The clause provides for a new land tax to be charged on market value when a company purchases land from a person with whom the company is connected. That principle is already established in the existing Taxes Act. However, it would be helpful if the Chief Secretary would confirm one aspect. I am grateful to a number of outside legal experts, particularly the Law Society, for the following point.
It is assumed that where the legal interest in property, but not the beneficial interest, is transferred in circumstances where clause 53(1) applies, the subject matter of the transaction will be the legal interest alone, which will have a nil or
nominal value, and accordingly no charge would arise. I would be grateful if the Chief Secretary would confirm that.
That is the point that I was going to make. It is important in relation to a situation where, to give one example of many, a new company has not been formed, but the land is purchased in Mr. or Mrs. Bloggs's name in his or her capacity as trustee, and in due course the legal estate is transferred to the company, which was always the intention. There is usually an underlying declaration of trust in such circumstances. Notwithstanding the absence of such a declaration of trust, when the legal estate and the land is eventually transferred to a limited liability company, or perhaps a limited liability partnership, will the Chief Secretary confirm that, as the hon. Member for Hertford and Stortford said, no liability to stamp duty land tax will arise?
I seek clarification from the Chief Secretary on a similar issue. The clause appears to create yet another stealth tax, which will hit small businesses, especially those entrepreneurs who wish to incorporate land and buildings to transfer. The Chief Secretary will correct me if I am wrong, but because one can rest on contract, one could defer a charge on incorporation. Once deferred, for example, a company could sub-sell the property and only the end purchaser would pay the stamp duty. As a result of the Bill, however, resting on contract is no longer with us, and there is no way in which one can defer the SDLT on incorporation. In other words, it will have to be paid, whereas previously it could have been deferred and perhaps not paid at all for legitimate reasons.[Mr. Mark Hendrick in the Chair]
[Mr. Mark Hendrick in the Chair]
I put it to the Chief Secretary that the change hurts small business entrepreneurs in particular. It appears that they will be hit by yet another stealth tax. On top of all the regulations that they have to endure, they will be given yet another burden at a particularly difficult point in the cycle. A number of entrepreneurs have raised that concern with me. Will the Chief Secretary clarify the point? It appears that there is an extra charge. The legitimate way of dealing with that and deferring it no longer exists; hence, a stealth tax is being created.
There is no merit in the hon. Gentleman seriously proposing that we should return to permitting the technique known as resting on contract. The whole point of the legislation is to remove such opportunities for avoidance. There is no new charge. There is no stamp duty relief for incorporation at present. A measure to ensure that stamp duty was charged on the market value of land transferred to a connected company was introduced in the Finance Act 2000.[Mr. John McWilliam in the Chair]
[Mr. John McWilliam in the Chair]
This is an anti-avoidance measure. We could be talking about resting on contract, which it would be wrong to allow to return by the back door, or, in relation to the clause, a scheme commonly known as value shifting. That is the mischief that the clause was designed to prevent. We must ensure that the scheme
does not return in any shape or form. I reject completely the notion that the clause is designed to introduce a stealth tax. Nor do I accept that it unfairly catches small businesses, such as corner shops, that want to incorporate.
Does the Chief Secretary accept that prior to the Bill there were perfectly legitimate reasons for deferring a charge on incorporation and that because of the Bill, and this clause in particular, those have been removed and SDLT will have to be paid on incorporation, come what may? In a small number of cases, that might be considered unfair.
I would be interested if the hon. Gentleman could give me some practical examples drawn from the world of small businesses and corner shops. That world recognises and welcomes the new £150,000 threshold for commercial property. It recognises that many businesses will be taken out of SDLT entirely when they incorporate. We estimate that that will apply to some two thirds of businesses that hold property. In addition, many small businesses do not hold property at all. Taking that into account, we estimate that more than 90 per cent. of businesses will be completely unaffected by the change when they incorporate.
It is not necessary to over-egg the pudding. Hon. Members will find a ready ear when they raise genuine concerns about small and medium-sized enterprises, however they seek to raise their concerns. Many do, from all parties, and I am grateful to them, particularly those who, for reasons that are well understood, are obliged to remain silent in the course of our deliberations.
By usual form and practice.
I say to Opposition Members, please do not lecture us on small and medium-sized enterprises. All members of the Committee have their interests at heart, and I suggest that the clause in no way imposes an unfair burden on them.
In response to the questions raised by the hon. Members for Torridge and West Devon and for Hertford and Stortford about the market value if a legal but not a beneficial interest is transferred, the market value is based on the nature of the interest transferred. If nominal, the market value will be nominal, and that is the end of the matter. I hope that that allays the concerns of the hon. Gentlemen.
Question put and agreed to.
Clause 53 ordered to stand part of the Bill.