Clause 58 - PART-EXCHANGE OF RESIDENTIAL PROPERTY

Finance Bill – in a Public Bill Committee at 8:55 am on 10th June 2003.

Alert me about debates like this

Photo of Mark Prisk Mark Prisk Shadow Paymaster General 8:55 am, 10th June 2003

I beg to move amendment No. 199, in

clause 58, page 38, line 11, leave out paragraph (a).

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

With this it will be convenient to discuss the following:

Amendment No. 190, in

clause 58, page 38, line 12, leave out

'that has a market value in excess of the market value of the old dwelling'.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General 9:15 am, 10th June 2003

I was remiss in not welcoming you to the Chair this morning, Mr. McWilliam. Please accept my apologies. It is a great pleasure to serve under your leadership.

The amendments relate to subsection (1). Clause 58 provides specific rules for house-building companies to acquire dwellings in part-exchange for the disposal of a newly constructed dwelling. Subsection (1) spells that out and states:

''Where a dwelling . . . is acquired from an individual (whether alone or with other individuals) by a house-building company or a company connected with a house-building company, the chargeable consideration for the acquisition is taken to be nil if . . . ''

It then sets out five conditions. The first is that

''the individual . . . acquires from the house-building company a new dwelling that has a market value in excess of the market value of the old dwelling''.

That is a peculiar value judgment. An elderly couple who wanted to move to a smaller, more easily maintained home would be specifically excluded from the relief, but a wealthy family building a mansion would have the transaction exempted. Why are the Government against trading down? Do they not recognise that that would unfairly disadvantage the sheltered housing market? Older people trade down in size and value, and release a larger family home for those with a growing family. What is the logic of exempting one form of part-exchange and not another? How is that fair?

The purpose of the amendments is to question the Government's logic and to ask the Chief Secretary to explain briefly the thinking behind the provision. If he can provide a satisfactory answer that suggests that the Government are aware of the problem and willing to address it, we shall consider withdrawing the amendment, but we wait to hear his reply.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. I caution hon. Members that if they intend to withdraw an amendment, they should do so only after the Minister has replied because, strictly according to the Standing Orders, I should put the question to the Committee immediately.

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

Amendment No. 190 would remove part of subsection (1)(a), which requires that the new dwelling has a higher market value than the old dwelling. Clause 58 currently preserves the benefits that house builders enjoy under stamp duty by using the single sale route. Under stamp duty, the acquisition by the builder will be free of stamp duty only if it is of lesser value than the property being exchanged. However, it will bring some comfort to the hon. Gentleman to know that we have received a number of representations asking for the requirement on market value to be dropped. It has been said that the change, which amounts to a new relief, would help companies that provide part-exchange arrangements to older people, as the hon. Gentleman outlined. It is

not uncommon for older people to downsize their housing arrangements later in life. People may move into retirement properties that are smaller and less valuable than their existing homes. If a builder is willing to take the existing home in part-exchange, we are sympathetic to the proposition that the relief should still be available.

If an ageing couple wanted to move from a £400,000 property to a £200,000 property and the builders were willing to take their existing property and make an equality payment of £200,000, that situation would not qualify for the relief under the clause. We believe that it should. Unfortunately, the drafting of the amendment may be defective, because it has been proposed without a consequential amendment to subsection 1(d). That subsection requires other consideration to be given by the individual for the acquisition of the new dwelling. If the new dwelling were less valuable than the old one, that would not be the case. The house builder would be expected to supply other consideration, presumably a cash equality payment representing the shortfall between the value of the old dwelling and the new one.

I therefore ask the hon. Gentleman to withdraw amendment No. 190. In return I can confirm to the Committee that we shall table an amendment on Report to ensure that downsizing qualifies for the relief. That will make it a more generous relief than is currently obtainable under stamp duty, which is another part of the modernising process. In the example just given, the chargeable consideration would be £200,000, so the charge would be £2,000. Under stamp duty, even using the single sale route, a situation would exist in which a consideration could not fall below £400,000, leading to a charge of £12,000.

That generous relief shows that the Government have listened and will continue to listen to representations such as we have had in relation to the relief. Of course, not all builders are in a position to conclude exchange deals with downsizers, because a builder will have to pay the difference in values. Not all builders have the necessary funds, so they may ask a third party relocation company to buy the old dwelling instead. That is not an exchange, so it does not naturally fit into the clause: it is more a matter for clause 59, which deals with relocations and which we will come to in due course. Suffice to say, at this stage, the expansion of the relief in clause 59 may also be necessary to assist relocation companies that deal with older people. We will consult on that and bring forward amendments before implementation.

Amendment No. 199 to clause 58 goes further than amendment No. 190. It would remove altogether the requirement for a new dwelling to be given in exchange for the old one. That would entirely change the character of clause 58, so it would become a blanket relief for house builders acquiring land that is currently used for dwelling. The amendment would not leave the relief particularly well targeted, which does not speak well of it, and does not attract us to it.

Clause 58 is intended to mitigate the reform of the treatment of exchanges. If the amendment were to be accepted, there would not need to be an exchange for the relief to be available. I do not think that was the

intention of the amendment. Apart from the policy argument, the amendment would leave the clause deficient, as I am sure the hon. Member for Hertford and Stortford appreciates. I am not able to accept that amendment for the reasons given, but I am sympathetic to the aims of amendment No. 190.

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

Unless the hon. Gentleman is suggesting that I should not follow that course, I shall not give way, because we need to make some progress. I ask the Committee to reject the amendment, given the undertaking that I have made to return to the matter on Report.

Photo of Michael Jack Michael Jack Conservative, Fylde

I welcome what the Chief Secretary has had to say, and particularly his understanding and acknowledgement of the effect that the clause would have on elderly people. My constituency contains a large amount of the sheltered accommodation to which the amendment and clause apply, and what he has said will be welcomed. I noted the point that he made about third party acquisitions in clause 59, so I shall not say anything about that at this stage.

While the right hon. Gentleman is in redrafting mode, I suggest that he carefully considers the impact of the proposal in respect of the new stand duty payments, as I am sure he has had representations from companies, such as McCarthy and Stone, that are in the business of building sheltered accommodation for the elderly. An illustration was supplied of a property that had a sale price of £150,000 and a leasehold length of 125 years. Under the old system, with a ground rent of £350, stamp duty payable would have been £1,585. Under the new proposals, that would have dropped to £1,500, but with a marginal increase in ground rent of up to £500, figures of £1,620 and £2,100 would prevail. I appreciate that that is not exactly what the clause is about, but I am presuming on the generosity of the Chief Secretary, and hoping that when he considers the position of the elderly buying sheltered accommodation with a structure that could involve two bites of the new tax cherry, he will re-examine with sympathy the problem that I have illustrated.

Several hon. Members rose—

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. I am re-examining with sympathy the way in which this debate is going. It strikes me that we are dealing with clause stand part now, especially given what the Chief Secretary has said. That is how I am going to treat the amendments and the clause.

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

I am grateful for the Treasury's rethink on this matter. Of course, the relief is limited to a new dwelling acquired as the person's only or main residence. We referred to equality money when we discussed partitions. Although the Chief Secretary referred to it when he spoke, I should be grateful if he would outline again for the Committee, very briefly, the stamp duty treatment of equality money on a downsizing operation.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

I am pleased to be able to speak to the amendment, and happy to

hear the Chief Secretary's agreement with the overall theme behind amendment No. 190 on part exchanges of residential property, particularly in relation to elderly people downsizing their properties. Elderly people may wish to release equity to live in their retirement, or cash to give to their families to avoid unnecessary inheritance tax, or perhaps a little of both. They may be concerned to reduce the cost implications of long-term residential care. For all those reasons, there are serious policy issues and I am pleased to hear that the Government take an interest in the amendment. I also note that, as it stands—I was going to make a particular point about this—the clause is more of a yuppie exemption than anything else, so I am pleased that we are now considering pensioners, at the other end of the scale.

As the Chief Secretary said, amendment No. 199 takes the concept of the exemption somewhat further. Why should it apply only to house-building companies? I take his point that the amendment strikes beyond the meaning of the clause, but there are policy issues involved, and as we are dealing with the stand part debate I should like to raise them now. There is a big problem, mentioned by the Chancellor in his speech yesterday, with the lack of liquidity in the housing market. Many elderly and single people in this country are living on their own in large houses. Many would be happy to downsize, and there is no doubt that one reason why they do not do so is that they are put off, to a greater or lesser extent, by the amount of stamp duty that they would have to pay when buying their downsized home.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. Before the hon. Member intervenes, may I say that it was remiss of me not to point out that it is warm this morning, so hon. Gentlemen may remove their jackets?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Can the hon. Gentleman give some evidence for his assertion that people who wish to downsize are inhibited by stamp duty?

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

I have no empirical evidence, but many constituents have complained to me about stamp duty, and have said that it is one reason why they do not wish to move homes.

Why not extend the concept in the clause to other part exchanges? For example, if it enabled people to move within a particular radius of their current home, it would assist a fluid housing market while not encouraging even more southward migration in this country. I am not presenting a thoroughly worked-out concept, but the Government could have been more constructive in their modernising approach to stamp duty. We need to put that in the context of the Chancellor's announcement on the euro yesterday. The Chief Secretary may want to mention that in his response. Stamp duty was raised as an issue in relation to house prices, and the Chancellor said that we need a speeding up of the supply of houses. To many, including myself, that meant that more houses will be built in the south of England.

Can we not be a little smarter than that? If we want more homes to be available and a more liquid labour

market where people move between homes, instead of covering the south in concrete why not aim to use stamp duty exemption on part exchanges as a way of making better use of existing housing stock before we have to build more houses? I would appreciate the Chief Secretary's views on that point.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I understand that you wish to concertina the debate Mr. McWilliam, and I appreciate that.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon 9:30 am, 10th June 2003

Order. I have no interest in concertinaing the debate. It is just that the way in which hon. Members were continuing the debate makes it obvious that we are dealing with the whole clause.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

Thank you, Mr. McWilliam.

I welcome what the Chief Secretary has said. It is to be commended that the Government are being responsive. He can see the essence of our argument; there is an iniquity in helping those who wish to trade up but not those who wish to trade down. The Chief Secretary has particularly recognised that that could hurt those who are retired, or facing retirement, who may wish to trade down, and he wants to make the market operate more effectively. To that end, and given what the Chief Secretary has promised, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of the debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 69, That the clause stand part of the Bill.

Question agreed to.

Clause 58 ordered to stand part of the Bill.