Clause 21.—(PROVISIONS AS TO CERTAIN BUILDING COMPANIES NOT CARRYING ON A TRADE.) (Hansard, 6 July 1960)

§ Mr. Graham Page (Crosby)
I beg to move, in page 17, line 30, at the end to insert: Provided that this subsection shall not apply if—

(a) the shares in the company are sold by a person or persons to another company and the shares in each company are held (directly or indirectly) by the same person or by the same persons in the same proportion, or

(b) the shares are sold by one company to another company and the shares in each company are held (directly or indirectly) by the same person or by the same persons in the same proportion.

regard being had in each case to any differences in the nature of the shares or the rights attaching thereto. Clause 21 as it stands is intended to tax the gains on the sale of shares in a building company to another similar type of company. I am putting it very briefly because I am sure that the House knows full well what is contained in that Clause. The intention of this Amendment is that where the parties are the same, the seller and purchaser, the Clause should not bite. I can, perhaps, give an example best in this way.
9.30 p.m.
There are a number of financiers who carry out the development of sites each by the means of a separate company, 575 and then, quite genuinely, wish to place a holding company to take over those separate companies, genuinely as an investment company. The actual individual does not change. The financier holding 99 per cent. in each of the building development companies is going to hold 99 per cent. of the shares in the holding company, holding it as an investment. As Clause 21 stands, he would be caught.
There was on the Notice Paper, if I may refer to it although it has not been called, a Government Amendment which referred only to a company being a shareholder in the building company selling its shares to an investment company. Frankly, I could not understand why that Amendment restricted the share selling individual to a company.
Therefore, the Amendment which I move covers not only the company which holds shares in the building company and disposes of those shares to the investment company but includes the individual as well. Where the individual shareholder in the building company is to have the same proportion of shares in the investment company he would by this Amendment escape the Clause as it stands.

§ The Solicitor-General
I think that all I need to say is that this seems to the Government an acceptable Amendment for the reasons advanced by my hon. Friend the Member for Crosby (Mr. Graham Page). I think it is right to replace with this Amendment the Government Amendment which we did not move and which related purely to transactions between companies. I promised my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) to consider this point, and I conceded that the Clause as drawn goes too far in perfectly genuine amalgamations between companies where there is no possibility of tax evasion, and for that reason I would advise the House to accept this Amendment.

§ Mr. Millan
I should like to ask the Solicitor-General only one question. If this is a perfectly acceptable Amendment to Clause 21, I wonder if he will explain why it is not also a perfectly acceptable Amendment to Clause 20? I should have thought that the considerations under Clause 21 might have been 576 roughly the same as the considerations to be taken into account under Clause 20. Why have we got this Amendment for one Clause and not the other?

§ The Solicitor-General
I ought to have intervened on the last Amendment, and I will certainly intervene on this to thank the hon. Member for Gloucester (Mr. Diamond) for having put right the drafting of the Clause.

§ Mr. Mitchison
I congratulate my hon. Friend the Member for Gloucester (Mr. Diamond) on being the first hon. Member on this side of the House to secure any concession from the Government.

§ The Solicitor-General
I beg to move, in page 18, line 16, at the end to insert: Provided that where all the shares in the company belong to another company, that other company may, by notice in writing given to the surveyor within one year after the commencement of the winding up, elect that if in the winding up the company acquires the interest or interests of the subsidiary company in the building or buildings, the foregoing provisions of this subsection shall not apply and shall be deemed not to have applied, but that if the acquiring company sells the interest or any of the interests, or grants an interest thereout, or sells an interest created thereout, that company shall be chargeable to income tax under Case VI of Schedule D on the amount which would have been its profit if the interest or interests it acquired had been trading stock acquired for the amount which under the foregoing provisions of this subsection (if they had had effect) would have been deductible in ascertaining the amount of profits or gains chargeable to tax referred to in those provisions; and if the company elects as aforesaid it shall be treated for the purpose of subsections (1) and (3) of this section as if its activities had included the erection of the building or buildings, whether or not it would otherwise have been so treated. This is a corollary to the Amendment which we have made to this Clause, which lets out from the charge imposed by the Clause sales of shares in connection with company amalgamations involving no change of beneficial ownership. A redeployment of assets within a group of companies might well take the 577 form of the liquidation of subsidiary companies and of the taking into its own ownership by the parents of the subsidiary's assets; and it seems to us that in those circumstances the Clause ought not to apply, on the condition that the parent company will itself become liable to any profit which it makes on a subsequent sale of the building.

§ The Solicitor-General
I beg to move, in page 18, line 16, at the end to insert: (4) For the purposes of this section there shall be disregarded any building provided for use, and brought into use, for the purposes of a bona fide trade carried on by the company, other than a trade of dealing in securities or land or buildings, or of developing land, or of the provision of services for the occupier of land an interest in which is held by the company. The Amendment provides that for the purpose of determining whether or not this Clause applies there shall be disregarded any building provided for use and brought into use for the purpose of a bona fide trade carried on by a company, with the exception of certain trades in relation to which we feel that the let-out would be inappropriate. This Amendment is in response to a point made in Committee by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), which we felt to be a valid point.