§ The Solicitor-GeneralI beg to move, Amendment No. 57, in page 18, line 4, after "land" to insert:
or any part of the land".I suggest that it might be convenient, Mr. Blackburn, if we were at the same time to discuss Amendments Nos. 58, 59, 60, 61, 63 and 64.
§ The Solicitor-GeneralAll the Amendments in this group are designed to deal with a defect which was discovered on examination of Clause 18. The words chosen dealt with the case where a person owning land or an interest in land transferred it and subsequently leased back the same land or an interest in it. Examination showed that the intent of the Clause could be avoided by leasing back part of the land. These Amendments are intended to make the Clause bite where a transaction includes not only the whole of the land but a part of the premises or land, and they will, I suggest, effectively prevent the avoidance which could arise.
§ Amendment agreed to.
1353§ Further Amendments made: In page 18, line 12, after "land", insert "or any part of the land".
§ In page 18, line 14, leave out "his associate" and insert "any person who is associated with the transferor".
§ In line 24, after first "land", insert "or any part of the land".
§ In line 27, leave out "his associate" and insert "any person who is associated with the transferor".—[The Solicitor-General.]
§ 8.30 p.m.
§ Mr. W. ClarkI beg to move Amendment No. 91, in page 18, line 31, to leave out from "and" to "surrender" in line 33 and insert:
shall be deemed to include a".Again, this is purely a drafting Amendment. I am advised, not being a lawyer or solicitor, that the surrender or forfeiture of a lease is not aptly described as a transfer but that it is rather a case of extinguishing the lease. The Amendment would have the effect of making the Clause do what the Revenue want done.
§ The Solicitor-GeneralI am obliged to my hon. Friend the Member for Nottingham, South (Mr. W. Clark) for the Amendment. I am not certain about the necessity or the effect of it. I shall have the matter examined between now and another stage of the Bill and will examine the representations which my hon. Friend has made. In those circumstances, he may feel inclined to withdraw the Amendment.
§ Mr. ClarkIn view of what my right hon. and learned Friend has said, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ The Solicitor-GeneralI beg to move Amendment No. 62, in page 18, line 33, to leave out from second "lease" to the end of line 37 and insert:
and references to any transaction or series of transactions affecting land, or an estate or interest in land, such that some person is the owner, or one of the owners, before and after the carrying out of the transaction or transactions, but another person becomes or ceases to become one of the owners; in relation to any such transaction or series of transactions any person who is an owner before the carrying out of the transaction or transactions, and is not the sole owner thereafter, shall be regarded for the purposes of this section as a transferor".1354 This is a more substantial Amendment than those which we have just been considering which were in the nature of drafting and technical Amendments. The substituted words are not alternative words setting out the same point which was originally in the Clause. In fact, they raise another point.The first main effect of the Amendment is to omit from subsection (3) the exclusion of a transaction which consisted simply of the transfer of the lessee's interest under a lease at a uniform rent equalling throughout the term of the lease the commercial rent of the land. The intention was that Clause 18 should not apply where a uniform and commercial rent was paid and then the lease assigned. But by examination, and after close thought had been given to the problem, it is appreciated that this could be the first of a series of avoidance transactions which would escape Clause 18.
The hon. Member for Cardiff, South-East (Mr. Callaghan) has left us for a short time, but I think that I should give another example.
§ Mr. DiamondI understand that my hon. Friend has gone to have a word with Mr. F.!
§ The Solicitor-GeneralI think that that is very much more sensible than to listen to the Solicitor-General.
May I give an example of how the provision could be avoided? If A occupies business premises and holds them on a 50-year lease at a uniform rent of £1,000 per annum, which is the commercial rent, and if he assigns the lease to Mr. F—I might as well introduce him—for no consideration, as the Clause is drafted, it would take Mr. A and Mr. F and the whole transaction right out of the effect of the Clause. That is by reason of subsection (3). If that happens, Mr. F can sub-lease to Mr. A for a substantial sum—say, £10,000 for five years and thereafter at a peppercorn rent. There may be provided, for instance, a break Clause to cancel the sub-lease after five years on payment of a penalty of £35,000. The Clause would not bite on this and therefore this tax advantage could be obtained and repeated. That is because of the assignment of the lease without any consideration. That has the effect of removing the transaction between Mr. A and Mr. F outside the 1355 Clause. The Amendment seeks to ensure that both Mr. A and Mr. F do not obtain that advantage.
The words to be substituted deal with another point, and that is the point of joint ownership which before was not within the scope of the Clause. Now it is considered essential—and on reflection it was, perhaps, obvious—that the joint owner should also be included. Mr. G now appears and he can be brought in as a joint owner and by this Amendment will be caught by the Clause.
§ Amendment agreed to.
§ Further Amendments made: In page 18, line 41, leave out "of the land".
§ In line 42, at end insert "of the land in respect of which that payment is made".
§
In line 46, leave out from "allowable" to end of line 4 on page 19 and insert:
and one or more subsequent payments are made by the transferor, or a person who is associated with the transferor, under the lease or other transaction, that part of the first-mentioned payment may be carried forward and treated for the purposes of any such deduction by way of income tax relief as if it were made at the time of when the next of those subsequent payments was made, and so made for the period for which that subsequent payment was made".
§
In page 19, line 14, leave out from "made" to end of line 15 and insert:
at a time subsequent to that at which they were made, and to the extent that a part of a payment so carried forward under subsection (5) of this section is not so allowable as a deduction by way of income tax relief, it may again be carried forward under sub-section (5) of this section".—[The Solicitor-General.]
§ The Solicitor-GeneralI beg to move Amendment No. 67, in page 19, line 18, after "Act)" to insert:
or rates usually borne by the tenant".Will it be convenient to consider with this Amendment Amendments Nos. 68 and 69?Amendments Nos. 67 and 68 are consequential on Amendment No. 69.
§ The Solicitor-GeneralThe substantial one of these three Amendments is No. 69, which would substitute a new subsection (9) and insert subsections (10) and (11). The definition in the Bill left a gap in that on examination it was 1356 felt that by inserting an onerous condition in a lease, the rent could be artificially inflated. This the Amendment seeks to correct. In addition, the Clause as drafted did not give guidance with regard to a progressive rent. Clearly, there can be occasions when a rent can properly without objection be a progressive rent.
By Amendment No. 69 the rent is defined as the open market rent of the land at the time when the lease was created, assuming a lease of the same term as the actual lease and assuming the taking-on of the burden of maintenance and repairs and that they fall as provided in the lease. Under this provision, there would be no bunched-up, diminishing rent. Instead of the rent being bunched up at the beginning and a peppercorn rent thereafter, a uniform rent is substituted. If it is a progressive rent, it will be accepted if it is commercial. If it is excessive, it will be scaled down.
As I have said, however, there can be clearly a commercial rent which might be progressive in certain circumstances. The intention is to prevent, by the insertion of an onerous burden in the agreement, any artificiality or blowing-up of the rent on the ground that it was due to the bearing of that onerous burden.
Subsection (10) covers rent-charges and subsection (11) deals with premiums. As the hon. and learned Member for Kettering (Mr. Mitchison) and the hon. Member for Gloucester (Mr. Diamond) may recollect, Chapter II of Part II of the Finance Act, 1963, dealt with premiums and with rent charges. Any amount which is treated as a rent and qualifies for tax relief in this way is taken into account when making comparison with the commercial rent. That is the effect of Amendment No. 69.
Amendments Nos. 67 and 68 are consequential. The former deals with a question concerning rates and provides that where the rent includes rates, the rates should be extracted from comparison to ascertain the commercial rent. Amendment No. 68 is merely consequential upon the other two Amendments. In the circumstances, I commend them to the Committee as being an improvement upon the original Clause.
§ Amendment agreed to.
1357§ Further Amendments made: In page 19, line 23, leave out subsection (7).
§
In line 40, leave out subsection (9) and insert:
(9) For the purpose of making a comparison under subsection (4) of this section between a payment consisting of rent under a lease (in this subsection referred to as "the actual lease"), or such payments taken together, and the commercial rent of the land, "commercial rent" shall mean the rent which might be expected to be paid under a lease of the land negotiated in the open market at the time when the actual lease was created, being a lease which is of the same duration as the actual lease, which is, as respects liability for maintenance and repairs, subject to the terms and conditions of the actual lease and which provides for rent payable at uniform intervals and—
(10) For the purpose of making a comparison under subsection (4) of this section between a payment which does not consist of rent under a lease (or such a payment taken together with other payments) and the commercial rent of the land, "commercial rent" shall mean the rent which might be expected to be paid under a tenant's repairing lease as defined in paragraph 19 of Schedule 4 to the Finance Act 1963 negotiated in the open market at the time when the transaction was effected under which the payment or payments became due.
(11) In this section references to rent due under a lease include references to rent which the person entitled to the lease is under Chapter II of Part II of the Finance Act 1963 treated, for any purpose, as paying in respect of land comprised in the lease, and such rent shall be treated for the purposes of this section as having been paid from day to day as it has become due.—[The Solicitor-General.]
§ The Solicitor-GeneralI beg to move Amendment No. 70, in page 20, line 30, at the end, to insert:
and 'rent' includes any payment made under a lease as so defined".This Amendment merely extends the definition of rent. It is necessary as a matter of drafting.
§ Amendment agreed to.
§ Clause, as amended, ordered to stand part of the Bill.