Clause 115 - ''Disposal of a right of the individual to

Finance Bill – in a Public Bill Committee at 11:00 am on 25th May 2004.

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

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

Clause 115 defines how the previous clause operates in respect of disposals of the right of an individual to profits arising from the trade. Clause 114 considers the broader aspects of the provision, but I would like to focus on the specifics of disposal, particularly defaults. A default in the payment of income is included as a disposal, which is considered to be one of the three triggers for a tax charge. A default in the payment of income could occur for several reasons. For example, the payer could become insolvent, or a default may result after a genuine commercial dispute. It seems unreasonable that a tax charge might be triggered in such circumstances.

If a payer becomes insolvent, there are several instances in which their obligations are guaranteed or underwritten, as I mentioned earlier. In such circumstances, it would be helpful to know whether a disposal would be deemed to have occurred. I hope that the Paymaster General will at least be able to clarify the intent underlying the clause.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Perhaps I could deal with the issues around default. To face an exit charge, a person must not only have lost their right to income but have obtained a tax advantage by receiving a non-taxable benefit. If there is a genuine commercial failure, a creditor will not receive non-taxable benefits that make them better off than they would have been without the failure. If we do not have that condition in place, it would be easy to avoid the exit charge. There are two points to consider: whether the payer artificially disposes of their assets and defaults on payments, and whether the film investor's loan liabilities are written off.

We are seeking to achieve a delicate balance, as was touched on by the hon. Gentleman and some of the

representations. The trigger is the two things together—the untaxable gain and the exit—but if there has been a genuine commercial failure, the other rules already operate, and we expect that to remain the case. However, we must be mindful that some may seek to create a failure in order to get out of the exit charge. We must prevent that. It is not without precedent in the tax system that insolvency has been a way of trying to escape tax charges.

Question put and agreed to.

Clause 115 ordered to stand part of the Bill.

Clauses 116 to 118 ordered to stand part of the Bill.