HC Deb 22 May 1962 vol 660 cc328-55

8.15 p.m.

Sir John Barlow (Middleton and Prestwich)

I beg to move, in page 12, line 41, at end to insert: Provided that no property of any description shall be chargeable assets if it is used or to be used in its trade by a body of persons carrying on a trade which consists of the working of mineral deposits of a wasting nature outside the United Kingdom.

The Temporary Chairman

I suggest that we should also discuss at the same time the proposed Amendment to Clause 13 in the name of the hon. Gentleman, in page 18, line 45, at end insert: Provided that this subsection shall not apply to the shares held by a United Kingdom public company in a company the trade of which consists of the working of mineral deposits of a wasting nature outside the United Kingdom.

Sir J. Barlow

That would be convenient, Mr. Thomas.

Clause 10 deals with chargeable assets. It seems to me that the Chancellor, quite rightly, has cast his net very widely, but presumably he will recognise the justice and logic of the suggestion that he has cast it a little too widely.

The Clause as drafted strikes at the assets of an overseas mining company merely because they have to do with land. There are two main reasons why this type of asset should not be included. The first is that many of these companies are overseas mining companies within the definition of overseas trade corporation, and a very Gilbertian situation arises inasmuch as such companies established on an O.T.C. basis will be wholly exempt on trading income but will attract taxation on any disposals of capital assets consisting of interests in land.

It seems quite wrong and inconsistent to tax a company on its capital gains while exempting it on its trading income. I hope that my right hon. and learned Friend will consider that.

Secondly, the case may arise where a mining company, managed in this country but operating overseas, may want to change its capital. It may want to sell parts of its assets or, in the course of normal development and trade, it may wish to do various things with its shares. In some cases, it might easily happen that, if it tries to develop in the normal way, within three years it might attract this tax, and I do not think for a moment that that was in the mind of my right hon. and learned Friend. I hope that he will at least look into this even if he cannot agree completely to the Amendment as drafted.

My second Amendment is to Clause 13, which strikes at profits made on sales of shares in land-owning companies, particularly those which are tightly controlled. It is unfortunate that the Clause strikes at other people who are outside its mischief. It is very wide indeed. An overseas mining company which uses land only for extracting minerals can fall within the definition of a land-owning company if 20 per cent. of its assets are held as interest in land. I do not think that the Chancellor meant to include companies such as that. Presumably, it is not intended that the sale by a non-dealing United Kingdom company of shares in an overseas mining company should be caught by the speculative gains tax without time limit.

I hope that the Attorney-General will look at this matter. It is a simple point in that it deals with the same kind of assets which I mentioned on the other Amendment and which I do not think the Chancellor meant to bring within his orbit. I hope that the Attorney-General will consider my words and change the Clause if he agrees with me.

The Attorney-General (Sir Reginald Manningham-Buller)

I have listened with care to what my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) has said in support of these two Amendments, but we are not convinced that it would be right to concede the proposed exemption.

My hon. Friend made it clear that the first of his Amendments operated only in respect of land and interests in land, although the Amendment in terms refers to property of any description. In fact, quite apart from this Amendment, buildings occupied and used for the purposes of a mining trade with ancillary land are exempt under subsection (4), and plant and machinery are either tangible movable property and exempt unless they come within Clause 10 (1, c) or exempt as permanent or semi-permanent structures under Clause 10 (4, a), so the Amendment in fact would appear to affect only the position of interests in mining land.

We are not satisfied that any case is made out for exempting such interest from being chargeable assets. If a company sells freehold or leasehold interests, if it owns large interests in land and sells those interests or part of them within three years of acquisition at a profit, there seems to be no logical reason why that profit should be excluded from the Case VII charge any more than a similar profit on the sale or leasing of any other kind of land wherever it may be situate. I am sorry to disappoint my hon. Friend by saying that, but when one examines the structure of this tax, it is difficult if not impossible to make out a logical case for this exemption.

I now turn to the second Amendment in which my hon. Friend is seeking exemption in relation to shares held by a United Kingdom public company not being a company the trade of which consists of the working of mineral deposits of a wasting nature outside the United Kingdom. I do not want to say too much at this stage about the content of Clause 13, but to deal with this point I must remind the Committee that the sale of shares dealt with in Clause 13 is to meet the case where instead of disposing of the land within three years, shares in the company are sold instead. If a mining company or any other company sells the land within three years, it would be liable to tax. The sole effect of that Clause is to avoid the escaping of that liability by the sale of shares instead.

If the United Kingdom public company controls a company which owns ordinary land abroad to such an extent that it is technically a land-owning company, it would be liable on any gain arising from the sale of share in that company, however long the shares had been held, but the charge will not exceed the due proportion of any gain which would have arisen to the land-owning company if, at the time the shares were sold, it had sold at market value any land which it then owned for not more than three years.

I am sorry to disagree with my hon. Friend, but I cannot see any ground for enabling a company of the sort dealt with in his Amendment to be exempt from liability on selling shares instead of selling the land itself, and I must therefore ask the Committee to reject the Amendment.

Sir J. Barlow

In view of the Attorney-General's explanation, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Diamond

I beg to move, in page 13, line 33, to leave out subsection (4).

The Temporary Chairman

It may also be convenient to discuss with this Amendment the Amendments in page 14, line 7, to leave out "or (4)", and in page 14, line 13, to leave out "or (4)".

Mr. Diamond

The second and third Amendments are consequential and I need not comment on them.

Clause 10 deals with chargeable assets and describes them to begin with as being all forms of property. But when we reach subsection (4), which we seek to omit, there is excepted from all forms of property one well-known kind of property, namely, a building or part of a building occupied and used for the purpose of a trade, profession or vocation. That is the generality of the situation.

I quite understand that there are exceptions. There are the exceptions described in subsection (6), about which we all agree. There is the exception described in this very subsection referring to dealing companies. I need not go into that exception, because we are all agreed about it. What we are not agreed about is the justification of the argument which is incorporated in subsection (4), namely, that a trade which uses a building should not pay tax on the capital profit emerging from the sale of that building if it sells it within the period and in the circumstances in which any other person selling land in this way would pay tax.

The whole purpose of this short-term capital gains tax as put forward by the Government is that if property is disposed of by any person within a short period, that is, six months with a certain kind of property and three years with others, and if it is in the mind of that person to make a profit, tax shall be payable.

8.30 p.m.

What does a trade, profession or vocation do? What motivates the trader who is carrying on his trade? The simple answer is his desire to make a profit. That is what it is all about. He desires to make a profit in the normal way by carrying on his trade. Normally, he does not deal in property, but if, incidentally, he has a property to dispose of, he will try to make a profit when disposing of it. If a business wants to move, or has to move, the considerations which will affect the time of moving will be the market value of the property, whether it is likely to go up or to go down, what development there is to be in the neighbourhood, and so on—all the normal considerations would apply to anybody else who was seeking to make a profit by dealing in property alone.

This does not refer to a property dealer, but to a business which incidentally has property. What motivates the trader is the desire to make a profit, and where the whole of the capital gains tax is based on the principle that if someone makes a capital profit of this kind he pays tax on it, I do not see why the property to which I have referred should be excluded.

I hope that I have not misunderstood the position. The case can be made simply and shortly, and I trust that I have made it, but I am bound to go on to the question of plant, and here I may have misunderstood the position because it is nothing, like as simple as the other case. If I understand it aright, fixed plant comes under the heading of property and is not excluded by the reference to tangible moveable property. Fixed plant would be property which would be subject to the capital gains tax. If I am wrong, I am sure that the Attorney-General will stop me immediately, because there is no point in developing an argument which is based on a misreading of the Clause.

There is a fine distinction between what is fixed plant which would be property subject to this charge, and tangible movable property which would not be subject to this charge. So far as I am aware, the benches on which we are sitting may be one of two things. If they rest on the Chamber floor they are tangible movable property, but if they are firmly fixed to the concrete floor of the Chamber they are fixed property, and would be transferred only on the transfer of the House of Commons itself. That illustrates the fine distinction between the two types of property, and is an argument against differentiation because of the complications that will arise.

Suppose, however, that we have to accept this complication and this fine line of division, and that we have to accept, also, that if these benches were in a building used for trading purposes they would be tangible movable property in certain cases and would be excluded, but if they were a part of the building itself they would be excluded because of this subsection. I do not follow that. If they were part of the property they would, presumably, be excluded under the terms of subsection (4), but if they were not part of the premises they would not be so excluded, so we would get into the extremely difficult situation that plant fixed to the property would, as ordinary property, pay this tax, but if included in the definition of building or part of a building would not.

I therefore say that we are in an extremely difficult position, and more particularly I say that we can remove these complications and restore sanity to the logic of the argument by saying that any property on which there is a capital profit, the capital profit having been obtained by a person who is carrying on a business with a view to making profit, never mind whether it is land or not, should pay capital gains tax in the ordinary way. That is why I believe that this subsection should be removed.

Mr. Millan

I wish to support the case put by my hon. Friend the Member for Gloucester (Mr. Diamond). There was a certain amount of discussion earlier today about the increasingly artificial distinction drawn between income and capital. There may be a good deal of room for argument about taxation legislation, but a distinction like this is extremely artificial from the point of view of taxable capacity.

A business operates to make money. If it makes a profit in this way that profit ought to be taxable. There is a considerable case for making that profit taxable under Case I under the ordinary profits of a trade or vocation. For other Income Tax purposes we have to draw these distinctions and have these categories of capital assets. It is perhaps going rather farther than this Amendment to make the kind of suggestion I have made, that in so far as profit is made by a taxable asset it should be taxable, but probably in every circumstance that ought to be done.

This Amendment does not go nearly as far as that. It limits the taxable nature of the receipt to cases where the building has been disposed of within three years from purchase. If a building is purchased for some perfectly legitimate purpose of the business, even in the full expectation that the building will be maintained for the purpose of the business and remain a capital asset, and some particular circumstance arises during the period of three years from which the purchase is made and the building has to be sold, it seems that there is a strong case in this restricted category for any profits on the transaction to be taxable.

The circumstances which can be used as an argument for making this a nontaxable receipt do not apply. Whatever may have been the intention of the purchaser in the first place, even if it were to keep the building permanently as part of the taxable assets of the business, that has not happened. For some presumably good reason the building has been disposed of. Therefore, one can say that the original intention has been frustrated. In those circumstances the argument that it then becomes simply a capital receipt and a nontaxable receipt seems to fall completely to the ground. This is a very good case where the distinction between capital and income which the Government wish to lay down in other cases ought to be obliterated and this Amendment should be accepted.

I do not want to go into detail about plant, but I agree with my hon. Friend that the situation seems extremely complicated. I imagine that what the Government are trying to do, although I cannot see them doing it by this Clause, is to make fixed plant in exactly the same position as the building itself. Subsection (4) does not mention fixed plant. Perhaps the Attorney-General can explain if it is covered in the definition of a building. One would have thought that the Government would have covered fixed plant by subsection (4). If it is included that can only be by implication. That seems unsatisfactory, but perhaps we ought to wait to hear what the Attorney-General says.

The same considerations and circumstances ought to apply to movable plant as they would if the Amendment were accepted. If for any reason movable plant is sold within three years—whatever may have been the original intention—and profit is made, the profit ought to be taxable. There would be very few profits from the sale of plant within three years after purchase because normally plant deterorates quite rapidly, even if it is not used at all. In principle the same sort of consideration ought to apply. Perhaps it is not so important, but I hope that we shall hear something from the Attorney-General about it.

What seems to be true, according to subsection (2, c), is that if movable capital assets are disposed of without their having been employed in the business, any profit on them is chargeable. One finds a certain amount of difficulty in envisaging many circumstances in which this would happen. One sees no reason why the Government should put in this provision and also include subsection (4). I should have thought that there was a basic contradiction in principle between the proviso in subsection (2, c) and the whole of subsection (4). I hope that, first, the Attorney-General will make clear what the Government's intentions are and whether this Clause carries out those intentions faithfully, and, secondly, that he will say something about the principle in subsection (4). Whatever we may think about the distinction between capital and income in other contexts, the principle in subsection (4) is quite wrong and the subsection ought to be eliminated.

The Attorney-General

The hon. Member for Gloucester (Mr. Diamond) put his points, if I may say so, extremely clearly, and I hope that I have appreciated them fully. If it were the case that we were setting out to tax all capital gains, it would, indeed, be anomalous to make the exemption provided by subsection (4). The approach of the party opposite is that this should be a tax on all capital gains. On this Amendment, in the present situation, I think that one must proceed on the basis that this is not a capital gains tax of that kind, but a tax on speculative short-term gains. I put this point of view on that basis to the hon. Gentleman.

First, it is inherently improbable that buildings with ancillary land, for instance, a factory yard, used and occupied for the purpose of a trade carried on by the person who has disposed of them, would have been acquired by him as a speculation. The probability is that they were acquired because he intended to carry on the business. Quite apart from that consideration, there are considerable practical difficulties to which the hon. Gentleman, in the latter part of his speech, drew attention.

If this exemption is not made and if the business is sold as a going concern and a lump sum is paid for the purchase, then the vendor, if this exemption were not there, might be liable in respect of different items in the totality of the business on quite arbitrary lines, and it would be necessary to apportion the purchase price between the different items.

For instance, if one of the buildings that he was selling in the totality was a building bought within the period of three years it would be liable to tax on so much of the total profit attributable to that building. Then one would have to bear in mind that buildings which had been acquired before the three years would also be exempt from tax. Then there would be the case that for other assets, if there was no exemption for them, the period would be six months.

Having considered the practical difficulties and in the light of the inherent improbability that a business would be bought for a speculation by a person who had occupied and used it for the purposes of trade, we have come to the conclusion that in the circumstances it is right in the context of this tax to make this exemption.

8.45 p.m.

We realised that if we stopped just with this exemption it left a possibility that some unscrupulous persons would use it for the purpose of tax evasion. The purpose of subsection (6) is to stop that happening. I need not, on this Amendment, refer to that in detail. The Committee will see that if it is challenged a person would have to establish that the acquisition of the property was made for the purpose stated in subsection (4) and not wholly or partly for the purpose of realising a gain from the disposal of it". We have blocked that escape route, I hope satisfactorily.

It comes down to the question whether a speculative gains tax should be applied to the sale of a business which has been carried on by the vendor and which he himself occupies and uses for the purposes of the trade, profession or vocation. For the reasons I have given, we think that that would be wrong in the light of the practical difficulties and the inherent improbability that such an acquisition would have been made for the purpose of a speculation.

The hon. Member for Glasgow, Craigton (Mr. Millan) raised a point about plant. I think that if it is fixed plant it comes within subsection (4, a) as a permanent or semi-permanent structure". Tangible movable property is excluded already. But I will certainly consider whether it is necessary to make special provision to deal with the point raised by the hon. Member about fixed plant.

Mr. Diamond

Can the Attorney-General tell me simply what the position is with regard to fixed plant? Is a profit made from the sale of fixed plant by a person carrying on the business subject to a capital gains tax?

The Attorney-General

The intention is that if the business is sold as a whole by a person who occupies the building or part of the building for the purposes of a trade, profession or vocation carried on by him, he should be exempt. But I will certainly look into the point.

Mr. Houghton

I usually find the learned Attorney-General very persuasive in argument. I once agreed with him when he stood alone. I am always very impressed with the arguments he adduces, but I must say that on this difficult question I was not convinced by what he said just now. It seems to me that one of the objects of the Government in drafting this new tax was to exclude as far as possible any consideration of motive. The test applied has been the length of time between the acquisition and disposal of the asset. That was an understandable purpose; to avoid a lot of argument between the taxpayer and the Inland Revenue as to why the taxpayer did what he did: was it with a view to making a profit, or was there some other purpose in mind?

What the Attorney-General said a moment ago about the problem of apportioning the value of a particular asset on the value of a business as a going concern would certainly be the case if there was any challenge by the Inland Revenue of the motive that prompted the person to buy the business and then to dispose of it.

It is conceivable that a person with an eye to making a capital gain would buy a corner shop as a going concern, not being very interested in the business of the shop but being very interested in the property. After running the business for a short time, he would be able to dispose of it as a going concern to someone who might also have in mind the making of a capital gain on the disposal of the property later on.

If that were believed to be in the mind of the person who acquired the property, the Inland Revenue could challenge him, and could ask for an apportionment to be made to the value of the property, as distinct from the value of the stock in trade and any goodwill there might be. In certain circumstances, that difficulty would have to be dealt with.

A small business, or a professional man—a solicitor, or anyone buying a property for his own occupation for a while—would be more likely to have a capital gain in mind than would a larger business, where there would be the site, or the cost of moving, and other considerations in the running of the business—the erection of plant, or, in some cases, a particular address. In those cases, it is unlikely that a transaction with a view to capital gain would take place yet, in such circumstances, capital gains can be substantial.

We clearly understand that we are dealing only with a gain that would be excluded from the assessment on the profits of the business, but we feel that to have a capital gain made in those circumstances, which is charged neither as profits of the business nor as a capital gain, leaves a considerable amount of capital gain outside the scope of this tax. The learned Attorney-General says, "Of course, this is really a speculative gains tax, and we must not try to turn it into anything else", but we think that it is much better to include this within the scope of the tax and so get rid of the tiresome problem of motive, which would otherwise arise.

There are other reservations in subsection (6) regarding the acquisition of a site with a view to the erection of a building or a structure, and its disposal, so some safeguards have had to be introduced. We are talking, of course, of a capital gain realised within the stipulated period. No tax will arise on any capital gain in a business which stays put for three years, and, where there was a strong possibility of a business being moved and a capital gain being swept up as a process outside that period, there would be a strong temptation to do that, as that capital gain would be tax free.

In these circumstances, I cannot see why the exemption in subsection (4) should remain. We shall require a much more convincing argument than we have so far heard from the Attorney-General before we shall allow the matter to pass.

Mr. Millan

It is obvious from the remarks of the Attorney-General on the question of fixed plant that the Government have not thoroughly thought out this provision. The words any permanent or semi-permanent structure in the nature of a building are not sufficiently wide to include fixed plant. Such plant in the sense of machinery is normally defined as plant that is bolted or screwed to the floor, and I appreciate that machinery bolted to the floor is not as permanent a structure as something in the nature of a building.

The Attorney-General was unable to say sufficient about movable plant. This shows that the Government have not given sufficient consideration to this question either. My hon. Friend the Member for Sowerby (Mr. Houghton) put this question of purpose lucidly because we are really importing into subsection (6) a substantial question of motive in a way that is not applied anywhere else.

The whole point of having a time limit —of six months for securities and three years for land—is that, starting from the basic assumption of the Government, it does not involve one in considering people's motives. This disposal within a certain time is taken to settle the matter, and it is unfortunate that in subsection (6) we should have imported the question of motive. As I say, this does not appear elsewhere. The Attorney-General mentioned exclusively the technical difficulties that would arise on the sale of the business as a whole. Is he aware that we are not discussing that but are talking about the sale of a particular building? I should have thought that the number of cases in which a particular building is sold within three years of it being purchased will be very much higher than the number of cases in which there will be the sale of a complete business which happens to include a building or buildings purchased in the three years before the date of the sale.

It is not sufficient to answer the point by talking, as the Attorney-General did, exclusively about the sale of a business. I can best illustrate this by putting two concrete examples to the Attorney-General and perhaps he will be able to tell us what provision the Bill makes for them. Supposing a company which has a chain of garages throughout the country decides to buy a site for the construction of a garage. Supposing that one of two things happens—that it is subsequently decided, within the period of three years of purchase, not to proceed with the construction of the garage for some perfectly legitimate reason, even though the land was purchased in the first place for the purpose of its construction.

If the company can prove under the Bill that there was a legitimate motive, what will happen if the company makes a profit on the sale of the site, as can happen with the soaring prices of property? Will that property be taxable under the subsection? This is a case in which a company has not used the site for the purposes of its business, though it happened to buy the site in the first place legitimately for those purposes.

In the second case, suppose that it constructed a garage or was a company which purchased a showroom and sold it within the three years without having used it for the purposes of the business or having used it only far a brief period. Would it be taxable in those circumstances? There seems to be no reason why it should not be taxable, but perhaps the Attorney-General could answer these specific points and not talk in general terms of the sale of the business as a whole. I should have thought that these were the kinds of cases which often happen in ordinary commercial transactions. What would happen under subsection (4) to those two cases?

9.0 p.m.

Mr. Diamond

I hope that we shall not allow the Amendment to pass without making the strongest possible representations, and I hope that this is a matter on which we shall express our views in very clear terms in the Division Lobbies. The Attorney-General was very courteous. He said that he understood my point. If I may return the courtesy, I understand his point of view perfectly. He has an extremely weak argument and is doing his best to defend it. He produced two arguments which he was not even entitled to use.

First, the right hon. and learned Gentleman used the argument of the complexity of apportioning the purchased price. If he was talking about the apportioning as between the premises and other assets in the business, he knows that that apportionment has to take place already, because one cannot deal with the matter otherwise and one has to deal with Stamp Duty in any

case. If he was talking about apportioning the price of the building alone, as between different parts of the building bought at different times, partly within and partly without the three-year period, there is no difference between that and the problem which arises in any case when there is a capital gain on land when one part has been bought within and the other outside the period and the whole lot has been sold in one lump sum. There is nothing at all in that argument, therefore, except the usual dust which is thrown in the jury's eyes from time to time.

I return to the first point that the Attorney-General made, on the question of speculation. I may be wrong, but I have not seen the word speculation" used once in the Bill. I have seen all sorts of descriptions, but not the actual word. Speculation relates to motive, and the whole Bill is designed to remove the question of motive. The Bill says that if a person buys stocks and disposes of them within six months we are not concerned with his motive. He will be deemed to have made a profit and will pay the tax. If he sells after six months we are not concerned with his motive and he is deemed to have realised a surplus on an investment on which he does not pay tax.

The Bill is designed to obviate going into the question of motives. To say that the inherent probability is that wherever this sort of sale arises it was not done with a view to making a profit, but was only incidental to carrying on the business, is an argument which the Attorney-General cannot use. In short, a distinction has been drawn. There is no justification whatsoever for the distinction and on the philosophy of the Bill, never mind the philosophy of the Labour Party point of view, this exemption should not stand. I therefore appeal to my right hon. and hon. Friends to press the Amendment to the full.

Question put, That the words proposed to be left out, to "shall" in line 38, stand part of the Clause:—

The Committee divided: Ayes 226, Noes 178.

Division No. 197.] AYES [9.5 p.m.
Aitken, W. T. Barber, Anthony Bell, Ronald
Ashton, Sir Hubert Barlow, Sir John Berkeley, Humphry
Atkins, Humphrey Barter, John Bridgood, John C.
Balniel, Lord Batsford, Brian Biffen, John
Bingham, R. M. Harrison, Col. Sir Harwood (Eye) Pearson, Frank (Clitheroe)
Birch, Rt. Hon. Nigel Harvey, Sir Arthur Vere (Macclesf'd) Peel, John
Bishop, F. P. Harvie, Anderson, Miss Percival, Ian
Black, Sir Cyril Hastings, Stephen Peyton, John
Bossom, Clive Heald, Rt. Hon. Sir Lionel Pickthorn, Sir Kenneth
Box, Donald Henderson, John (Cathcart) Pike, Miss Mervyn
Boyd-Carpenter, Rt. Hon. John Hill, Mrs. Eveline (Wythenshawe) Pilkington, Sir Richard
Boyle, Sir Edward Hill, J. E. B. (S. Norfolk) Pitt, Miss Edith
Bromley-Davenport,Lt.-Col.SirWalter Hirst, Geoffrey Pott, Percivall
Brooke, Rt. Hon. Henry Hobson, Sir John Prior-Palmer, Brig. Sir Otho
Brooman-White, R. Holland, Philip Proudfoot, Wilfred
Brown, Alan (Tottenham) Hollingworth, John Pym, Francis
Browne, Percy (Torrington) Hopkins, Alan Quennell, Miss J. M.
Bryan, Paul Hornby, R. P. Ramsden, James
Buck, Antony Hornsby-Smith, Rt. Hon. Dame P. Rawlinson, Peter
Billiard, Denys Howard, John (Southampton, Test) Redmayne, Rt. Hon. Martin
Bullus, Wing Commander Eric Hughes Hallett, Vice-Admiral John Rees, Hugh
Burden, F. A. Hughes-Young, Michael Rees-Davies, W. R.
Campbell, Gordon (Moray & Nairn) Hulbert, Sir Norman Renton, David
Cary, Sir Robert Hutchison, Michael Clark Ridley, Hon. Nicholas
Channon, H, P. G. Iremonger, T. L. Ridsdale, Julian
Chataway, Christopher Irvine, Bryant Godman (Rye) Roberts, Sir Peter (Heeley)
Chichester-Clark, R. James, David Robinson, Rt. Hn. Sir R. (B'pool, S.)
Clark, William (Nottingham, S.) Jenkins, Robert (Dulwich) Roots, William
Clarke, Brig. Terence (Portsmth, W.) Johnson, Dr. Donald (Carlisle) Ropner, Col. Sir Leonard
Collard, Richard Johnson, Eric (Blackley) Russell, Ronald
Cooper, A. E. Johnson Smith, Geoffrey Scott-Hopkins, James
Cordeaux, Lt.-Col. J. K. Jones, Rt. Hn. Aubrey (Hall Green) Sharpies, Richard
Corfield, F. V. Kerans, Cdr. J. S. Shepherd, William
Costain, A. P. Kerr, Sir Hamilton Skeet, T. H. H.
Coulson, Michael Kimball, Marcus Smith, Dudley (Br'ntf'd & Chiswick)
Courtney, Cdr. Anthony Kirk, Peter Smithers, Peter
Craddock, Sir Beresford Kitson, Timothy Smyth, Brig, Sir John (Norwood)
Crowder, F. P. Lancaster, Col. C. C. Speir, Rupert
Cunningham, Knox Legge-Bourke, Sir Harry Stanley, Hon. Richard
Curran, Charles Lewis, Kenneth (Rutland) Stevens, Geoffrey
Currie, G. B. H. Lilley, F. J. P. Steward, Harold (Stockport, S.)
Dalkeith, Earl of Lindsay, Sir Martin Stodart, J. A.
Dance, James Litchfleld, Capt. John Stoddart-Scott, Col. Sir Malcolm
d'Avigdor-Goldsmid, Sir Henry Lloyd, Rt.Hn. Geoffrey (Sut'nC'dfield) Studholme, Sir Henry
Deedes, W. F. Lloyd, Rt. Hon. Selwyn (Wirral) Talbot, John E.
Donaldson, Cmdr. C. E. M. Longden, Gilbert Tapsell, Peter
Doughty, Charles Loveys, Walter H. Taylor, Edwin (Bolton, E.)
Drayson, G. B. Lucas-Tooth, Sir Hugh Taylor, Frank (M'ch'st'r, Moss Side)
Duncan, Sir James MacArthur, Ian Taylor, W. J. (Bradford, N.)
Eden, John Maclean,SirFitzroy(Bute&N.Ayrs.) Teeling, Sir William
Elliot, Capt. Walter (Carshalton) McLean, Neil (Inverness) Temple, John M.
Elliott,R.W.(Nwcastle-upon-Tyne,N.) Macleod, Rt. Hn. Iain (Enfield, W.) Thatcher, Mrs. Margaret
Emmet, Hon. Mrs. Evelyn Macmillan, Maurice (Halifax) Thompson, Kenneth (Walton)
Errington, Sir Eric Macpherson, Niall (Dumfries) Thornton-Kemsley, Sir Colin
Farey-jones, F, W. Maginnis, John E. Tiley, Arthur (Bradford, W.)
Farr, John Manningham-Buller, Rt. Hn. Sir R. Touche, Rt. Hon. Sir Gordon
Fell, Anthony Markham, Major Sir Frank Turner, Colin
Fisher, Nigel Marten, Neil van Straubenzee, W. R.
Fletcher-Cooke, Charles Mathew, Robert (Honiton) Vaughan-Morgan, Rt. Hon. Sir John
Fraser, Hn. Hugh (Stafford & Stone) Matthews, Gordon (Meriden) Vickers, Miss Joan
Fraser, Ian (Plymouth, Sutton) Mawby, Ray Vosper, Rt. Hon. Dennis
Freeth, Denzil Maxwell-Hyslop, R. J. Wakefield, Sir Waved
Gammans, Lady Mills, Stratton Walder, David
Gardner, Edward Miscampbell, Norman Walker-Smith, Rt. Hon. Sir Derek
Gibson-Watt, David More, Jasper (Ludlow) Ward, Dame Irene
Gilmour, Sir John Morrison, John Webster, David
Goodhart, Philip Nabarro, Gerald Wells, John (Maidstone)
Goodhew, Victor Neave, Airey Williams, Dudley (Exeter)
Gower, Raymond Nicholson, Sir Godfrey Wills, Sir Gerald (Bridgewater)
Grant, Rt. Hon. William Noble, Mlchael Wilson, Geoffrey (Truro)
Grant-Ferris, Wg. Cdr. R. Nugent, Rt. Hon. Sir Richard Wise, A. R.
Green, Alan Oakshott, Sir Hendrie Wolrige-Cordon, Patrick
Gresham-Cooke, R. Osborne, Sir Cyril (Louth) Woollam, John
Grosvenor, Lt.-Col. R. G. Page, Graham (Crosby) Worsley, Marcus
Gurden, Harold Pannell, Norman (Kirkdale)
Hamilton, Michael (Wellingborough) Partridge, E. TELLERS FOR THE AYES:
Mr. Finlay and Mr. McLaren.
Ainsley, William Bennett, J. (Glasgow, Bridgeton) Broughton, Dr. A. D. D.
Allaun, Frank (Salford, E.) Blackburn, F. Brown, Rt. Hon. George (Belper)
Awbery, Stan Blyton, William Brown, Thomas (Ince)
Bacon, Miss Allce Boardman, H. Butler, Mrs. Joyce (Wood Green)
Balrd, John Bottomley, Rt. Hon. A. G. Callaghan, James
Baxter, William (Stirlingshire, W.) Bowden, Rt. Hn. H. W. (Lelcs.S.W.) Chapman, Donald
Beaney, Alan Bowen, Roderlc (Cardigan) Cliffe, Michael
Bellenger, Rt. Hon. F. J. Braddock, Mm. E. M. Collick, Percy
Bence, Cyril Brockway, A. Fenner Corbet, Mrs. Freda
Craddock, George (Bradford, S.) Jay, Rt. Hon. Douglas Price, J. T. (Westhoughton)
Cronin, John Jeger, George Probert, Arthur
Crosland, Anthony Jenkins, Roy (Stechford) Pursey, Cmdr. Harry
Cullen, Mrs. Alice Johnson, Carol (Lewisham, S.) Randall, Harry
Davies, G. Elfed (Rhondda, E.) Jones, Dan (Burnley) Rankin, John
Davies, Harold (Leek) Jones, Elwyn (West Ham, S.) Redhead, E. C.
Davies, Ifor (Gower) Jones, Jack (Rotherham) Rhodes, H.
Davies, S. O. (Merthyr) Jones, J. Idwal (Wrexham) Roberts, Albert (Normanton)
Diamond, John Jones, T. W. (Merioneth) Roberts, Goronwy (Caernarvon)
Dodds, Norman Kelley, Richard Robertson, John (Paisley)
Donnelly, Desmond Key, Rt. Hon. C. W. Rodgers, W. T. (Stockton)
Driberg, Tom King, Dr. Horace Ross, William
Ede, Rt. Hon. C. Lawson, George Short, Edward
Edwards, Rt. Hon. Ness (Caerphilly) Ledger, Ron Silverman, Sydney (Nelson)
Edwards, Robert (Bilston) Lee, Frederick (Newton) Skeffington, Arthur
Edwards, Walter (Stepney) Lee, Miss Jennie (Cannock) Slater, Joseph (Sedgefield)
Evans, Albert Lever, L. M. (Ardwick) Smith, Ellis (Stoke, S.)
Finch, Harold Lewis, Arthur (West Ham, N.) Sorensen, R. W.
Fletcher, Eric Loughlin, Charles Spriggs, Leslie
Foot, Dingle (Ipswich) Lubbock, Eric Steele, Thomas
Foot, Michael (Ebbw Vale) Mabon, Dr. J. Dickson Stones, William
Forman, J. C. MacColl, James Strachey, Rt. Hon. John
Fraser, Thomas (Hamilton) MacDermot, Niall Stross,Dr.Barnett(Stoke-on-Trent,C.)
Galpern, Sir Myer Mclnnes, James Swain, Thomas
George, LadyMeganLloyd(Crmrthn) McKay, John (Wallsend) Swingler, Stephen
Ginsburg, David McLeavy, Frank Taverne, D.
Gourlay, Harry MacMillan, Malcolm (Western Isles) Taylor, Bernard (Mansfield)
Greenwood, Anthony Mallalleu, E. L. (Brigg) Thomas, Iorwerth (Rhondda, W.)
Grey, Charles Mapp, Charles Thompson, Dr. Alan (Dunfermilne)
Griffiths, David (Rother Valley) Mason, Roy Thomson, G. M. (Dundee, E.)
Griffiths, Rt. Hon. James (Llanelly) Mayhew, Christopher Wade, Donald
Griffiths, W. (Exchange) Millan, Bruce Wainwright, Edwin
Grimond, Rt. Hon. J. Milne, Edward Warbey, William
Gunter, Ray Mitchison, G. R. Watkins, Tudor
Hale, Leslie (Oldham, W.) Morris, John Weitzman, David
Hall, Rt. Hn. Glenvil (Colne Valley) Moyle, Arthur White, Mrs. Eirene
Hart, Mrs. Judith Mulley, Frederick Whitlock, William
Hayman, F H. Neal, Harold Wilkins, W. A.
Henderson, Rt. Hn.Arthur(Rwly Regis) Noel-Baker,Rt.Hn.Philip(Derby.S.) Williams, D. J. (Neath)
Herbison, Miss Margaret Oliver, G. H. Williams, LI. (Abertillery)
Holman, Percy Oram, A. E. Williams, W. R. (Openshaw)
Holt, Arthur Oswald, Thomas Willis, E. G. (Edinburgh, E.)
Hooson, H. E. Owen, Will Wilson, Rt. Hon. Harold (Huyton)
Houghton, Douglas Padley, W. E. Winterbottom, R. E.
Howell, Charles A. (Perry Barr) Paget, R. T. Woodburn, Rt. Hon. A.
Howell, Denis (Small Heath) Panned, Charles (Leeds, W.) Woof, Robert
Hoy, James H. Parkin, B. T. Yates, Victor (Ladywood)
Hughes, Cledwyn (Anglesey) Pearson, Arthur (Pontypridd) Zilliacus, K.
Hughes, Emrys (S. Ayrshire) Pentland, Norman
Hunter, A. E. Plummer, Sir Leslie TELLERS FOR THE NOES:
Hynd, H. (Accrington) Popple well, Ernest Mr. G. H. R. Rogers and
Prentice, R. E. Mr. McCann.

9.15 p.m.

Mr. F. V. Corfield (Gloucestershire. South)

I beg to move, in page 13, line 38, after "interest)" to insert: or land used for the purposes of husbandry only, together' with the farmhouse, farm cottages and farm buildings used in connection with that land". I can explain the abject of this Amendment very shortly. It is designed to ensure that farmland managed as a genuine agricultural enterprise is not included as a chargeable asset under this Clause.

As I read the Clause—it may well be that I have read it incorrectly—farmland would be excluded only if it were ancillary to some farm buildings. This seems to me an odd way of expressing this sort of situation, because normally the buildings are ancillary to the farmland. There are cases in which genuine farming enterprises can be carried out on land on which there are no buildings. It can happen in many cases that a forced sale takes place within the three-year period, particularly when a farming enterprise is carried on as a partnership, and something happens, and the partnership is dissolved.

I hope that, even if my right hon. Friend the Chief Secretary cannot accept the Amendment, he will assure us that it is the Government's intention to exclude genuine farmland from the operation of this Clause and that if it is not excluded at the moment he will move an Amendment to exclude it at a later date.

Mr. Ronald Bell (Buckinghamshire, South)

I associate myself with what my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) has said. I should like to go even further, because it seems to me that not only farmland but all land and all kinds of real property should come within the ambit of an Amendment like this. It is difficult to understand why there should be this rather penal provision when the land has not been sold by the owner but has been compulsorily taken from him.

Mr. Brooke

I will confine myself to the case which has been put forward so cogently and pleasantly concisely by my hon. Friend the Member for Gloucestershire, South (Mr. Corfield).

The Government considered very carefully what should be the appropriate treatment of farms and farmland in this Bill. As my hon. Friend has properly observed, the Bill is so drafted that buildings occupied and used by the owner for the purpose of farming are exempt under subsection (4) from any charge under Case VII, and the farmhouse, if it has been occupied by the farmer as his sole or main residence, is exempt from the charge under subsection (3). To that extent, the Amendment is superfluous.

It would be impossible to give a general exemption to farmland, as I think he appreciates. If there were such an exemption, anyone who owned agricultural land could sell pieces of it from time to time within the three-year period for development at a substantial profit and would escape the charge to tax entirely. If my hon. Friend's suggestion were accepted, the speculators would, in my judgment, step in and would decide that there was an attractive possibility of buying up farms, farming them for a very short time themselves, and then selling part of the land for development. I am sure that that is not what my hon. Friend wishes. His concern is that the farmer shall be able to carry on his business in the proper way.

My hon. Friend raised the question of partnership. It is not the normal case, but it might sometimes occur. If the partnership is being broken up and the land is remaining in agricultural use, I think it most unlikely that there would be any severe charge to tax because the land would not be liable for tax had it been owned for more than three years. Movements in agricultural prices are not so swift that vast capital gains arise within three years on the sale of agricultural land for continued agricultural use. If, on the other hand, when a partnership is being broken up part of the farmland is sold for development purposes, there seems no reason why a charge for tax should not arise.

The Government have considered the matter carefully. The question of compulsory purchase, to which my hon. Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) referred, will arise on a subsequent Amendment and I say no more about it now. My hon. Friend the Member for Gloucestershire, South will, however, appreciate that it would not be fair to anybody to give a general exemption for farmland from the Bill as he suggests.

I hope that what I have said about the farm buildings and the farmhouse will satisfy my hon. Friend that a substantial part of the purpose of his Amendment is already satisfactorily dealt with in the Bill.

Mr. Corfield

I agree with a great deal of what my right hon. Friend has said, but would it not be possible to consider the problem of a partnership where one partner wishes to go on with partnership? It is possible to carry out substantial improvements to land by means of drainage and fencing, for example, even within three years. It seems to be wholly contrary to the intention of the Clause, which I support in principle, to include that type of improvement as chargeable for this purpose. If my right hon. Friend can either assure me that the point is already covered or consent to look into it, I will ask leave to withdraw the Amendment.

Mr. Brooke

I assure my hon. Friend that, as I understand the matter, if the value of the land has been enhanced by expenditure upon it for drainage or other purposes, that would be taken into account in the calculation and there would not be a charge under Case VII for the increase in the value of the land which had been brought about by expenditure on the part of the owner in improving the land. I hope that, with this assurance, my hon. Friend will feel able to withdraw the Amendment.

Mr. Corfield

On the basis of what my right hon. Friend has said, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Mr. Ronald Bell

Perhaps it will be appropriate for me at this stage to make my few comments. I take it, Sir Robert, that you are not calling the further Amendment in the name of my hon. Friend the Member for Gloucestershire, South (Mr. Corfield), also in page 13, line 38, after "interest)" to insert: and any land used for the purposes of husbandry only, farm house, farm building or farm cottages which are compulsorily acquired by any authority

The Deputy-Chairman indicated assent.

Mr. Charles Loughlin (Gloucestershire, West)

On a point of order. May we know just where we are? I understood you, Sir Robert, to put the Question, "That the Clause stand part of the Bill." Are we now discussing the possibility of dealing with an Amendment?

The Deputy-Chairman

No. The Question which I have put to the Committee is, "That the Clause stand part of the Bill." The hon. Member for Buckinghamshire, South (Mr. Ronald Bell) was, I think, seeking to raise on that Motion a point raised in an Amendment which can be discussed later.

Mr. Ronald Bell

I am obliged, Sir Robert.

Mr. Geoffrey Johnson Smith (Holborn and St. Pancras, South)

I should be glad if my right hon. and learned Friend the Attorney-General could clear up two points in connection with Clause 10 (3). That provision exempts from a speculative gains tax the owner-occupied dwelling-house and also land which surrounds it up to an area of one acre. If we read further, we discover that a larger area may be so exempt having regard to the size and character of the dwelling-house. We note that the Commissioners are the people who will determine whether the larger area should be taken into account. I suppose that one of the things they must decide in coming to their judgment is whether or not the larger area is required for the reasonable enjoyment of the residence.

I am sure there is a simple answer to my first point. It relates to the Commissioners taking into account the land which surrounds an owner-occupied residence. Suppose someone wishes to sell the property and has on the land a stable block, a service cottage or other outbuildings. It is possible to find small residences surrounded by perhaps five acres. Are those buildings also exempt from the effects of the tax, or are they regarded as a chargeable asset?

Secondly, is not the Clause giving rather wide powers to the Commissioners? I imagine that it is an issue of fact and the citizen has no recourse elsewhere as there is no right of appeal. If there were some legal dispute, the citizen could have recourse to the law. I am no lawyer, as must be apparent from that comment. However, there are many other people who are not lawyers, and I imagine that they might be worried about these powers.

The Commissioners are being asked to make a very subjective evaluation. They are being asked to say that an owner of a property who wants to sell it within the course of three years, or may have to sell it for personal reasons, shall pay tax if they decide that certain outbuildings are not an integral part of the property, or are not things which are required for the reasonable enjoyment of the property. I visualise the case in which a widow may wish to sell as a whole property left to her, with the buildings on it, and may be forced to pay a sizeable tax.

I should have thought that this was giving a wide power to the Commissioners when they are having to make a very subjective evaluation of what is and what is not to be included as a chargeable asset in properties of this nature.

The Attorney-General

My hon. Friend the Member for Holborn. St. Pancras, South (Mr. G. Johnson Smith) has raised two points, one relating to the Commissioners. The appropriate body here will either be the local General Commissioners, who will know the locality well and be able to determine such a problem when brought before them without any great difficulty, one would have thought, or in particular cases the Special Commissioners. I do not think that they, with their knowledge of the area, will have any difficulty in discharging the task, should it be put before them.

The reason why it is necessary to make what is initially an arbitrary limit to the area of garden or grounds used for the enjoyment of the residents is that one of the frequent methods of securing large speculative gains now is to buy a property with extensive grounds and, while retaining the property, to sell part of the grounds for development. But, of course, where the house naturally would have a larger area than that specified in the Clause—larger than one acre —regard can be had to that by the Commissioners. I do not think that, in substance, any difficulty would arise with regard to that.

9.30 p.m.

My hon. Friend's second point with regard to other buildings apart from the dwelling. Insofar as these other buildings are distinct and separate buildings, they will not form part of the dwelling-house and will not be exempt from the charge. That is to say, cottages which are separate dwelling-houses will not be exempt, but buildings which really form part of the dwelling-house will be exempt.

Mr. Jasper More (Ludlow)

Will my right hon. and learned Friend make clear what are the special cases in which recourse could be had to the Special Comissioners?

The Attorney-General

If anyone wishes to claim, in a sale of a house and grounds, that the area which should be regarded as reasonable for enjoyment of the house or grounds or garden exceeds one acre, he can go to the Commissioners and ask them to agree that it is a reasonable area.

Mr. More

My question related to the Special Commissioners.

The Attorney-General

They can deal with the matter, if he wants to go to them, just as well as the General Commissioners. They are two alternative bodies.

Mr. Houghton

I would advise any appellant to stick to the local Commissioners in a dispute of this kind.

None of us really likes this kind of Clause, which gives power to a body of Commissioners to determine a purely arbitrary matter of this sort, but it would have been wrong to have stuck to a limit of one acre, or any other acreage, in relation to the different types of houses that it may be necessary to deal with. It would be quite wrong, for instance, to regard one acre as the appropriate grounds to, say, Chatsworth House. A good many acres might go with that house.

The essential point is that, whatever the amount of land that goes with the house and is therefore exempt under this Clause, it should be regarded as inseparable from the reasonable enjoyment of the house. I am not so concerned about this, although I looked at it very carefully. But I am very anxious, in this and in other respects, to reduce the area of dispute between the taxpayers and the Inland Revenue. That is very desirable. Even though it may mean rougher justice and fixing arbitrary conditions, at least people know better where they stand than if there is some doubt that may have to be resolved on appeal.

I regret that subsection (4) is still in this Clause. It is a blemish. One of the disadvantages in ringing the changes on the Treasury Bench is that we do not have the same person making speeches on different Amendments or on different subsections of the same Clause. I thought that the Chief Secretary was much more robust in dealing with the reasoned Amendment on agricultural land than the Attorney-General was when dealing with subsection (4). I would have liked to have heard him dealing with the Amendment and the Chief Secretary dealing with subsection (4). But this very astute way in which they employ guile upon the Committee is rather disconcerting.

This Clause deals with the chargeable assets under the Bill. Whether they go as far as they should is a matter for judgment perhaps as time goes on. There are other sources of substantial speculative gains which are outside the Clause. For example, works of art now appear to come very much into the range of speculative transactions. Although for the time being we think that the scope of the Clause is about as wide as it can be, I do not think that it will necessarily remain so for all time.

The Opposition must defend the Attorney-General on his last speech while opposing him on his earlier speech, and be fairly convinced by the Chief Secretary's reply on agricultural land. I notice that he had to reply to two speeches which were extremely brief and, on this side of the Committee, almost inaudible.

Mr. Glenvil Hall

May I revert to the issue about the Commissioners? Do I understand from the Attorney-General that an individual making an appeal can, at his own option, appeal either to the Special Commissioners or to the General Commissioners?

The Attorney-General


Mr. G. Johnson Smith

I do not want to be a bore about subsection (3), nor to detain the Committee for too long, but I was a little unhappy with my right hon. and learned Friend's reply when he said that outbuildings, stable blocks and buildings of that nature, would be a chargeable asset if a sale took place within the three-year period.

There are two obvious circumstances in which a sale might be forced upon an individual. One is the death of a husband or wife when the survivor finds that the property is too large or too expensive for occupation and, therefore, wants to sell. Bearing in mind all the other problems which arise in a case like that, it seems monstrous to ask a person to pay tax on outbuildings when the residence and land surrounding it are being sold as a whole, in one lot.

fThe other circumstance is when someone who has bought a property of that nature—and there are many such examples in the Home Counties of which I have personal knowledge—within the period of three years is asked by his employer to move to another part of the country. Is that person to pay speculative gains tax on outbuildings when he is selling the property as a whole? That is why I was very unhappy with my right hon. and learned Friend's reply.

The Attorney-General

I am sorry that my hon. Friend was unhappy about my reply. I should have thought that it was a very improbable case that there would be such a profit on the sale of outbuildings acquired within the last three years as to raise any real liability to any tax. One has to draw the line and the line is drawn with dwelling houses and gardens and grounds on one side and cottages, which may be convenient for housing staff in employment in the dwelling-house, on the other and outside the scope of the subsection.

Mr. Hirst

I am not at all satisfied. I cannot understand why these buildings should not be within the scope of the Clause. The argument of my hon. Friend the Member for Holborn and St. Pancras, South (Mr. G. Johnson Smith) is substantial. Outbuildings, in this context, are a part of the estate. The Attorney-General has not treated the Committee with the respect due to it. There must be some logic in this situation. To argue that, in theory, the outbuildings will not increase in value in the next three years is so much poppycock. We do not sit here at night to listen to arguments like that and it is scandalous that such remarks should be made.

On what grounds of logic is the Attorney-General asking the Committee seriously to say that outbuildings, which, of course, are part of the hereditament, should no longer he so and that after the short time of three years their value is not likely to increase? The whole thing makes me absolutely sick.

The Attorney-General

I hope that my hon. Friend the Member fat. Shipley (Mr. Hirst) has dined sufficiently well.

The answer which I gave to my hon. Friend the Member for Holborn and St. Pancras, South (Mr. G. Johnson Smith) is that if these buildings come under the heading of a dwelling, then they are exempt. But my hon. Friend was treating them as distinct and separate dwellings, and cottages was one of his examples. Such dwelling would be outside the scope of subsection (3).

Question put and agreed to.

Clause ordered to stand part of the Bill.