Clause 52 - Annuities etc: chargeable consideration limited to twelve years' payments

Finance Bill – in a Public Bill Committee at 10:15 am on 5th June 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

I remind the Committee that this is a very narrow clause.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

Thank you, Mr. McWilliam. I take note of your reminder.

Following the copious response of the Chief Secretary—I am delighted to see that he has now been passed a fresh copy of the Bill to read during his quiet hours—I would refer simply to one point. In the previous debate, the Chief Secretary said that the 12-year rule on annuities that the clause relates to is fair. However, all of the experts' commentary that I have seen is contrary to that view.

Would the Chief Secretary explain the reasoning behind the 12-year cut off, given varying interest rates and inflation, and the impact those will have? Just how many of the 20 representative bodies involved in the consultation actually supported the rule in their submission?

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

I cannot answer the second question, but I shall certainly reflect on it and make the answer available when I have it. The hon. Gentleman asks why we have chosen to treat annuities in such a way. Payments may continue for a very long period, or even forever. It is impractical for payments to be made by instalment, or for provisions to be made for an adjustment that could come many years after the original transaction. The SDLT treatment will be similar to that already familiar to Committee members in existing stamp duty but it is, if anything more generous.

Stamp duty used a 20-year period to calculate the charge for payments lasting 20 years or more in perpetuity, and a 12-year period for payments lasting for life. Under the SDLT the payment will be calculated using a 12-year period in every case. Is there a mismatch in terms of the 12-year period for annuities when we say that there is no discount for postponed consideration? The answer to that is no. The clause says that there is no discount for postponed consideration. For example, if one pays for land in instalments over 10 years, one cannot say that the value of a payment of £100 is worth £90 now, and use that as a basis for working out the SDLT due. The full amount of each instalment has to be taken into account, which also applies to annuities. The full value of each of the 12 payments has to be taken into account.

The rules provide a simple way to determine how much SDLT to pay at the outset. Our understanding is that the main users of the provision will be large life assurance companies. They appreciate such a simple, fixed rule, which can be administered efficiently for high volumes of transactions, and would rather have that than have to keep detailed records for each of the transactions, which would be the case if we were to adopt some different approach. That would not be desirable.

Making provision for adjustments would mean that adjustments could occur many years after the original purchase. One would have to keep records for all the intervening years, which would simply not make sense. Not only would the purchaser have to keep records, but the Revenue would have to do so. When dealing with perpetuities, it would be quite impossible to allow for adjustments for that sort of payment. I hope that when the hon. Gentleman reflects on it, he will recognise the wisdom of the approach in the clause.

Question put and agreed to.

Clause 52 ordered to stand part of the Bill.