Clause 37 - Roll-over relief

Finance Bill – in a Public Bill Committee at 9:45 am on 14th June 2012.

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

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

I am sure the ears of my hon. Friend the Member for Bassetlaw will be pricked when he hears that clause 37 preserves the availability of roll-over relief on entitlements under the European Union single payment scheme. Roll-over relief allows businesses to defer capital gains tax when proceeds from the disposal of chargeable assets are reinvested in new-qualifying chargeable assets. The Government have stated that the relief will help businesses to expand, develop and modernise by encouraging reinvestment in new assets.

The EU introduced the single payment scheme, which is its principal agricultural subsidy scheme. Payments under the SPS were once eligible for capital gains tax roll-over relief, but a new SPS directive has changed that. SPS payments, as defined in the original 2003 EU directive, no longer qualify for roll-over relief. The effect is that disposals and acquisitions of entitlements do not qualify for roll-over relief, so my understanding is that clause 37 amends the class of qualifying assets to include SPS entitlements and will allow for future changes to relevant classes of assets and roll-over relief to be made by secondary legislation.

The provisions of clause 37 will be retrospective and have effect on or after 1 January 2009, which is when the EU directive that excluded roll-over relief from SPS entitlements took effect. The impact assessment states that the measure is expected to have a negligible impact on Exchequer revenues. There are 7,000 transfers of entitlement to payments under SPS a year, however,  and the impact assessment states that the measure is not expected to have any impact on the numbers, the amounts or the costs of claims. One question has been raised: will the measure cause any issues with EU legislation, and will any approvals need to be sought? If so, has that been completed? Will the Minister confirm that there will be no additional costs or claims, as stated by the impact assessment?

Photo of David Gauke David Gauke The Exchequer Secretary

As we have heard, clause 37 preserves the ability of farmers to defer tax in relation to the transfer of rights to single payment scheme payments following administrative changes to the EU scheme. It also provides that similar routine changes can in future be implemented outside of a Finance Bill. The revisions in the measure will be retrospective and have effect from on or after 1 January 2009.

By way of background, where a business realises gains on the disposal of certain types of business assets and reinvests the proceeds in new business assets, tax on those gains can be deferred or rolled over until the disposal of the new asset. Rights to payments under the single payment scheme—the principal agricultural subsidy scheme in the European Union—have been among the assets that qualify for such relief, but the EU directive under which single payment scheme payments are made was republished and renumbered in 2009. As a result, the roll-over relief provisions need amending to ensure that relief continues to be available in relation to rights to payment under the scheme.

The clause does two things. First, it restores the availability of roll-over relief for farmers by ensuring that relief is available whether rights arise under the old directive or the new one. Secondly, where future legislative change is needed to preserve the availability of roll-over relief, it provides that such changes can be effected through secondary legislation. That power can be used only to the advantage of taxpayers. It cannot be used to narrow the scope of relief. I stress that the measure preserves the existing treatment and that no costs are incurred as a consequence of the changes. I am pleased to reassure the hon. Member for Newcastle upon Tyne North that there are no EU implications or requirements in that respect.

In conclusion, the clause preserves the ability of farmers to acquire and dispose of rights to single payment scheme payments without incurring an immediate tax charge and makes sensible provision for legislating further changes of this sort. I hope that the clause will stand part of the Bill.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.