HC Deb 30 September 1909 vol 11 cc1436-43

Where a building is used for the purpose of separate tenements, flats, or dwellings, the grant of a lease of any such separate tenement, flat, or dwelling, and the transfer on sale or passing on death of any lease of any such separate tenement, flat, or dwelling, shall not be an occasion on which Increment Value Duty is to be collected under this Act, nor shall duty be collected on any periodical occasion from a body corporate or unincorporate where the interest held by the body is only a leasehold interest in any such separate tenement, flat, or dwelling.

Clause read a second time.

Question proposed, "That the Clause be added to the Bill."

Mr. A. J. BALFOUR

May I ask the Chancellor of the Exchequer precisely what he has in view in moving this Clause?

Mr. LLOYD-GEORGE

Under the Bill as drafted it is conceivable that in the case of a suite of chambers in a building you would have to go through the whole process of valuing the site value and finding the proportion of the site value referable to that particular flat. In order to avoid that it is proposed that there should be no Increment Duty whenever you let, say, a separate suite of chambers, and it is only either on the death of the owner that the tax is collected or, if a corporation owns the whole of the flats, there will be a Corporation Tax.

Mr. BALFOUR

You may have very costly flats owned absolutely as freeholds, and they may have all the peculiarities of augmentation of value through the efforts of the community, and they may be far more valuable than houses situated not very far from them. As I understand the wording of the Clause, a person who happens to own house property in the form of flats will escape all these duties.

Mr. LLOYD-GEORGE

No.

Mr. BALFOUR

He will escape Increment Duty.

Mr. LLOYD-GEORGE

No.

Mr. BALFOUR

I thought, reading the Clause, that if the owner of a flat lets it he does not pay Increment Duty, but if he lets a house of precisely the same magnitude and cost he would pay duty. I want to know whether that is the effect of the Clause, and, if it is, what argument the Government have in its favour?

The ATTORNEY-GENERAL (Sir W. Robson)

The effect of the Clause is to make an exemption of leasehold and not of freehold. I speak with some diffidence on the point, but there can be no freehold in these separate tenements in England. I am speaking for a subordinate part of the United Kingdom. In England the only freeholds in these tenements that I think exist at all are in Lincoln's Inn. You cannot, according to our law, make freeholds in flats. What the Clause does is to put the burden of the duty upon the owner of the fee simple of the whole block. The duty is collected at his death or, if the ownership be in the hands of a corporation, then, of course, Corporation Duty is paid, but if the land is let on lease then the granting of the lease or the transfer of the lease is not made an occasion upon which the duty is paid. It cuts leases out of the interests in land on the transfer or creation of which the Increment Value Duty is collected. It confines the collection of the duty to the owner of the freehold or fee simple of the whole block, because it would be an extremely inconvenient and a very difficult process indeed to try and ascertain the site value of a leasehold interest in flats or tenements.

Mr. BALFOUR

Then I understand that the justification of this exemption has nothing to do with the equities of the case or the magnitude of the property in question. The exemption is simply based upon a certain difficulty of assessment which may really exist, and as long as the Government admits that they have no justification for their Clause except the practical difficulties, of course, I leave it there. But let us understand exactly where we are. Where one man has a long lease of a house and another of a flat, both grown in value, and they sell their leases, one pays Increment Duty and the other does not. That is an anomaly which it is extremely difficult to justify, and as long as the Government admit that it is an anomaly and that they cannot defend it except on the practical ground of the difficulty of equitable valuation, I do not propose to argue the matter any more. I only want to have it cleared up.

Mr. LLOYD-GEORGE

So do I, but I cannot leave it quite where the right hon. Gentleman has left it. It is true that we narrow the number of occasions on which you collect duty, but the amount which you collect is exactly the same in the long run. As far as flat property is concerned, you collect it first of all on the death of the owner of all the block, or, if it is a corporation, then you charge it every 15 years.

Mr. PRETYMAN

If the lease of a flat is more than 50 years the tenant becomes the owner. How is that treated?

Mr. LLOYD-GEORGE

How can he be the owner of the block? There may be a person who is the owner of the block who has 50 years to run. Then he pays. Flat property does not escape. That is all I wanted to point out.

Mr. BALFOUR

But it does. The right hon. Gentleman admits that it escapes in Scotland.

Mr. LLOYD-GEORGE

No, I do not.

Mr. BALFOUR

There is no owner of a block in Scotland, and the owners of the flats escape; and in most cases I am uncommonly glad they should escape. The right hon. Gentleman says in England ultimately the Exchequer gets the money, but he does not get it from the man who has a long lease of the flat, while he does get it from the man who has a long lease of a house. I will repeat again, even after the Chancellor of the Exchequer's explanation, indeed, in consequence of that explanation, that there is a totally different incidence of this tax on flats from the incidence of the tax on houses. A man who leases a house and sells the lease for an augmented sum pays Increment Duty. A man who leases a flat which increases in value and sells the lease does not pay duty. Someone else pays it. That is the obvious and plain distinction for which there is apparently no justification whatever given by the Government—certainly not by the Chancellor of the Exchequer.

Viscount HELMSLEY

I should like to know how the valuation is to be made. I take it that on transfer or on passing at death the owner of a block has to pay Increment Duty. What is the valuation on which he pays? Is it the amount for which he lets the whole block added together, or are the different separate values of each flat in that block taken into consideration? It is quite possible that the separate value of a flat might be more than it was let for by the original owner of the block. The leasehold might have been sold for a higher sum than was originally paid for it by the man who first took it. Which of these sums is to be the valuation on which he pays Increment Duty?

Mr. LLOYD-GEORGE

He does not pay on the flat at all, but on the increase of the value of the site. It is an increment value on the site, and not on the bricks and mortar.

Viscount HELMSLEY

Clause 2, paragraph (b), says the site value is ascertained by the amount of the transfer: "Where the occasion is the grant of any lease of the land or the transfer on sale of any interest in the land, the value of the fee simple of the land calculated on the basis of the value of the consideration for the grant of the lease." What is the grant of the lease? Which lease does it refer to—the whole block or the buildings which comprise it?

Mr. LLOYD-GEORGE

If the Noble Lord has read the Clause I have put down he would realise that on the occasion of the lease of a flat there is no charge made, and that is the point of the whole Clause. If there is a sale of the whole block, surely it is known what the increase of the site value is which is in the consideration. It is on the occasion of sale or death only that you charge it.

Viscount HELMSLEY

I am alluding to the case of death. You have to find out what is the value of the building at that time in order to get at the Increment Value Duty which is due. Do you take the rents which are paid in the aggregate to the owner of the block, or do you take into account the sub-leases of the various flats which may have been let?

Mr. LLOYD-GEORGE

I really do not know what the Noble Lord means. On the death of the owner the whole block would be valued. The value so ascertained would show whether there was any increment of site value, and the duty would be charged upon that.

Viscount HELMSLEY

How does he get at the value of the site? That is what I mean. When there is a transfer on sale, or a lease, that is what he has to go upon.

Mr. LLOYD-GEORGE

I beg the Noble Lord's pardon. When property passes at death there may be no lease at all, and the value of the property at death is ascertained in the same way, whether it is a flat or any other form of property.

Mr. C. SCOTT DICKSON

This deals only with site value, and you may have a block of buildings consisting of flats, each flat belonging to a separate proprietor. When one of the flats is sold, how do you ascertain the site value, that flat being only one of a number in the same block of buildings? Take the case of a flat on the top of a four-storey tenement, and suppose you sell that, what duty has to be paid? The Chancellor of the Exchequer must realise that there is a great deal of property held in Scotland in that position, and I confess I was absolutely unable to understand, from what was said by the Attorney-General, how you would ascertain the site value in a case of that kind, and I am still less able to understand from the explanation given by the Chancellor of the Exchequer.

Mr. LLOYD-GEORGE

The hon. and learned Gentleman is raising a totally different point. The Scottish case is a totally different case, and we thought that, on the whole, it would not be worth while, on account of the trouble and expense of collecting the duty, to ascertain the site value in each case.

Mr. SCOTT DICKSON

I am dealing with a fourteen years' lease that would fall under the scope of the Bill in Scotland. There is no such thing in England.

Mr. LLOYD-GEORGE

That is why I say that, so far as the majority of flats are concerned, we have come to the conclusion that it would not be worth while to ascertain the site value in each case. I agree that there are cases in Scotland in one or two towns.

Mr. SCOTT DICKSON

In all the large towns.

Mr. LLOYD-GEORGE

Well, there are not very many altogether. There are Edinburgh, Glasgow, and three or four other towns. We want to narrow the thing as much as possible, so far as this difficulty is concerned. There is a difficulty, I agree, in the case of Scotland, where we have got to ascertain the site value. But I do not think the difficulty there will be quite as great as is suggested. There is not the same difficulty when you come to sell a flat as when you come to lease it. Let me put this case to the hon. and learned Gentleman. Supposing there is a flat which is sold to-day at, say, £1,000, and the same flat is sold 10 years hence at £1,500. Unless there has bean an improvement in the flat itself, and a lot of money spent upon it in the way of providing fittings, which would have to be taken into consideration by the Commissioners, the improved value means that the increment must be due to an improvement in the value of the neighbourhood. That is the increment of the site value.

Mr. SCOTT DICKSON

indicated dissent.

Mr. LLOYD-GEORGE

The hon. and learned Gentleman smiles at that. What other suggestion will he make? The improvement in the value of flats in that neighbourhood is exactly the same thing as the improvement in the site value of a house. If there is any other suggestion he can put forward to account for the increase in the value that will be taken into consideration by the Commissioners. We make no provision for the Scottish case. The Commissioners have come to the conclusion that they can get at the value of the Scottish freehold. All this was argued by the right hon. Gentlemen when appealing to the Government to deal with leases for flats, and now he turns round and says, Why do you do this? It is for the very reasons that he advanced a while ago when we were dealing with Clauses 1 and 2. Now he turns round and questions his own reasons. It is rather an interesting exhibition. If I had time to read up his speeches I could quote them to him, and so save all the time we are spending over the discussion of this Clause.

Mr. PRETYMAN

As I understand, Increment Value Duty is charged upon the interest of the owner. Where the owner has parted with a portion of his interest by long leases, the only thing he would be charged upon would be the interest he retains, and therefore a large part of the duty would be lost.

Mr. LLOYD-GEORGE

I have made about fifty explanations of this matter. The hon. and gallant Member talked as if the leases of flats were for 99 years. That is not the way in which flats or chambers are let. If he will make inquiry he will find that they are let on much shorter leases, the periods being seven, 14, and 21 years as a rule.

Mr. WATSON RUTHERFORD

I wish to ask a question as to the meaning of the Clause. Supposing there are in a neighbourhood two shops with houses above them; in one case a man resides in the house and works the shop, and therefore he has a lease of the whole place. In the other case, the house and the shop are leased to different tenants. In the event of the owner of the house and shop, which are leased separately, dying, or selling his interest, there is, I understand, no duty to pay. In the case of the next-door house and shop, which are let to one tenant, if the owner dies or sells his interest, is there duty to pay? Another point is this: Supposing you have a ground-floor flat, or a first-floor flat let at £500 a year, and the lessee dies, or sells it, there is no duty to pay, whereas the lessee of a small house of £25 a year has got to pay duty. If we are to understand that that is the meaning of the Clause, we will have little to do except to form a judgment as to whether it is equitable.

Mr. LLOYD-GEORGE

The hon. and learned Gentleman formed his judgment two or three months ago. He thought then it was inequitable that we should not do this; and now that we propose to do it he says it is inequitable.

Clause read a second time, and added to the Bill.

Mr. LLOYD-GEORGE moved, after Clause 6, to insert the following:—