Clause 31

Part of Finance Bill – in a Public Bill Committee at 2:00 pm on 17 May 2007.

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Photo of Stephen Timms Stephen Timms The Chief Secretary to the Treasury 2:00, 17 May 2007

The main purpose of clause 31 is to close another tax avoidance scheme that has been disclosed to Her Majesty’s Revenue and Customs and that could be used to defeat the aim of a targeted anti-avoidance rule introduced in the Finance Act 2006. That rule stops tax avoidance schemes that seek to secure a tax advantage, whereby a company is sold from one group to another primarily to transfer the benefit of capital losses between the two groups, and so reduce tax. We have also taken the opportunity to relax a provision of the 2006 legislation that affects only a small number of groups of companies that realised capital losses before the legislation came into effect.

We now realise that the softening of the targeted anti-avoidance rule provided by the clause goes a little too far, and would result in the rule failing to prevent all cases of loss buying involving those protected losses, hence the need for the Government amendments.

Amendments Nos. 79 and 80 make the necessary changes to the text of the clause. They remove the protection that the losses enjoy from the effects of the loss buying targeted anti-avoidance rule where the parent company in the group is taken over as part of a loss-buying scheme. The clause still allows relief for the losses within the original group of companies if the takeover is for commercial purposes. It prevents relief  only where one of the main purposes of the takeover is to secure a tax advantage from the losses for the new group.

Amendment No. 81 provides that the changes apply only to assets disposed of on or after 9 May this year, the date when the amendments were laid. The amendments have also been published on the Treasury website.

There are three reasons why I will urge my hon. Friends to resist what is proposed in amendment No. 83, but I look forward to hearing the case that the hon. Member for Chipping Barnet makes for it.