HC Deb 26 June 1963 vol 679 cc1579-92
Mr. du Cann

I beg to move, in page 59, line 36, at the end to insert: (8) Any instrument which is deemed to be duly stamped by virtue of subsection (2) or (7) of this section shall be deemed to be duly stamped in Northern Ireland, and any instrument which is deemed to be duly stamped by virtue of the corresponding provisions in force in Northern Ireland shall be deemed to be duly stamped in Great Britain. To adopt the words of the hon. Member for Sowerby (Mr. Houghton) on an earlier occasion, now comes the tranquilliser. Perhaps it is a very good thing. This Amendment is a very simple one which I can explain very shortly. It provides that an instrument which is deemed to be duly stamped in Great Britain under subsection (2) or subsection (7) of the Clause shall be deemed to be duly stamped in Northern Ireland, and an instrument which is deemed to be duly stamped in Northern Ireland under the corresponding provisions of the Northern Ireland Finance Bill shall be deemed to be duly stamped in Great Britain.

The effect of this provision will be that, once duty has been paid in respect of a bearer instrument in Great Britain of Northern Ireland, no further duty will be payable in respect of it in the other country. This will have certain obvious practical advantages.

Amendment agreed to.

Clause 65.—(COMPOSITION FOR STAMP DUTY ON LOCAL AUTHORITIES' SECURITIES.)

Mr. du Cann

I beg to move, in page 62, line 48, after "cent." to insert "per annum".

If the last Amendment was simple, this is even simpler. Again, I should tell the hon. Member for Sowerby Mr. Houghton) that this was a drafting oversight brought to our attention by the Inland Revenue. It is self-explanatory. We propose to put the matter right by this Amendment.

Amendment agreed to.

Clause 67.—(PROFITS TAX PROVISIONS IN CONNECTION WITH PART II OF THIS ACT.)

3.15 a.m.

The Solicitor-General

I beg to move, in page 63, line 41, at the end, to insert: Provided that where the person chargeable is a body corporate the said amount shall be treated for the purposes of section 42 (5) (b) of the Finance Act 1938 (by virtue of which rent paid to one body corporate by another associated with it is excepted from the charge to profits tax) as rent paid to the body corporate by the person making the payment in respect of which the amount became chargeable or, where it became chargeable under section 22 (2) of this Act, by the tenant on whom the obligation there referred to was imposed; but in determining whether the said section 42 (5) (b) applies to an instalment as respects which a claim under section 22 (5) of this Act has effect the relationship between the person paying and the person receiving the instalment shall be taken to be that subsisting when the transaction in respect of which the instalment is payable was entered into. (2) Schedule (Allowance of trading deduction where premium etc. paid) to this Act, as applied (by virtue of section 20 (1) of the Finance Act 1937) in computing the profits arising from a trade or business for purposes of the profits tax, shall have effect as if proviso (b) to paragraph 4 were omitted, and no deduction shall be allowed under that Schedule in computing any such profits for those purposes if the amount by reference to which the deduction would be made, or instalments of the payment in respect of which that amount arose, is or are excluded, by virtue of the proviso to the foregoing subsection, in computing profits for those purposes. As a tranquilliser, this will be even drier than the last Amendment moved by my hon. Friend. It relates to further changes in tax law with certain complications. The Clause makes changes in the Profits Tax law consequential on the Income Tax changes in Part II. The Amendment is necessary to ensure that the Profits Tax provisions apply with regard to the premiums chargeable under Clauses 22 to 25. Those Clauses make amounts chargeable to Income Tax in respect of certain premiums.

Subsection (1) of the Clause as drafted provides that the amount chargeable under Clauses 22 to 25 shall be treated for Profits Tax purposes as income from an investment. By Section 42(5) of the 1938 Finance Act, however, payments of rents between companies in the same group are ignored for Profits Tax purposes. No deduction is allowed in computing the profits of the paying company and no receipt is included in the taxable profits of the recipient company. Obviously, the same rule should apply to premiums under this change in the law.

Therefore, the first part of the new proviso in the Amendment is that premiums received by such a company shall be treated as if they are payments of rent coming under Section 42(5) of the 1938 Act. The second part of the proviso is more complicated. If premiums are paid by instalments, the recipient company may elect under Clause 22(5) to be charged to Income Tax on each instalment as if it were rent. The question whether the recipient company should be charged to Profits Tax in regard to or in respect of the premium is to be governed by its relationship to the payer when the transaction was entered into irrespective of any change in relationship between the parties while the payment and the instalments are payable. This is necessary, because we would otherwise have no firm basis for deciding whether annual allowances are to be granted to the tenant.

By Section 20 of the 1937 Finance Act, profits are computed as under Case I of Schedule D, so that a company which pays (a chargeable premium and then sublets gets Profits Tax relief for the premium under paragraph 4 of the new Schedule, to which reference has been made earlier, dealing with allowances of trading deductions for a trader.

The new Schedule will provide that where the trader receives both trade profits and rental income, allowance is given first against the rental income under Case VIII instead of against trade profits under Case I. The effect of that is to deprive the company of Profits Tax relief in respect of part of the premium payment. The Amendment to insert the new subsection (2) avoids this result by excluding proviso (b) of paragraph 4 of the new Schedule. With that explanation, I commend the Amendment to the House.

Mr. Mitchison

The hon. and learned Gentleman is so singularly lucid and convincing that I have understood most of what he has said. Indeed, my only regret is that those who comprise the share transfer lobby are disappearing so rapidly from the Chamber that they have deprived themselves of the opportunity of listening to the Solicitor-General.

Amendment agreed to.

Mr. Barber

I beg to move, in page 64, line 25, at the end to insert: (5) An amount which by virtue: of section (Exemption from tax on housing grants) of this Act is to be excluded in computing profits or gains for any income tax purposes shall also be excluded in computing profits for purposes of the profits tax. This Amendment has already been discussed with the new Clause (Exemption from tax on housing grants), and is consequential upon it.

Amendment agreed to.

Clause 71.—(SHORT TITLE, COMMENCEMENT, CONSTRUCTION, EXTENT, AMENDMENTS AND REPEALS).

Mr. du Cann

I beg to move, in page 67, line 10, after "Act" to insert: (except section (Prohibition of circulation of blank transfers))". We discussed this yesterday on the first of my right hon. Friend's new Clauses—(Prohibition of circulation on blank transfers). This Amendment is entirely consequential.

Amendment agreed to.

New Schedule.—(TRANSITIONAL ALLOWANCES FOR ANNUAL VALUE OF TRADE PREMISES).

  1. 1. Subject to the provisions of this Schedule, an allowance under this Schedule shall be made to the person carrying on a trade where land which was occupied by him at any time before the end of the year 1962–63 for the purposes of the trade permanently ceases to be occupied by him for those purposes.
  2. 2. The amount of the allowance shall be the excess of—
    1. (a) the aggregate of any deductions in respect of the annual value of the land which, by virtue of section 136 of the Act of 1952, would have been made in computing the profits or gains of the trade for the years 1963–64 and 1964–65 but for section 29(1) of this Act and the repeal by this Act of the said section 136, over
    2. (b) the aggregate of any deductions relating to the land made in computing the profits or gains of the trade for those years, being—
      1. (i) deductions permitted by section 29(2) of this Act, so far as made in respect of the period in respect of which the deductions mentioned in paragraph (a) above would have been made, or
        2. 1583
      2. (ii) deductions in respect of rent from which an amount representing tax was deducted under section 173 of the Act of 1952, so far as made in respect of that period.
  3. 3. The allowance shall be made by—
    1. (a) treating the amount of it as rent paid for the land by the said person (in addition to any actual rent) becoming due from day to day during the period defined in paragraph 4 of this Schedule, and
    2. (b) allowing deductions accordingly in computing the profits or gains of the trade chargeable under Case I of Schedule D for any year of assessment the profits or gains for which fall to be computed by reference to a period including that period or any part thereof.
  4. 4. The said period is that ending when the land permanently ceases to be occupied by the said person for the purposes of the trade, and of a duration equal to the aggregate of—
    1. (a) the number of months and fractions of months during which the land was occupied by him for the purposes of the trade in so much of the period by reference to which the profits or gains of the trade for the year 1963–64 fall to be computed as fell before the beginning of that year, and
    2. (b) the number of months and fractions of months during which the land was so occupied in so much of the period by reference to which the profits or gains of the trade for the year 1964–65 fall to be computed as fell before the beginning of the year 1963–64.
  5. 5. No allowance shall be made under this Schedule where the date on which the land permanently ceases to be occupied by the said person for the purposes of the trade—
    1. (a) falls within a year of assessment and also within a period by reference to which the profits or gains of the trade for that year of assessment fall to be computed, or
    2. (b) falls within a year of assessment in which he permanently ceases to carry on the trade.
  6. 6. Where there is a change in the persons carrying on the trade, but by virtue of section 19 (3) of the Finance Act 1953 or section 17 (1) of the Finance Act 1954 the trade does not by reason of the change fall to be treated for any of the purposes of the Income Tax Acts as permanently discontinued, this Schedule (including this paragraph) shall apply as if any occupation of the land before the change occurred by the persons carrying on the trade immediately before it occurred were occupation by the persons carrying on the trade immediately after it occurred.
  7. 7. Where, by reason of a change in the persons carrying on the trade, the trade falls to be treated for any of the purposes of the Income Tax Acts as permanently discontinued, a person engaged in carrying on the trade immediately before the change occurred who continues to be so engaged immediately after it occurred shall be treated for the purposes of this Schedule as not having been in occupation of the land at any time before it occurred.
    8. 1584
  8. 8. The foregoing provisions of this Schedule shall apply in relation to a profession or vocation as they apply in relation to a trade, but as if the reference in paragraph 3 to Case I of Schedule D were a reference to Case II of that Schedule.—[Mr. du Conn.]

Brought up, and read the First and Second time.

Question proposed, That the Schedule be added to the Bill.

Mr. Diamond

I am afraid I am completely lost at the moment, but I understood, when we dealt with an Amendment to the Bill which heralded this new Schedule, that explanation of the Schedule was put off till we reached it. Indeed, I made it clear that we would reserve our comments till we heard exactly what the Schedule meant. It is a very complicated Schedule. We should like to know whether it meets the arguments put forward earlier, whether it goes too far or far enough. These are important matters which we want to discuss fully when we have had the explanation.

Mr. du Cann

With leave, I am perfectly ready to say a few words about the Schedule. Perhaps I misunderstood the hon. Gentleman. When we discussed the Amendment earlier I gave some explantion of it and the hon. Gentleman the Member for Gloucester (Mr. Diamond) said that this was a most complicated matter and he was indeed right. He said it might be that he would have some questions he might want to pose about the Schedule. I therefore thought it more convenient not to say anything about the Schedule initially, thinking perhaps he would wish to raise some questions when we reached it. When he did not do so just now I thought perhaps he had changed his mind. But certainly if it is for the convenience of the House and the hon. Gentleman's convenience I am perfectly ready to say just a few words about the Schedule.

Paragraph 1 provides for allowance to be given to a trader when he permanently ceases to use for business purposes property he owned or occupied for the purposes of his trade at any time up to the end of the year 1962–3. That is the first point. Secondly we come to pargaraph 2. This defines the amount of the allowance. Paragraph 3 provides that the allowance is to be given as if it were rent spent from day to day over the period defined in paragraph 4. It is to be a deduction in computing profits in Case I or II of Schedule D for any year of assessment for which the profits fall to be computed by reference to a period including that period or part of it.

Paragraph 4 defines the period over which the allowance is to be given. It ends when the premises permanently cease to be occupied for trading purposes, and the period is equal to the aggregate of two things: firstly, the part of the base period for the year 1963–4 falling before 5th April, 1963, during which the premises were occupied for trade purposes; and secondly, part of the base period for the year 1964–5 falling before 5th April, 1963, during which the premises were occupied for trade purposes. The hon. Member, with his professional experience, is familiar with matters of the taxation of business and appreciates the significance of those dates.

Paragraph 5 provides that no relief is to be given if the land permanently ceases to be used for trade purposes either at a time immediately preceding the cessation of trade when the trader is assessed on the current year basis or in the year of cessation. Paragraph 6 deals, first, with partnership changes and, secondly, with certain company reconstructions. The House, and certainly the hon. Member for Gloucester, will remember that during my explanation of the Amendment I explained the matter predominantly in the context of a trader but that I made the point that the same rule, so to speak, would apply to professions, and I gave the instance of a farmer and a doctor. The effect of the paragraph is that in these cases the right to the transitional allowance passes to the successor partnership or company. I am sure that that is right and fair.

Paragraph 7 provides that where there is a change in partnership which is treated as a cessation of trade or profession for tax purposes, the transitional allowance cannot be carried forward and allowed for the partners after the cessation. Paragraph 8 provides that the provisions of the Schedule apply to the profession or vocation as they do in relation to a trade. In fact, what I have said is exactly what the subsection says and it confirms what I said about paragraph 6 and on the Amendment. I hope that that explanation has helped the hon. Member.

Mr. Diamond

Perhaps I may have the leave of the House to speak again or be treated as having merely asked a question on my first intervention. As anyone who knows him will recognise, the Economic Secretary could not be guilty of any discourtesy to the House, and if anything I said misled him, I offer my apologies for that. His explanation has been helpful, but there are two points about which I want to make certain.

He will remember that when this matter was discussed in Committee, when it was handled by the Solicitor-General, one of the main points made was to see that any Amendment which was framed to meet some complaints which had been made would not go further than achieving a situation in which, when taking account of the total years during which business had been carried on, where land had been occupied for the purposes of the trade, the trader would not suffer or gain any advantage as a result of it. For example, if it had been going for six years, there would be six years assessment under Schedule D, six years assessment under Schedule A and for six years the total would be precisely the same; there would not be seven years allowances under Schedule D and six years assessment under Schedule D. If the new Schedule meets that point and goes no further, I should like the Economic Secretary to confirm it. It is not easy to follow all the implications of paragraph 1 and it would be helpful if we had confirmation that an essential point of principle has been followed here.

In paragraph 7 the hon. Gentleman referred to a change in the person carrying on the trade. Is this reference only to a partnership? If it is, we have no further problems about it. We shall then be satisfied. I do not know whether the Schedule fully satisfies the hon. Member for Nottingham, South (Mr. W. Clark). If it does, my suspicions will be aroused, and if it does not satisfy him fully, we may be satisfied.

Mr. W. Clark

I shall not vote against it.

3.30 a.m.

Mr. du Cann

Perhaps I may, by leave of the House, reply shortly to the hon. Member for Gloucester (Mr. Diamond).

First, perhaps I might say that I notice that my hon. Friend the Member for Notingham, South (Mr. W. Clark) is in his place. I appreciate that he could not be here during our discussion of an earlier Amendment. He was good enough to give us notice of that. The Amendment was proposed and the new Schedule has been drafted to meet the point that he made during the Committee stage. I mention that in case the point should have escaped his attention during this debate. [Interruption.] I can tell the right hon. Member for Battersea, North (Mr. Jay) that I was not saying that to find out whether my hon. Friend was awake. I thought that we might get the record absolutely clear and again explain the reason for the introduction of the Schedule.

Next, I come to the first question asked by the hon. Member for Gloucester. I am grateful for what he said in the early part of his questioning. I regret to tell him that I am not in a position to satisfy him. There is no doubt that his point is a very good theoretical one, and I think there would have been justification for excluding cases of the kind which have benefited by reason of the method of assessment. He referred to the benefit, and I take his point, but I am advised—this has been looked at with some care and consideration—that it would be impracticable to segregate these cases so as to curtail or refuse relief.

The premises may have been acquired years ago—that will almost invariably be the case—and there may well be no records now existing to show what the basis of assessment was when they were acquired. This is, indeed, the difficulty. If it were not the case, perhaps we should take a different attitude. Moreover, the premises may be quite different from those which existed when the land on which they stand was first acquired. One can well see how those problems arose during the passage of time, particularly in the context of some of our discussions earlier about the need for improving trade premises. It is, therefore, impracticable to limit the relief, we believe, by cutting out cases of this sort.

I repeat that we have given this matter a great deal of thought, but, unfortun- ately, we do not think it possible to cope with the kind of situation which the hon. Gentleman has in mind. We believe, however, that no substantial damage will be done thereby, and, having considered all the circumstances with care, we thought it appropriate to endeavour to meet, the point in general instead of this particular and, we believe, somewhat minor demerit.

The third point related to paragraph 7. Like the small child who eats the nasty stuff on the plate first and leaves the best till last, I have left the satisfactory—as I hope the hon. Gentleman will think—part of my answer till the last. I can tell him that it is certainly correct that paragraph 7applies only to partnerships. To that extent I am sure I satisfy the hon. Gentleman completely, and I hope that on reflection he will perhaps think that I have satisfied him on his first question also.

Question put and agreed to.

Schedule added to the Bill.

New Schedule.—(ALLOWANCE OF TRADING DEDUCTION WHERE PREMIUM ETC. PAID.)

  1. 1. In this Schedule—
    • "the amount chargeable" means the amount referred to in section 29(3) of this Act, and
    • " the relevant period"—
    1. (a) where the amount chargeable arose under section 22 of this Act, means the period treated in computing that amount as being the duration of the lease;
    2. (b) where that amount arose under section 23 of this Act, means the period treated in computing the amount as being the duration of the lease remaining at the date of the assignment;
    3. (c) where that amount arose under section 24 of this Act, means the period beginning with the sale and ending on the date fixed under the terms of the sale as the date of the reconveyance or grant, or, if that date is not fixed, ending with the earliest date at which the reconveyance or grant could take place in accordance with the terms of the sale.
  2. 2. Subject to the provisions of this Schedule, where during any part of the relevant period the land in relation to which the amount chargeable arose is occupied by the person for the time being entitled to the lease, estate or interest as respects which it arose for the purposes of a trade, profession or vocation carried on by him, he shall be treated, in computing the profits or gains of the trade, profession or vocation chargeable to tax under Case I or II of Schedule D, as paying in respect of that land rent for the period (in 1589 addition to any actual rent) becoming due from day to day of an amount which bears to the amount chargeable the same proportion as that part of the relevant period bears to the whole.
  3. 3. As respects any period during which a part only of the land in relation to which the amount chargeable arose is occupied as mentioned in the foregoing paragraph, that paragraph shall apply as if the whole were so occupied, but the amount chargeable shall be treated as reduced by so much thereof as, on a just apportionment, is attributable to the reminder of the land.
  4. 4. Where a person, although not in occupation of the said land or a part thereof, deals with his interest in the land or that part as property employed for the purposes of a trade, profession or vocation carried on by him, paragraphs 2 and 3 of this Schedule shall apply as if the land or part were occupied by him for those purposes:
  5. 5. Where, in respect of expenditure on the acquisition of his interest in the land in relation to which the amount chargeable arose, a person has became entitled to an allowance under section 37 of this Act (mineral depletion) for any year of assessment,then—
    1. (a) if the allowance is in respect of the whole of the expenditure, no deduction shall be allowed him under this Schedule for that or any subsequent year, or
    2. (b) if the allowance is in respect of part only of the expenditure, a deduction allowed him under this Schedule for that or any subsequent year shall be of an amount bearing to the amount which apart from this paragraph would fall to be deducted the same proportion as the remainder of the expenditure bears to the whole.
  6. 6. Where the amount chargeable arose under section 22(2) of this Act by reason of an obligation which included the carrying out of work in respect of which any allowance has fallen or will fall to be made under Part X or Part XI of the Act of 1952, this Schedule shall apply as if the obligation had not included the carrying out of that work and the amount chargeable had been calculated accordingly.
  7. 7. Where the amount chargeable arose under section 24 of this Act and the recon- 1590 veyance or grant in question takes place at a price different from that taken in calculating that amount or on a date different from that taken in determining the relevant period, the foregoing provisions of this Schedule shall be deemed to have had effect (for all relevant years of assessment) as they would have had effect if the actual price or date had been so taken, and such adjustment of liability to tax shall be made, by means of am additional assessment or otherwise, as may be necessary and may be so made at any time at which it could be made if it related only to tax for the year of assessment in which the reconveyance or grant takes place.—[The Solicitor-General.]

Brought up, and read the First time.

The Solicitor-General

I beg to move, That the Schedule be read a Second time.

This is the new Schedule which I pointed out to the House in conjunction with one of the Amendments to Clause 29. Clause 29 deals with the amendments to the computation of business profits under Cases I and II, which are required in consequence of the abolition of Schedule A and the introduction of the new system.

The Amendment in Clause 29, together with the Schedule, extends the relief to a tenant in respect of amounts chargeable in relation to business premises under Clauses 22, 23 and 24. Paragraph (1) setsout the definition of the amount chargeable and the relevant period. Paragraph (2) provides for an allowance to the tenant of business premises in respect of which there has been a charge under Clauses 22, 23 or 24—that is to say, he is treated asthough he paid a rent equal to the chargeable amount, spread over the relevant period as defined in paragraph 1. The result is that in computing the profits of his business he receives a deduction for the fraction of the chargeable amount appropriate to the period for which he occupies the premises for business purposes.

Paragraph (3) provides for the apportionment of the relief for any period in which part only of the premises in re-relation to which a chargeable amount arose is occupied for business purposes—as in the case of a doctor who has a surgery in his house and also occupies another part of the house, or some professional man or business trader in those circumstances.

Paragraph (4), to which reference was made earlier, provides for the tied house by a petrol company or brewer—for a house let to a tied tenant where a premium has been paid. The tenant is the legal occupier and but for this paragraph the brewer or petrol company would get no deduction in computing profits in respect of the chargeable amount of the premium paid. It also ensures that there shall not be a double allowance.

Paragraph (5) also ensures against a double allowance under the Schedule and Clause 37, which deals with mineral depletion, where a premium was paid for the lease of a mine. Paragraph (6) applies that where a landlord makes a tenant pay for the improvements he is treated as receiving a premium equal to the difference between the value of his interest in the property immediately after the start of the lease and what its value would have been but for the obligation imposed on the tenant. This again prevents a double allowance of relief under this Schedule and under the capital allowance provisions.

Paragraph (7) deals with the case where land is sold with a right to reconveyance. If the reconveyance takes place at a price different from that taken in calculating the chargeable amount, or on a different date from that used in calculating the relevant period, this paragraph provides for adjusting the relief given so as to accord with the actual price and the actual date of the reconveyance.

Mr. Diamond

What the Solicitor-General had to say was intelligible. In that respect it was in marked contrast to the Schedule itself. Anyone who wishes to test whether he is awake at this hour should read through the Schedule carefully and slowly and try to put it down in précis form in not more than 100 words. It is inevitable that at this hour of the morning there might just creep into the Bill something that is not absolutely clear. Hon. Members on this side of the House would not wish to be responsible, having been compelled to consider matters such as this at twenty minutes to four in the morning, for every possible defect in a Schedule of this kind.

Subject to that, we see no reason why the Government should not have the Schedule.

Question put and agreed to.

Schedule read a Second Time, and added to the Bill.