HC Deb 26 June 1963 vol 679 cc1469-72
Mr. Jasper More (Ludlow)

I beg to move, in line 28, at the end to insert: (4) This section shall not apply to the sale of or to the grant of a lease of any mineral asset as defined in section 37(12) of this Act. This Amendment, which is related to an Amendment to Clause 37 appearing later on the Notice Paper in the name of my hon. Friend the Member for Newbury (Sir A. Hurd) and myself, has its origin in Clause 37 which, as the House will remember, has made a breach in a position long held by the Inland Revenue on the subject of mineral depletion allowances.

The object of this Amendment and of the later Amendment is directed to the position of the owner of minerals or similar substances, because the inclusion of the new allowance under Clause 37 creates a very peculiar situation for him when regard is had to Clause 24. If Clause 37 goes through as it stands, the owner will face three choices: to work the minerals himself, to lease them to be worked at a royalty, or to sell them. The obvious choice, as matters now stand, would be to sell them, but, by Clause 24, he puts himself under a tax liability on a sale if in the instrument of sale is included any option or agreement for repurchase.

I must ask the House to descend from the rarer heights of tax law with which we have been dealing for most of this evening and consider the humble facts of land and estate management. As matters now stand, an owner of an area of sand, gravel or mineral which it is desired to work must, if he is to obtain the tax concession which has now been granted under Clause 37, sell that area outright without regard to the effect that this may have on his property, his farm or the rest of his land. To use a phrase familiar to those concerned with land management, he must make a hole in his estate, and the area forming that hole he may never be able to recover into his own position. Anyone who has been concerned with the management of land or of an estate must be only too well aware of the very practical difficulties and disadvantages that that can cause.

I ask the Treasury to consider this from the practical point of view and to agree that in this Clause, which is designed to coyer the case of sales with repurchase option, this exception should be made in the case of owners of mineral assets.

Mr. Barber

First I express my gratitude to my hon. Friend the Member for Ludlow (Mr. More) for putting such a complicated point so succinctly.

As my hon. Friend will know, and as other hon. Members who followed our proceedings in Committee will remember, Clause 24 is aimed at countering an avoidance device. It provides that, if property is sold under terms by which it can later be reconveyed to the vendor at a lower price, the difference between the sale prices shall be taxable. Such an arrangement is tantamount to the grant of a lease, the consideration for which is expressed in capital form, and as such it is of the same nature as a premium on a lease, provisions for taxing which are set out in one of the earlier Clauses. Clause 24 simply provides the same measure of tax liability to the consideration passing under the arrangement which it covers as the previous Clause applies to premiums proper.

It is perfectly true, as my hon. Friend indicated, that as a normal commercial transaction it is not unusual for mineral-bearing land to be conveyed in the manner which is described in Clause 24. I appreciate the point which my hon. Friend makes. I assure him that we considered it very carefully even before his Amendment appeared on the Notice Paper. It was raised with us by an organisation which got in touch with my right hon. Friend the Chancellor of the Exchequer and we did our best to cover it. If the landowner had granted a lease for the appropriate period between the conveyances, any royalties received would be taxable in the normal way, but my hon. Friend explained why in the new circumstances it might not be desirable to proceed in that way.

As I say, my right hon. Friend has considered this matter, but I am afraid that we have come to the conclusion that it would be impossible to frame legislation which would release a genuine case of this kind from the charge set up by Clause 24 without invalidating the Clause altogether as an anti-avoidance measure. Since all land may be said to contain minerals of some kind, it would be possible to present any sale which involved a reconveyance in terms of a mineral lease without imposing any obligation on the purchaser to extract any minerals at all. I need not go into detail and I hope that the House will take it from me that it would be extremely difficult to take the line that the genuine case could be distinguished by evidence that a purchaser had used the property in a trade of mineral extraction and had made a claim to relief under Clause 37.

In the case where there is a genuine commercial reason for a restricted sale of the type caught by Clause 24, there appears to be an alternative way of achieving much the same result. A landowner could enter into an arrangement under which he granted a lease of the surface for a small rent together with a licence in consideration of a lump sum to remove the minerals. The landowners would be chargeable on the rent but not, except in the unlikely event of the case falling within the charge under Case VII on short-term gains, on the lump sum.

I appreciate full well that my hon. Friend is not trying to get round the anti-avoidance provisions of the Clause in any reprehensible way, but I fear that to do as he suggests would have the inevitable consequence of leaving the door wide open to avoidance, and with the best will in the world we can see no way of dealing with this matter. I am sorry that I cannot advise the House to accept the Amendment, but I hope that my hon. Friend will take comfort from the alternative arrangements which I have suggested and which can be operated in certain genuine cases.

Amendment negatived.