Clause 79

Finance Bill – in a Public Bill Committee at 2:00 pm on 18th June 2009.

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Exercise of collective rights by tenants of flats

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

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I welcome you back to the chair, Mr. Atkinson, at the start of our consideration of part 5. Perhaps I should also congratulate the Minister on his remarkable solo effort today. He has shown incredible dexterity in handling pensions, VAT and now stamp duty. Perhaps later he will be doing North sea oil. I feel slightly sorry for him. As all else crashes around him and everyone else seems to be coming and going, he is pretty much the only element still standing. It is a little bit like the Sun at the heart of the solar system as various planets and comets come in and out of orbit. Sometimes they reappear for as short a period as nine days. I think that is a shorter appearance than Halley’s comet. I simply express my admiration for the Financial Secretary’s ability to cope with the rapidly shifting sands.

Clause 79 is about the exercise of collective rights by tenants of flats. We have no objection to the clause which, as far as we can see, should allow fairer treatment of leaseholders in blocks of flats. If it does what it purports to do, my constituents will certainly very much welcome it, given the huge numbers who are leaseholders who are considering purchasing the freehold of their building. If anything, I am slightly surprised that the issue has not been dealt with comprehensively before. I understand there have been some difficulties in relation to the workings of the Finance Act 2003 and the right to enfranchise companies.

At present when leaseholders club together to buy out the freehold of a block, stamp duty is charged on the block as a whole. Because larger properties and larger freeholds are subject to higher rates, perhaps as high as 4 per cent., individual leaseholders can find that their share of the stamp duty is higher than it would have been for an equivalent individual freehold on the flat they have purchased. That does not seem fair and it was never intended to be the case. Leaseholders exercising their statutory right to acquire the freehold for a block of flats were supposed to be able to use a “right to enfranchise” company as a vehicle for the purchase. The Finance Act 2003 provided relief for those RTE companies, but to date the Government have not enacted the provisions. It is impossible to set one up and for leaseholders to get the relief they were promised. The clause takes out the references to RTE companies in the 2003 legislation. The substitutions it makes will enable all leaseholders to claim relief in proportion to the freehold that they have purchased.

The Department for Communities and Local Government issued a consultation paper last month proposing that the basis for RTEs—that is, the provisions in the Commonhold and Leasehold Reform Act 2002—should not be implemented and should be repealed. The provisions were designed to allow a majority view among leaseholders to prevail and to stop one or two blocking the process, but they hit the rocks over apportioning the costs of collective enfranchisement when leaseholders disagree among themselves. The Government now appear to have given up on their plans altogether.

Against the background of that recent history of confusion and false starts, we welcome clause 79. However, I hope the Minister can offer assurance that, if the Government change their mind again—perhaps as a result of the DCLG consultation—and activate the framework for RTE companies, references to RTEs would be reinstated in the Finance Act 2003. Leaseholders have waited long enough for relief and they should not be made to wait again.

A question has also been raised with me about changes to some definitions. Relief will now be calculated with respect to the term “qualifying” flats, rather than the existing one of

“flats in respect of which the right of collective enfranchisement is being exercised”.

Will the Minister clarify whether the new term will exclude flats that join in a purchase by paying a share of the cost but strictly speaking are not participating in the statutory process? For example, I have been told of concerns that a tenant who was too old or infirm to participate directly in the statutory process could miss out on relief under the new wording. I would be grateful for clarification on the new wording and how it differs from the previous version. I hope the Minister will give reassurance and then we can proceed.

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

I suspect I am not the only member of the Committee who is already missing my hon. Friend the Member for Burnley (Kitty Ussher) from our discussion.

The clause amends section 74 of the Finance Act 2003, which gives stamp duty land tax relief where leaseholders of flats exercise statutory rights collectively to acquire the freehold of their block. As the hon. Member for Hammersmith and Fulham accurately set out, the relief only applied where the purchaser was a statutory right to enfranchise—RTE—company. Provision for such companies was introduced by the Commonhold and Leasehold Reform Act 2002 and was awaiting commencement when the SDLT legislation was enacted in 2003. However, the provision was never commenced so, as he said, no one has been able to claim the relief. Members of the Committee may recall that a new clause to address that was debated in a Committee of the whole House on the Finance Bill last year. My hon. Friend the then Exchequer Secretary undertook on that occasion to look further at the best way to resolve this, if necessary including an appropriate clause in the present Finance Bill, as we are doing.

It is now clear that the RTE company provisions will not be commenced. The Department for Communities and Local Government published on 12 May a consultation on proposals to repeal the RTE company provisions. That sets out the difficulties encountered in seeking to put those provisions into effect, which involved the likelihood of creating an unduly cumbersome enfranchisement process with far greater potential for delay, uncertainty and burdens—outweighing any benefits.

The hon. Gentleman raised some specific points about, for example, leaseholders who are physically incapacitated. Given that a personal signature is required to participate in collective enfranchisement, leaseholders unable to sign their name cannot participate. That means that, under the terms of the relief, their interests cannot be taken into account in determining the rate of stamp duty land tax on the purchase of the freehold. This is  about the basis on which the right of collective enfranchisement can be exercised, rather than the terms of the relief.

If the RTE provisions are enacted, we would certainly amend the provisions in section 74 of the Finance Act 2003 accordingly. The clause will amend the relief so that it can be claimed by nominees or appointees of leaseholders exercising their statutory rights. Those can be individuals or companies. The amendments have effect for transactions whose effective date for stamp duty land tax date purposes, which is normally the day of completion, is on or after Budget day—22 April. I am grateful for the hon. Gentleman’s support for the clause.

Question put and agreed to.

Clause 79 accordingly ordered to stand part of the Bill.