government's intention that, in the example in paragraph 9, as corrected, B should be chargeable to stamp duty land tax, unless the contract between A and B is substantially performed. We hope that that will address the concerns of off-plan market makers. I have gone further than that. I have asked my officials to ensure that the legislation has that effect, with a view to introducing any necessary clarifying amendments on Report for the avoidance of any doubt at all.

If the contract between A and B is substantially performed—for example, by B taking possession or receiving rent—B will be charged to stamp duty land tax on the contractual consideration of £100,000. I am sure that the hon. Member for Torridge and West Devon would accept that not to charge B when there has been substantial performance would be to permit the continuance of a stamp duty avoidance scheme. I do not believe that that is justified; nor, I suspect, does anyone on the Committee. I described the avoidance scheme, which is known as resting on contract, this morning.

I hope that the undertaking that I have given on relief for B when a contract is not substantially performed will go a long way towards allaying the fears that exist in the industry, but we are anxious to explore other problem areas in the consultation process. As I indicated, if matters emerge in the course of that process, we will take steps to revisit them.

Photo of John Baron John Baron Conservative, Billericay

I thank the Chief Secretary for spending such a productive lunch considering the matter. I just want to be absolutely clear about it. The matter is somewhat confusing, and I appreciate his efforts to clarify it. Will he confirm that there is no way whatever that the £90,000 could be taxed twice? As I understand it, we have effectively taken A and B out of the equation, because the example was badly phrased. Will he confirm that with regard to the example given? The example illustrates the fact that the area is terribly complex, and we should be as precise as we can in relation to wording because it can lead to great misunderstandings and cause some consternation in the world outside. I am sure that that point will be taken on board.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

B is out of the equation, so there can be no question of double taxation, if there is no substantial performance. I return to the point that I made this morning. The test is always whether there is substantial performance. If there is, the possibility arises; if there is not, no possibility exists of payment twice on the £90,000.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I am delighted that the Chief Secretary clearly had a conducive luncheon, which led him to this step forward. May I remind him—this relates to the point raised by my hon. Friend—of the question that I raised twice? I hope that he is about to answer it, but I do not see any sign of that. I asked whether, when a housebuilder buys land, parcels it up, develops it and sells the house on, they would be subject to stamp duty land tax on the land. I did not get an answer. The question relates to the current point. I hope that I will get an answer now.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I am not sure that I will be able to assist the hon. Gentleman on that point without some considerable elaboration that we will come to when we deal with a clause that we have yet to consider.

Let me return to the point raised by the hon. Member for Billericay in relation to the question of substantial performance. Where there is no substantial performance, there is no charge. The example that the hon. Member for Hertford and Stortford (Mr. Prisk) gave is that one could envisage circumstances in which there might be substantial performance, but I do not want to go down that route at this stage. I have no doubt that we will revisit it, and I hope that when we do he will be satisfied with what I say to him.

Photo of John Baron John Baron Conservative, Billericay

I apologise to the Committee for pressing the point, but clarity is required. Half way through the example given in the explanatory notes is the following:

''B will pay stamp duty land tax under clause 44 on the chargeable consideration payable under the first contract, £100,000.''

Is that a typing error? Should it read ''the first £10,000''? That is what I mean when I say that we are double charging on £90,000. I would appreciate if the Chief Secretary would clarify that point. It is a confusing sentence, and I may be reading it the wrong way.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

It is confusing only if the figures are wrong, and I have no reason at this stage to believe that they are. Caution precludes me from saying that they are not, but I have absolutely no reason to believe that the figures quoted are wrong, and that one should read ''10'' for ''100''. The important point to recall—I keep going on about it, but it is at the heart of what we are talking about—is that the charge for B will be £100,000 if there is a substantial performance, not £10,000.

Photo of John Baron John Baron Conservative, Billericay

There is a big difference between £100,000 and £10,000, and if the figure stands at £100,000, I put it to the Chief Secretary that there is a double tax charge on £90,000. I would appreciate it if the Chief Secretary would clarify the point. Is that figure of £100,000 meant to read £10,000, which would clear the matter up, or is it meant to be £100,000? In that case, we need further clarification from the Chief Secretary. Even if we change A and B, as the wording stands, there is still the double charge on the £90,000.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I do not want to labour the point, but I can give the hon. Gentleman another example, or I can revisit the worked example that he raises in questions in correspondence. Were I to take the former course, I fear it would delay the Committee more than Sir Nicholas would wish, so perhaps I should take the latter course and write to him about the worked example.

Photo of John Baron John Baron Conservative, Billericay

I apologise to the Committee for testing its patience, but could I ask the Chief Secretary to clarify the example in the explanatory notes, if possible during this sitting, or by the time of the next sitting, instead of writing to me in correspondence with another example, as that would be more useful to all concerned? Is the figure £100,000 or £10,000? If it is £10,000, it is a single tax charge; if it is £100,000, it is a double tax charge. The example should be worked on rather than something new produced.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I do not intend to give the hon. Gentleman another example, particularly in the light of what he has just said. I do intend to work through the example given in the explanatory notes so that he fully understands it. If he then has a problem with that, we can return to it on Report rather then deal with it now. That is probably the best way of making progress.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

Order. I am sure that the Chief Secretary will accept that any such letter that goes to the hon. Member for Billericay should go to the Chairman and every member of the Committee. I understand the Chief Secretary's position.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I shall certainly ensure that every Committee member, including the hon. Gentleman and you, Sir Nicholas, receives a copy of the letter, which will make things abundantly clear to all who have been following the exchange closely.

Photo of John Baron John Baron Conservative, Billericay 4:45 pm, 3rd June 2003

If I may test your patience, Sir Nicholas, I would like to ask that that letter be produced in time for our discussions on Report, so that the Committee can examine the issues again.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

Whenever, in the course of our deliberations, I promise to enter into a correspondence—I hope that it will not be often—you can be sure, Sir Nicholas, that it will be completed before our discussions on Report. I know that you would not have it any other way.

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

May I welcome you, Sir Nicholas, to the Chair?

I am heartened by what I have heard from the Chief Secretary, and some credit must go to the revenue law committee of the Law Society, which drew my attention and that of other Committee members to the confusion and lack of precision in the example given in the explanatory notes to clause 45. I have taken comfort from what the Chief Secretary has said, because from what I can gather the Government will table clauses on Report that will preserve subsale relief in certain instances. What comes out of the Government new clauses will obviously require considerable scrutiny. I hope that outside professional bodies and individuals will be consulted on the new clauses as swiftly as possible. This is an important matter and we have had an important debate. The fact that the Government have said that they are prepared to reconsider the matter and are not wedded to abolishing subsale relief is welcome.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I also welcome your chairmanship, Sir Nicholas, which I know will be firm but fair.

At the beginning of this debate, I said that those on the Conservative Benches were deeply concerned about the way in which the abolition of subsale relief was proposed in the clause. Many of those reservations remain, although I agree with the hon. Member for Torridge and West Devon that we have seen, if not a rapid change in the Chief Secretary's position, certainly welcome commitments to bring forward significant changes to the nature and application of the clause. We still have a fundamental reservation, however, about why it was right last year to reinstate the relief and right this year to abolish it.

My hon. Friend the Member for Billericay highlighted a concern of many outside professionals and he is to be commended for his persistence in drawing out that information—that is why we are here. I do not want this to become too much of a back-slapping session, but I also commend the Chief Secretary for his willingness to respond to the matter in writing. I suspect that I am not the only one struggling with B, A and C and the figures of £90,000, £10,000 and £100,000, so we would all welcome having that explained in writing. Information in writing will be of particular use to those outside for whom this could be of concern.

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

Will the hon. Gentleman, like me, be interested if the letter contains elaborate examples of part performance? It is important for the general public and professional advisers to know exactly what the Revenue means by part performance. Does it mean only payment of rent or receipt of profits, or will the Revenue consider other matters to be part performance, such as taking possession?

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I am not sure that I would necessarily use the word ''elaborate'', but I hope that the letter will provide a full range of options. Although my request was not responded to on three occasions, I hope that we will finally receive an answer about the housebuilder, the first-time buyer and the parcels of land. Does the Minister want to respond to my question? He does not. What a shame. I hope that he will do so in his letter. Such matters are of crucial importance to first-time buyers, if they are to face a second charge—a stealth tax—under the provision. I began the debate by saying that we want to hear what the Chief Secretary has to say about the matter and that we have reservations about the way in which the clause will operate.

Photo of Michael Jack Michael Jack Conservative, Fylde

Does my hon. Friend, like me, believe that the whole episode is an interesting reflection on the quality and output of the 280 hours of consultation that prefaced our discussions?

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

As always, I am grateful to my right hon. Friend who is prescient, if notthing else. [Interruption.] Of course, he is many other things. He has much more experience that I do in such matters and understands the issue. My right hon. Friend will appreciate the fact that many organisations, including the Chartered Institute of Taxation, have said that the measures and the absence of subsale relief are unsatisfactory and require a major rethink. My right hon. Friend is right. The compensation process has been inadequate. It has failed to provide the information that the Government could have provided to make the Bill full, clear and open for all to see. That is not the case now.

Photo of George Osborne George Osborne Opposition Whip (Commons), Shadow Minister (Treasury)

Does my hon. Friend agree that one of the problems is that we are still being asked to pass a clause that abolishes the relief? Although the Government say that there will be many exceptions and that they will come forward with them, the Committee does not have a clear idea about what the exceptions will be, their extent or the proportion of transactions that they will cover. That is an extremely unsatisfactory position.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

As my hon. Friend knows, I made a heartfelt plea to the Chief Secretary about the matter. We are in a bizarre situation, and I know that you, Sir Nicholas, will be concerned about it. The Chief Secretary referred to a consultation process that is taking place as we debate the matter. It may change the nature of the clause, yet we cannot scrutinise it. The right hon. Gentleman said consultation was a good thing. Of course, it is. However, for it to run in parallel when we, as parliamentarians, are scrutinising the Bill, not knowing what the consultation process will

deliver, is wholly unsatisfactory. My hon. Friend the Member for Tatton (Mr. Osborne) has made a pertinent point.

In the spirit of good will, I am tempted not to vote against the clause, but only on one proviso, which is that the Chief Secretary will tell the Committee that he will listen to all propositions put forward by outside bodies and that substantial changes will be made to the clause. If he cannot do so, Conservative Members will still feel the need to vote against the clause. Will he advise us of his intentions?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I do not know whether I can make myself more clear than I have already. It has been interesting to watch the exchange between the hon. Member for Tatton and the hon. Member for Hertford and Storford, who leads for the official Opposition in Committee. I sense that one hon. Gentleman was egging on the other, as I sense that the still, small voice of reason was at work in the mind of the hon. Member for Hertford and Stortford, but was overcome by the hon. Member for Tatton. That is sad, and if it is to be the hallmark for the future, we shall spend considerable time until the guillotine falls debating such provisions.

Let me give an assurance that I hope will satisfy all Opposition Members. We will move clauses on Report to make it clear that relief will be available in wider circumstances than would otherwise be the case under the clause as it is drafted. I hope that that important point is clear and understood and that it provides a reason for not dividing the Committee at this stage.

As I have said, it is not the intention to charge a contract that is not substantially performed. In the example in paragraph 9 in the explanatory note, which we have discussed in some detail, there would be no charge on B. I hope that that sets at rest the mind of the hon. Member for Billericay. That aside, the effect of the clause is to charge contracts that are substantially performed, which may excite the hon. Member for Tatton, who seems hell bent on stirring it in the Committee. That is the whole point; that is why we are gathered here.

Photo of Michael Jack Michael Jack Conservative, Fylde

On a point of order, Sir Nicholas, I would be grateful for your guidance. I recall that in the past when members on the Government Benches in the Committee considering the Finance Bill had doubts about a clause, that clause could, if they so wished, not be moved while awaiting further work to be done on it. Does that facility still accord itself to the Chief Secretary today, if he so wished?

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

This clause has been moved from the Chair. Therefore, as with all clauses on stand part, it must be disposed of. I seek only to give guidance to the Committee; the Committee will do what it wishes. The Chief Secretary appears to have given certain assurances to the Opposition. If that is not good enough, so be it; members can continue to pursue the point. Nevertheless, the clause must be disposed of.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I am grateful, Sir Nicholas. Opposition Members will have heard your wise words.

Photo of John Baron John Baron Conservative, Billericay

The Chief Secretary made the point—the first time I have heard him make it—that there will be no charge on B. Can I be clear that the sentence on which I have been dwelling, about paying

''stamp duty land tax under clause 44 on the chargeable consideration payable under the first contract, £100,000'' does not stand and that it will be taken out of the equation?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

Let me suggest to the hon. Member for Billericay that it would be unwise to revisit a point that we have laboured extensively. I shall write to him about the worked example, in order to clarify it.

I reiterate that there is no charge if there is no substantial performance. That point has sunk in in some quarters, although I saw the hon. Member for Tatton busily stirring it with the hon. Member for Billericay. The hon. Gentleman made a good point to which I have responded. I will write to him. He must resist the blandishments on his left hand side and in front of him. If he does not, he will be led into error. That is my experience of the hon. Member for Tatton. I feel that it is necessary to give some counsel.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I am tempted, but I am not going to. We must, with your agreement, Sir Nicholas, draw this to a close.

The effect of clause 45 is to charge contracts that are substantially performed. Of course, as we have said all along, that issue and the wider questions about where further targeted reliefs might be granted will be the subject of further consultation. I have given the hon. Gentleman as strong an indication on that as I possibly could. That is our intention. The consultation will take place. We will come back to the Committee if further targeted reliefs are justified. I cannot say fairer than that. What more can I do? I hope that, with that, even the hon. Member for Tatton will be satisfied and Opposition Members will not press the clause to a vote. However, it is a matter for them.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General 5:00 pm, 3rd June 2003

On three occasions I have asked for an answer with regard to house builders and on three occasions the Chief Secretary has either chosen not to, or failed to, provide such an answer.

We have a number of other concerns about the clause. The Chief Secretary has tried to answer some of them, but I have listened to him with care and unless he has further information that he wishes to reveal, Opposition Members are not convinced about this set of changes. Therefore, we shall take the clause to the vote.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 14, Noes 7.

Division number 17 Adults Abused in Childhood — Clause 45 - Contract and conveyance: effect of transfer of rights

Aye: 14 MPs

No: 7 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 45 ordered to stand part of the Bill.

Clause 46 ordered to stand part of the Bill.