Clause 31.—(REPLACEMENT OF BUSINESS ASSETS.)

HC Deb 31 May 1965 vol 713 cc1177-228

3.31 p.m.

The Financial Secretary to the Treasury (Mr. Niall MacDermot)

I beg to move Amendment No. 430, in page 37, line 11, to leave out "not later than" and to insert: in the period beginning twelve months before and ending".

The Chairman

With that Amendment we are discussing also Amendment No. 250, in page 37, line 11, leave out "twelve months" and insert "three years".

Amendment No. 431, in page 37, line 13, at end insert: or at such earlier or later time as the Board may by notice in writing allow".

Amendment No. 231, in page 37, line 13, at end insert: but this period shall be extended to three years, or further at the discretion of the Inland Revenue, in the event of the old assets having been acquired by compulsory purchase powers o[...] a negotiated settlement under threat of compulsory purchase powers or the old asset having been destroyed by fire".

Amendment No. 261, page 37, line 22, at end insert: Provided further that in relation to old assets which were destroyed or damaged by fire or accident this subsection shall have effect as if for the reference to "twelve months" there were substituted a reference to "twelve months or such longer period as the Board may consider to be reasonable having regard to all the circumstances".

Amendment No. 403, in page 37, line 22, at end insert: Provided further that in relation to ships and aircraft this subsection shall have effect as if for the reference to "twelve months" there were substituted a reference to "three years or such longer period as is reasonable having regard to all the circumstances".

Mr. MacDermot

I shall discuss with this Amendment the second one in the name of my right hon. Friend—Amendment No. 431. These two Amendments are designed to meet points which have been put to us in representations from the Federation of British Industries, and the Association of British Chambers of Commerce, and I think that the points which they are designed to meet have given rise to a number of other Amendments on the Notice Paper which we are discussing with this Amendment.

The first point deals with the question whether the relief ought to apply in cases where the acquisition of a new asset takes place before the disposal of the old asset. There are particular cases where this is common practice. Examples of this are buying ships, acquiring a new factory, into which the old plant and machinery may be moved, acquiring a new warehouse, and so on. This seems to be a sound case, and a sound argument, so the Amendment will provide the relief given in the Clause if the new asset is acquired, or an unconditional contract to acquire it is entered into, within a period of 12 months before or after the disposal of the old asset.

The second point put to us was that the time limits should not be absolutely rigid, and it was suggested that we should take for the Inland Revenue a discretionary power to allow relief where the new asset was acquired rather more than 12 months before or after, and so we have agreed to give a general discretion to the Board to extend the 12 months' time limit either way. This will meet a point raised by the hon. Member for Bromsgrove (Mr. Dance), where farmers' land is compulsorily acquired and it may take more than 12 months before they can find another suitable farm.

Our intention is that the Board's discretion will be exercised in special cases, but in the normal way one would expect replacement to take place within 12 months. The Board would be prepared to exercise its discretion in a case where it was shown that it was not possible to replace the asset within the ordinary time limit by the use of ordinary foresight and prudence. If that can be established, if the person can show that, acting reasonably with ordinary foresight and prudence, he was not able to replace within the 12 months period, the Revenue would be ready to use its power to allow a longer period.

Mr. Edward Heath (Bexley)

As the Financial Secretary said, the Amendment is designed to meet representations which have been made to him, and also, I think he will agree, to meet the Amendment put down by the Opposition before his Amendment.

The hon. and learned Gentleman has dealt with the point which is very important for us, that of the use of discretion by the Board. He will agree that in the time of one year each side, a total of two years, he has not gone as far as our Amendments argued. On the other hand, he has met part of some of the Amendments put down by my right hon. and hon. Friends, who suggest that a longer period should be given at the discretion of the Board.

This covers such things as compulsory purchases, cases where the assets are damaged or destroyed by fire, in particular ships and aircraft, which are mentioned in one of the Amendments, and also agriculture, in which there is to be a change of farm.

I was glad to hear the Financial Secretary say that where due reason could be shown why it was not possible to do this in the normal time the Board would be sympathetic and generous in its approach, and on that understanding I would urge my hon. Friends to accept the Amendment.

Amendment agreed to.

Further Amendment made: In page 37, line 13, at end insert: or at such earlier or later time as the Board may by notice in writing allow".—[Mr. MacDermot.]

Mr. MacDermot

I beg to move Amendment No. 432, in page 37, line 38, to leave out "1" and to insert: Class 1. Assets within the heads A and B below. A.

The Chairman

I would remind the Committee that with that Amendment we are discussing the Government Amendments Nos. 433, 434 and 435.

Mr. MacDermot

These four Amendments are again designed to meet representations from the F.B.I. and the Association of British Chambers of Commerce. It was represented to us that the first two classes of assets in subsection (6) ought to be amalgamated. The argu- ment was put forward that a man might sell a freehold factory in the South of England in order to move to a development district, and that he would use the proceeds of the sale to equip with machinery the new factory which he was leasing, for example, from the Board of Trade. In such a case, as the Bill stands he would not be able to set off the capital gains on the factory he had disposed of against the machinery which he was acquiring for the new premises.

It was thought that it was only reasonable that the gain arising on the disposal of the factory should not be taxed if it were to be reinvested in assets within either the first or second category. We have found this argument persuasive, and, by these Amendments, are proposing to produce the effect of amalgamating the first two categories.

Amendment agreed to.

Further Amendments made: In page 38, line 3, leave out "2" and insert "B".

In line 6, leave out "3" and insert "Class 2".

In line 7, leave out "4" and insert "Class 3".—[Mr. MacDermot.]

Mr. Peter Walker (Worcester)

I beg to move Amendment No. 315, in page 38, line 7, at the end to insert: 5. Goodwill.

The Chairman

With this Amendment it will be convenient to take Amendment No. 266, in page 38, line 2, at end insert: or any rights or interest in connection with such land".

Mr. Walker

Yes, Dr. King.

Encouraged by the speed with which the Government are accepting sensible Amendments this afternoon—most of which acceptances follow recommendations made by hon. Members on this side of the Committee—I hope that we shall quickly dispatch this Amendment. I am sure that any sensible Government would be willing to accept it.

Under the Clause a number of business assets are allowed when transferred. I would impress upon the Committee the fact that the Amendment would not enable people to avoid the Capital Gains Tax; it would merely mean a deferment of the tax until a later stage. In asking the Committee to accept the Amendment we are putting forward the reasonable thesis that where there has been a transfer of goodwill there should be no tax until a later stage, when it is finally realised.

This is of obvious importance to the professional and service industries. One example with which we would all be familiar is the case of an industrial insurance agent who buys a book covering a certain district. If he works hard and increases his business, so that the premium income from the book rises during the period when he is responsible, he can sell that book at a capital appreciation. In many cases such an agent sells the book because he is moving to another locality, where he will purchase another book.

That is but one example of a field which is well known to everybody in the Committee. There are many other examples—examples of insurance premium firms, and so on—where the main asset is the goodwill. I suggest that it is a nonsense to provide that if a person sells a goodwill asset in order to move to another locality he is immediately subject to a 30 per cent. Capital Gains Tax. Amendment No. 266, which you have allowed to be discussed with this one, Dr. King, draws particular attention to the agricultural argument.

That provides an illustration of how right these Amendments are. Under a discretion given to them in connection with compulsory purchase orders, local authorities have it in their power to pay compensation not only for land, but also for goodwill in the case of a business, a firm, or a horticultural holding. The Clause allows for the transfer of an asset of land but disallows the transfer of an asset of goodwill. I suggest that if both are allowed in the case of a compulsory purchase order, both should be allowed under the Clause.

3.45 p.m.

There are many other cases where the taxation of goodwill will cause hardship. The Government are embarking upon a policy of new towns. Many shopkeepers in these towns will have previously carried on business in other towns. That is obvious, because the new towns endeavour to obtain experienced shopkeepers for their new parades. Shopkeepers therefore sell up their shops in an established town in order to open up in the shopping centre of a new town.

All those shopkeepers will be faced with a 30 per cent. Capital Gains Tax on their goodwill as soon as they move to a new town. That is another example of how badly the Clause will work unless the Amendments are accepted. People in the professions, shopkeepers and insurance agents will all be adversely affected by the Clause unless the Amendments are accepted. I hope that they are so obviously correct and right that the Financial Secretary will immediately accept their good sense.

Mr. J. T. Price (Westhoughton)

I want to add a few words on one aspect of the Amendment. I refer to the position of insurance agents. My attention has been drawn to the fact that in its present form the Bill imposes upon insurance agents a requirement to be assessed on any capital increase in the value of their books between the time when they purchase them and the time when they surrender them, on retirement, upon moving to other districts, or because of some other domestic cause.

The Committee will bear with me, I hope, if I briefly explain what happens in these transactions. I have taken the opportunity of writing to the Minister in this matter. He has, therefore, had prior notice that I wished to speak. In the conduct of what is called the industrial insurance business, premiums are collected weekly by door-to-door agents of various companies, on a commission basis. The books which record the business transacted are bought and sold in the ordinary commercial sense. In some parts of the country the practice is to value the books on the basis of 20 times the weekly value of the business. In other words, if £20 a week is collected the company values the book at £400. That varies pro rata according to the relative prosperity of the district concerned.

Even if it were fair, it would be quite impracticable to try to assess at the time of surrender a capital increase in the value of a book which recorded the business that an agent had carried out week by week. For example, if an agent buys a book for, say, £400, at that time it will consist of a list of clients of the company. That list may not be the same when he surrenders the book, perhaps four or five years later, when he changes his job or goes to another district. One of the duties of every insurance agent is to canvass for new business, and if he is a successful agent, he will add constantly to his list of clients. At the time when he changes or sells the book, the clients could be quite a different group of people from the original group.

I anticipate that my hon. and learned Friend will be able to make some concession in this respect. Even if it were right to assess a capital increase in the way proposed in the Bill, it would be quite impracticable to do so. At the end of the period the agent would have quite a different group of people. Though it might include some of the original names, many new names would be taken into the building up of the value of the business.

I suggest that an agent who sells a book does not necessarily do so to make a profit on the increased business. He may be moving to another part of the country, and, if he buys a book there, he may need to pay an enhanced figure for it. I think that the case here is self-evident for asking for some relief in respect of an insurance agent whose book has increased in value during the period in which he has operated it.

Sir Arthur Vere Harvey (Macclesfield)

I am sure that the Financial Secretary has been impressed by what has been said by the hon. Member for Westhoughton (Mr. J. T. Price). When proposing this legislation, did the Chancellor take into account what happens in respect of barristers who are allowed to save their earnings until the last year of their practice and so get away with them tax-free? Why is not this method applied also to barristers? It has been known that a barrister has retired with £100,000 free of tax. Why should the small man be hit? May we have an answer, please?

Mr. MacDermot

I am wondering whether I was wise in giving way to the hon. Member for Macclesfield (Sir A. V. Harvey), or whether I should have leapt to my feet as soon as my hon. Friend the Member for Westhoughton (Mr. J. T. Price) had finished speaking. I have had a vested interested in the point which the hon. Member raised. There is a new Clause on the Notice Paper dealing with it and no doubt we shall have time to discuss the problem later. It is not quite the same, one is not there concerned with goodwill.

Turning to the question of goodwill, I assure the Committee that this is a problem which, on consideration, I have found difficult. The object of Clause 31 is to try to afford relief in such a way as to ensure that the Capital Gains Tax does not inhibit the physical development and expansion of industry and commerce. This is why it is, as defined at the moment, related to quite clear and tangible assets.

We come to the question of goodwill and sometimes we are dealing there with a very intangible factor. My hon. Friend the Member for Westhoughton developed a particular case relating to the book of the insurance agent, and it was mentioned by the hon. Member for Worcester (Mr. Peter Walker). It is a clear-cut example of something which, patently, is goodwill and nothing else.

As hon. Members will know, on the sale of a business what is called goodwill is often little more than the residual figure when one has assessed the value of all the fixed assets and arrived at the purchase price. The difference between the two may be called goodwill, whereas very little of it is goodwill in the true sense in which we are discussing that in this Amendment.

Mrs. Freda Corbet (Peckham)

Would it be the case that in respect of a shop, with very little in the way of fixed assets which changed hands, as is likely to happen, for several thousands of pounds, my hon. and learned Friend would regard that as a minimal amount? A shop may change hands at quite a high figure. The assets, apart from stock and a few bits of furniture and fittings, would be very much goodwill. It would represent a very large slice of the figure.

Mr. MacDermot

I entirely agree with my hon. Friend. The case which she has cited I would call a genuine and true case of goodwill. It arises particularly in respect of a retail business or with people such as insurance agents, as has been mentioned. I was seeking to explain why goodwill does not appear in the Bill and what are the arguments the other way.

There is this factor, which, I think, will not be disputed, that in many cases what is called goodwill is, in fact, the residual figure in arriving at a sale price for the business as a whole. What one has to envisage is not a single transaction but the possibility of several successive acquisitions. The difficulty for the Revenue in policing a concession of this kind, and carrying through a notional cost, is that a whole series of transactions would be considered.

I must warn the Committee that there would be opportunities for evasion. If one is assuming a sale where an overall price has been agreed, it would not be very difficult, perhaps, for an arranged breakdown to be agreed on the price in a way which would produce an artificial loss relating to the fixed assets, which could be claimed straight away, and an artificially inflated goodwill factor, and to defer payment of tax on that. This, again, is something which would make the policing of the provisions in the Clause more difficult for the Revenue.

I have been trying to discover cases where real difficulty or hardship would be caused if we did not include goodwill, and I should be interested to hear examples. Reference was made to agriculture. From my inquiries I do not know that there are many cases—I may have been quited misinformed—where goodwill, as such, operates as a large factor in the disposal of one farm and the acquisition of another.

Mr. Harold Lever (Manchester, Cheetham)

My hon. and learned Friend says the trouble is that this may be used as an engine for tax avoidance. This is not an example of an appreciation in value. The same money, I understand, is laid out in buying new goodwill in some business. That being so, it is difficult to see how, without almost incredible acrobatics, this may be used as an engine for tax avoidance.

Mr. MacDermot

My hon. Friend has raised a point which I wished to raise myself. The hon. Member for Worcester (Mr. Peter Walker) gave the example of a shopkeeper who bought a shop in a new town. That person would not be buying any goodwill. By definition it is a new town. He has disposed of goodwill and has nothing to which to carry it forward, unless the implication in what the hon. Member was saying is the suggestion that the tax which is deferred from the sale of the old goodwill should be capable of being set-off against the cost of the investment in the fixed assets of his new business, which is what we have done in the last two Amendments in relation to the first two categories.

4.0 p.m.

Mrs. Corbet

Perhaps I can help my hon. and learned Friend. In that case, would there not be a waiting period before the goodwill could be accumulated in the new business in the new town? The money derived from the sale of the goodwill would probably be essential to keep the man while he established himself in his new premises in the new town.

Mr. MacDermot

It would not alter the fact that there would be nothing against which the taxpayer could set off the gain, and that he therefore would not be able, as the matter is framed at the moment, to claim the relief.

Mr. Peter Walker

Surely the point is that this is purely a deferment. Whatever goodwill this shopkeeper has built up during his business life, under the provisions of the Bill, he will be caught at death—if not before—if he sells the whole business at any time. What we are seeking to do is to defer the tax on his first business to enable him to survive. At the end of the day, the tax is taken in any case.

Mr. MacDermot

The Amendment would not do that. If that is what hon. Members are asking for, they want an Amendment which will enable them to defer the tax on the capital gain from the goodwill of the old business against the fixed assets or some other cost of acquisition of the new business.

Mr. Jasper More (Ludlow)

The Financial Secretary referred to agriculture, which is involved in Amendment No. 266. For horticulture, of course, goodwill is important as it would be for any other business. With regard to agriculture in general, although this is not entirely the same as goodwill, we have to consider the whole question of tenant rights of farmers, which play an important part in the alteration of a farming enterprise.

Mr. J. E. B. Hill (Norfolk, South)

May I point out that a farmer may have built up a retail milk round with a considerable daily sale of gallonage? If that farmer has to move, he will perhaps hope to build up a new retail milk round in a new location. He will get value for the round which he is leaving, and he will want to take that money with him.

Mr. MacDermot

The Amendment will do nothing for him, unless he is buying a new farm with a new milk round and is paying for that. Then the Amendment will help him. It is perhaps obvious from what has been said already that there are complicated points here. I shall be glad to consider them if hon. Members will allow me. I give a general undertaking to those with specific points which have not been covered and which are relevant to goodwill, or who have examples of ways in which the case is clearly made out, that, if they will send them to me, I shall consider them before Report.

Sir Stephen McAdden (Southend, East)

I have not detained the Committee at all on the Finance Bill and I wish only to add my support to what my hon. Friends have said. I am grateful that the hon. and learned Gentlemen intends to look at this matter again. I am sure that he will recognise that a consideration which does not weigh too heavily with me is the difficulties to which the Revenue may be put. I am more concerned with the difficulties to which citizens will be put.

While it may be difficult for the Revenue to be able to satisfy the very cogent case which has been put forward from both sides of the Committee, I hope that the Financial Secretary will remember that insurance agents are a very powerful body of people, whose advice on all kinds of matters—domestic and sometimes even political—is taken by the thousands of people whom they visit.

Unless the Financial Secretary does something to make this Clause intelligible, he will find himself in a very difficult position.

Mr. J. T. Price

I am sorry to have to rise again, but, while I am pleased that my hon. and learned Friend has said that he will have another look at this before Report, I am not very clear, from what he has said, that he fully understands the point. This is a very serious matter which affects thousands of insurance agents. It is unfortunate that this has become confused with other issues which have been discussed on other Amendments. I would reinforce what I have already said, by drawing to the attention of my hon. Friend the fact that not all insurance companies—not all the leading six companies, which include the Prudential, the Refuge, the C.I.S. and the Pearl—the big fish in the pond—operate the same system.

For example, some insurance companies long ago ceased to acknowledge the right of agents to have an interest in the book and they employ agents on quite different conditions. The company owns the book and it is not part and parcel of the contract of service of their agent. If one is to perpetuate or accentuate the differential between the agents with an interest in the book on which they are doing their business and the agent who does not have a book, great injustice will be inflicted on those remaining large companies in which the agent's interest in his book is a very important factor in his working conditions.

The book can only be increased in value by the exertions and activities of the agent in securing new business. If the company for whom he works takes the value for the book, it does not have to pay any Capital Gains Tax on increased business. It would, under the terms of the Bill, be the agent who had to pay increases in tax if an officer of my hon. and learned Friend's Department assessed him as coming within the ambit of the Clause. I must seriously press on my hon. and learned Friend and upon the Chancellor that this is not a trivial matter which can be brushed aside. It has to be considered seriously, on its merits. Without any apology, I may say that great injustice will be inflicted on thousands of insurance agents if the Bill is allowed to stay in its present form.

Mr. Harold Lever

The debate has shown that what is required and what my hon. and learned Friend should be thinking about is not merely a more skilfully drafted Amendment to give effect to what was suggested from the Opposition Front Bench, but a totally different view about making goodwill subject to the Capital Gains Tax at all. In that way we would satisfy the objections which have been taken by my hon. Friend the Member for Westhoughton (Mr. J. T. Price) and my hon. Friend the Member for Peckham (Mrs. Corbet). Would my hon. and learned Friend not bear in mind that goodwill, as such, might reasonably be exempted altogether from the ambit of the Bill? Goodwill is always the result of effort, the building up of a connection and the like.

If my hon. and learned Friend is worried about tax avoidance, I do not want to do anything to disturb the sleep at night of the Revenue officials, who have been inadequately supplied with that useful relaxation because of their deep anxiety on this score. There is a very reasonable way, I would suggest to the Revenue officials, of protecting the Revenue. If one exempts goodwill, one does so on the basis of what it is worth. We must not start with the assumption that everyone is prepared to put down a fraudulent value for goodwill. Contrary to popular assumptions in debates here, most people are prepared to take any lawful step to reduce their tax liability and very few people, correspondingly, are prepared to take any unlawful steps.

I ask my hon. and learned Friend to reflect, with the Chancellor—who has been very reasonable upon most of these matters—whether he could not abandon the goodwill tax altogether. If so, I hope that we shall be spared some oratory from the other side of the Committee. We have heard a good deal about "MacDermot's law", but we might also take account of "Heath's fork"—if my right hon. Friend refuses to give way, he is acting in a spirit of spiteful hatred; if he gives way in a reasonable and fair-minded spirit, that shows how incompetently and inadequately the Bill has been prepared. That is "Heath's fork."

I hope that my hon. and learned Friend will be big enough to accept this blunt domestic instrument and do what he and the Chancellor honestly believe to be right—abandon the Capital Gains Tax on goodwill altogether.

Mr. J. Grimond (Orkney and Shetland)

As we are giving various prizes for various performances and are attaching so-called mottoes to different individuals, I suggest that we should also have "Lever's balance". It is not an equal balance, but it consists of sticking harpoons into the Government and a few darts into their opponents. However, this will not be the first time that the hon. Gentleman has finished by voting for the Government. We take that as his right, but we are always very glad to hear from him.

I want to offer the Revenue a crumb of comfort. If it is believed that rabbits may escape the net because of an Amendment which is too generous, I point out, as has already been said, that the tax in this case will be postponed and that one of the occasions upon which people will be caught for tax is on death. Whereas, until now, on the whole, it has paid people to have their assets rather under-valued at death, they will now be caught on a fork of some sort—whether it is "Heath's fork" I do not know—because, if their assets are valued highly, their estate may be caught for high death duties, and if they are valued too low, someone else may be caught for capital gains. Therefore, it is possible that the danger is not as great from accepting the Amendment as the Financial Secretary felt.

I understand that the hon. and learned Gentleman is also to consider Amendment No. 266 and Amendment No. 315. Until the debate this afternoon, I had thought that the compensation paid to certain forms of tenant on giving up their land—and I am thinking particularly of crofters, strictly so-called, within the Crofters Act—would not be affected by the Bill. However, it now occurs to me from what has been said that it may be.

I do not want to give a lecture on the position of crofters, which is complicated to say the least of it, but would the Financial Secretary be good enough to consult the Lord Advocate about the position of crofters and especially about whether the compensation for improvements which some of them are paid when they give up or assign their crofts will fall under Capital Gains Tax? Personally, I do not think that it will, but from what has been said there seems to be that danger. While he is looking at these matters perhaps the hon. and learned Gentleman will consult the Scottish Law Officers on this issue.

Mr. Joel Barnett (Heywood and Royton)

I, too, would like to represent the case for goodwill. If my hon. and learned Friend cannot go all the way with the Amendment, I hope that he will at least consider the position of the small man and accept the exemption of goodwill up to a certain figure.

My hon. and learned Friend said that if we were to allow this sort of Amendment we would leave a loophole for avoidance. He suggested that this could be done by artificially inflating the figure for goodwill while reducing that for fixed assets. However, even without the tax a seller of a business would very much like to do that, because he would then reduce his Income Tax liability, because to reduce the sale price of the fixed assets would reduce what is known as the balancing charge. Equally, one would have to have a rather foolish or badly advised purchaser, because he would be paying more for goodwill, on which he could claim no allowance, and a lower figure for the fixed assets on which 1,e could therefore not claim as much capital allowance.

To suggest that this proposed procedure would be a loophole is to suggest a dealing between a rather foolish purchaser and a seller who is trying to be too clever by half. This is not the sort of means of avoidance which my hon. and learned Friend believes it to be.

4.15 p.m.

Mr. William Baxter (West Stirlingshire)

I advise my hon. and learned Friend the Financial Secretary to be very cautious about accepting all that has been said about the impossibility of tax avoidance from this proposal through an attempt to define an indefinable object, because whether goodwill is valued at £X or £A is only a matter of opinion. Such a provision would cause the inspectors of taxes great difficulty in matters of definition. I believe that this could be a loophole which would vitiate the purposes which the Chancellor of the Exchequer has in mind. I agree that goodwill must be given some consideration, but no hon. Member has yet suggested a formula to define it. That would be the difficulty which the Chancellor of the Exchequer would have to meet.

Mr. MacDermot

I am grateful to my hon. Friend the Member for West Stirlingshire (Mr. W. Baxter) as someone who has come to my aid and appreciated that I have had difficulties about this matter. I assure my hon. Friend the Member for Westhoughton (Mr. J. T. Price) that I am not treating this as a trivial but as a very serious and important matter. In this as in all matters we want to do what is right, but this is not an easy one.

I have certainly found this a very helpful if short debate and I will gladly study all I have been asked to consider. The right hon. Member for Orkney and Shetland (Mr. Grimond), the Leader of the Liberal Party, asked me to consider compensation for improvements carried out by crofters. I believe that they are not within the scope of the Bill, but I will certainly check. I was interested to notice that he appreciated the point, which had certainly occurred to us, about the advantages of overcoming some of our valuation problems by making death the occasion for charge of Capital Gains Tax.

I do not think that I can hold out much hope to my hon. Friends on the broader issue of whether we would consider excluding goodwill from being subject to charge. I cannot see any reason in principle why it should be excluded. My hon. Friend the Member for Westhoughton said that it was usually the result of the personal exertion of the taxpayer, but so are the wages on which Income Tax is paid by the ordinary wage earner. That is a direct tax on the fruits of personal effort and exertion and one of the purposes of the proposed tax is to see that those who own businesses are not in a more favourable position than ordinary wage earners in the taxation of the fruits of their exertions.

That is not to say that on this peculiar question which arises when a person disposes of one business and acquires another we should not allow deferment of the tax on goodwill. I would like to consider that further.

Mrs. Corbet

Would my hon. and learned Friend bear in mind that it is customary when people set up shop for them to purchase a shop, to purchase a business and to purchase its goodwill? If they do not do that, they have to start up a completely new business with very great risks of not being able to make a livelihood. I remind my hon. and learned Friend that shopkeepers do not normally have skilled trades at their finger ends. Their skill is in building up a business from very little and not allowing it to fade away. They are constantly on the alert and working very hard to keep up their trade. The goodwill price is the measure of the business which is done and can easily be ascertained.

Mr. MacDermot

I fully appreciate that and I had hoped that I had made it clear in what I said earlier that I appreciated that the problem would arise especially for shopkeepers and retail traders.

Mr. Peter Walker

The manner in which the Financial Secretary has treated the Amendment has been remarkable. It is not a complicated Amendment and contains only one word of any importance. It has been on the Amendment Paper for some time and it is an official Opposition Amendment. Yet the hon. and learned Gentleman said that he rather enjoyed the discussion and found it very interesting and he said that it gave food for thought and that he would like to think about it. He should have given Some thought to the Amendment before coming to the Committee.

Representations were made by the hon. Member for Westhoughton (Mr. J. T. Price) on the very important issue of the insurance agents. When I mentioned insurance agents in my first speech, there was a hasty consultation between the Chancellor of the Exchequer and the Financial Secretary and it was quite obvious that they suddenly recognised that

this was a matter of great importance, particularly from a voting point of view, covering many thousands of people, and they said that this was a matter which they wanted to reconsider. The principles outlined for the insurance agent are identical to those outlined for others. The Government should have decided by now either that they are prepared to accept the proposal, or that there are sufficient arguments against it for them not to accept it. We heard only one, the tax avoidance argument, against it, on which I will not comment because that was adequately replied to by the hon. Member for Manchester, Cheetham (Mr. Harold Lever) and others.

The Financial Secretary's case is not accepted even by his hon. Friends. All that the Financial Secretary was willing to do was listen to our arguments, show interest, and merely reply that he wanted time to examine the matter further.

Mr. MacDermot

The hon. Gentleman is forgetting that his proposal would not carry out the things he wishes to do.

Mr. Walker

Certainly, my Amendment would carry out many of the things I want to do. If my proposal only partially carried them out, that should be ample reason why the Government should accept the Amendment. No real argument against the Amendment has been adduced by the Financial Secretary, so I must advise my hon. Friends to divide the Committee.

Question put, That those words be there inserted:—

The Committee divided: Ayes 212, Noes 239.

Division No. 152.]	AYES	[4.22 p.m.
Agnew, Commander Sir Peter	Box, Donald	Corfield, F. V.
Alison, Michael (Barkston Ash)	Boyd-Carpenter, Rt. Hn. J.	Costain, A. P.
Allan, Robert (Paddington, S.)	Boyle, Rt. Hn. Sir Edward	Courtney, Cdr. Anthony
Allason, James (Hemol Hempstead)	Braine, Bernard	Craddock, Sir Beresford (Spelthorne)
Amery, Rt. Hn. Julian	Brinton, Sir Tatton	Crosthwaite-Eyre, Col. Sir Oliver
Anstruther-Gray, Rt. Hn. Sir W.	Bromley-Davenport, Lt. -Col. Sir Walter	Cunningham, Sir Knox
Atkins, Humphrey	Brooke, Rt. Hn. Henry	Curran, Charles
Barber, Rt. Hn. Anthony	Brown, Sir Edward (Bath)	Currie, G. B. H.
Barlow, Sir John	Bruce-Gardyne, J.	Dalkeith, Earl of
Batsford, Brian	Bryan, Paul	Dance, James
Beamish, Col. Sir Tufton	Bullus, Sir Eric	Davies, Dr. Wyndham (Perry Barr)
Bennett, Sir Frederic (Torquay)	Burden, F. A.	d'Avigdor-Goldsmid, Sir Henry
Bennett, Dr. Reginald (Gos & Fhm)	Buxton, Ronald	Dean, Paul
Berkeley, Humphry	Campbell, Gordon	Digby, Simon Wingfield
Berry, Hn. Anthony	Carlisle, Mark	Doughty, Charles
Biffen, John	Carr, Rt. Hn. Robert	Douglas-Home, Rt. Hn. Sir Alec
Biggs-Davison, John	Cary, Sir Robert	Dray son, G. B.
Birch, Rt. Hn. Nigel	Chataway, Christopher	Elliot, Capt. Walter (Carshalton)
Black, Sir Cyril	Clark, Henry (Antrim, N.)	Elliott, R. W.(N'e'tle-upon-Tyne,N.)
Blaker, Peter	Cole, Norman	Eyre, Reginald
Bossom, Hn. Clive	Cooke, Robert	Farr, John
Fell, Anthony	Lagden, Godfrey	Powell, Rt. Hn. J. Enoch
Fisher, Nigel	Lancaster, Col. C. G.	Price, David (Eastleigh)
Fletcher-Cooke, Charles (Darwen)	Langford-Holt, Sir John	Quennell, Miss J. M.
Foster, Sir John	Legge-Bourke Sir Harry	Ramsden, Rt. Hn. James
Fraser,Rt.Hn.Hugh(St'fford & Stone)	Lewis, Kenneth (Rutland)	Rawlinson, Rt. Hn. Sir Peter
Fraser, Ian (Plymouth, Sutton)	Litchfield, Capt. John	Redmayne, Rt. Hn. Sir Martin
Gammans, Lady	Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)	Ridsdale, Julian
Gardner, Edward	Lloyd, Ian (P'tsm'th, Langstone)	Roots, William
Gibson-Watt, David	Lloyd, Rt. Hn. Selwyn (Wirral)	Royle, Anthony
Gilmour, Ian (Norfolk, Central)	Longbottom, Charles	Russell, Sir Ronald
Glover, Sir Douglas	Longden, Gilbert	Scott-Hopkins, James
Goodhew, Victor	Loveys, Walter H.	Sharples, Richard
Gower, Raymond	McAdden, Sir Stephen	Sinclair, Sir George
Grant, Anthony	McLaren, Martin	Smith, Dudley (Br'ntf'd & Chiswick)
Grant-Ferris, R.	Maclean, Sir Fitzroy	Smyth, Rt. Hn. Brig. Sir John
Gresham Cooke, R.	Macleod, Rt. Hn. Iain	Spearman, Sir Alexander
Grieve, Percy	McMaster, Stanley	Stainton, Keith
Griffiths, Peter (Smethwick)	McNair-Wilson, Patrick	Stodart, Anthony
Gurden, Harold	Maginnis, John E.	Stoddart-Scott, Col. Sir Malcolm
Hall, John (Wycombe)	Marten, Neil	Studholme, Sir Henry
Hall-Davis, A. G. F.	Maude, Angus	Talbot, John E.
Harris, Frederic (Croydon, N.W.)	Mawby, Ray	Taylor, Sir Charles (Eastbourne)
Harris, Reader (Heston)	Maxwell-Hyslop, R. J.	Taylor, Edward M. (G'gow,Cathcart)
Harrison, Brian (Maldon)	Meyer, Sir Anthony	Taylor, Frank (Moss Side)
Harrison, Col. Sir Harwood (Eye)	Mills, Peter (Torrington)	Teeling, Sir William
Harvey, Sir Arthur Vere (Macclesf'd)	Mills, Stratton (Belfast, N.)	Thatcher, Mrs. Margaret
Harvey, John (Walthamstow, E.)	Miscampbell, Norman	Thomas, Sir Leslie (Canterbury)
Hastings, Stephen	Mitchell, David	Thompson, Sir Richard (Croydon,S.)
Hawkins, Paul	Monro, Hector	Thorneycroft, Rt. Hn. Peter
Heald, Rt. Hn. Sir Lionel	More, Jasper	Tilney, John (Wavertree)
Heath, Rt. Hn. Edward	Morgan, W. G.	Turton, Rt. Hn. R. H.
Higgins, Terence L.	Morrison, Charles (Devizes)	Tweedsmuir, Lady
Hill, J. E. B. (S. Norfolk)	Mott-Radclyffe, Sir Charles	van Straubenzee, W. R.
Hirst, Geoffrey	Munro-Lucas-Tooth, Sir Hugh	Walder, David (High Peak)
Hobson, Rt. Hn. Sir John	Murton, Oscar	Walker, Peter (Worcester)
Hogg, Rt. Hn. Quintin	Neave, Airey	Walters, Dennis
Hopkins, Alan	Nicholson, Sir Godfrey	Ward, Dame Irene
Hordern, Peter	Noble, Rt. Hn. Michael	Weatherill, Bernard
Howard, Hn. G. R. (St. Ives)	Nugent, Rt. Hn. Sir Richard	Whitelaw, William
Hunt, John (Bromley)	Onslow, Cranley	Williams, Sir Rolf Dudley (Exeter)
Hutchison, Michael Clark	Orr, Capt. L. P. S.	Wills, Sir Gerald (Bridgwater)
Irvine, Bryant Godman (Rye)	Orr-Ewing, Sir Ian	Wilson, Geoffrey (Truro)
Jenkin, Patrick (Woodford)	Osborn, John (Hallam)	Wolrige-Gordon, Patrick
Jennings, J. C.	Osbome, Sir Cyril (Louth)	Wood, Rt. Hn. Richard
Johnson Smith, G. (East Grinstead)	Page, John (Harrow, W.)	Woodhouse, Hon. Christopher
Jones, Arthur (Northants, S.)	Page, R. Graham (Crosby)	Wylie, N. R.
Kerby, Capt. Henry	Pearson, Sir Frank (Clitheroe)	Yates, William (The Wrekin)
Kilfedder, James A.	Peyton, John	Younger, Hn. George
Kimball, Marcus	Pickthorn, Rt. Hn. Sir Kenneth
King, Evelyn (Dorset, S.)	Pike, Miss Mervyn	TELLERS FOR THE AYES:
Kirk, Peter	Pitt, Dame Edith	Mr. Ian MacArthur and
		Mr. Francis Prm.
NOES
Albu, Austen	Callaghan, Rt. Hn. James	Evans, Albert (Islington, S.W.)
Allaun, Frank (Salford, E.)	Carmichael, Neil	Fitch, Alan (Wigan)
Aldritt, Walter	Carter-Jones, Lewis	Fletcher, Sir Eric (Islington, E.)
Allen, Scholefield (Crewe)	Castle, Rt. Hn. Barbara	Fletcher, Ted (Darlington)
Armstrong, Ernest	Coleman, Donald	Fletcher, Raymond (Ilkeston)
Atkinson, Norman	Conlan, Bernard	Floud, Bernard
Bacon, Miss Alice	Corbet, Mrs. Freda	Foley, Maurice
Bagier, Gordon A. T.	Cousins, Rt. Hn. Frank	Foot, Sir Dingle (Ipswich)
Baxter, William	Craddock, George (Bradford, S.)	Foot, Michael (Ebbw Vale)
Beaney, Alan	Cronin, John	Ford, Ben
Bence, Cyril	Crossman, Rt. Hn. R. H. S.	Fraser, Rt. Hn. Tom (Hamilton)
Benn, Rt. Hn. Anthony Wedgwood	Cullen, Mrs. Alice	Freeson, Reginald
Bennett, J. (Glasgow, Bridgeton)	Dalyell, Tarn	Garrett, W. E.
Bessell, Peter	Darling, George	Garrow, A.
Binns, John	Oavies, G. Elfed (Rhondda, E.)	Ginsburg, David
Bishop, E. S.	Davies, Harold (Leek)	Greenwood, Rt. Hn. Anthony
Blackburn, F.	Davies, Ifor (Gower)	Gregory, Arnold
Blenkinsop, Arthur	Davies, S.O. (Merthyr)	Griffiths, Rt. Hn. James (Llanelly)
Boardman, H.	Delargy, Hugh	Griffiths, Will (M'chester, Exchange)
Bottomley, Rt. Hn. Arthur	Dell, Edmund	Grimond, Rt. Hn. J.
Bowden, Rt. Hn. H. W. (Leics S.W.)	Dempsey, James	Gunter, Rt. Hn. R. J.
Boyden, James	Diamond, John	Hamilton, James (Bothwell)
Braddock, Mrs. E. M.	Dodds, Norman	Hamilton, William (West Fife)
Bradley, Tom	Doig, Peter	Hamling, William (Woolwich, W.)
Bray, Dr. Jeremy	Donnelly, Desmond	Harper, Joseph
Brown, Rt. Hn. George (Belper)	Driberg, Tom	Harrison, Walter (Wakefield)
Buchan, Norman (Renfrewshire, W.)	Duffy, Dr. A. E. P.	Hazell, Bert
Buchanan, Richard	Dunn, James A.	Henderson, Rt. Hn. Arthur
Butler, Herbert (Hackney, C.)	Dunnett, Jack	Herbison, Rt. Hn. Margaret
Butler, Mrs. Joyce (Wood Green)	English, Michael	Hobden, Dennis (Brighton, k'town)

Holman, Percy	Mahon, Simon (Bootle)	Roberts, Goronwy (Caernarvon)
Horner, John	Mallalieu,J.P.W.(Huddersfield,E.)	Robertson, John (Paisley)
Houghton, Rt. Hn. Douglas	Manuel, Archie	Robinson, Rt. Hn.K. (St. Pancras, N.)
Howarth, Harry (Wellingborough)	Mapp, Charles	Rodgers, William (Stockton)
Howarth, Robert L. (Bolton, E.)	Mason, Roy	Rogers, George (Kensington, N.)
Hughes, Cledwyn (Anglesey)	Mellish, Robert	Rose, Paul B.
Hughes, Emrys (S. Ayrshire)	Mikardo, Ian	Sheldon, Robert
Hughes, Hector (Aberdeen, N.)	Millan, Bruce	Shinwell, Rt. Hn. E.
Hunter, Adam (Dunfermline)	Miller, Dr. M. S.	Shore, Peter (Stepney)
Hunter, A. E. (Feltham)	Milne, Edward (Blyth)	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Hynd, H. (Accrington)	Monslow, Walter	Silkin, John (Deptford)
Irvine, A. J. (Edge Hill)	Morris, Alfred (Wythenshawe)	Silverman, Julius (Aston)
Irving, Sydney (Dartford)	Morris, Charles (Openshaw)	Skeffington, Arthur
Jackson, Colin	Mulley,Rt.Hn.Frederick(SheffieldPk)	Slater, Mrs. Harriet (Stoke, N.)
Jay, Rt. Hn Douglas	Murray, Albert	Slater, Joseph (Sedgefield)
Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	Neal, Harold	Small, William
Jenkins, Hugh (Putney)	Newens, Stan	Solomons, Henry
Jenkins, Rt. Hn. Roy (Stechford)	Noel-Baker, Francis (Swindon)	Soskice, Rt. Hn. Sir Frank
Johnson, Carol (Lewisham, S.)	Noel-Baker,Rt.Hn.Philip(Derby,S.)	Steel, David (Roxburgh)
Johnson,James(K'ston-on-Hull,W.)	Norwood, Christopher	Stewart, Rt. Hn. Michael
Johnston, Russell (Inverness)	Oakes, Gordon	Stones, William
	Ogden, Eric	Summerskill, Hn. Dr. Shirley
Jones, J. Idwal (Wrexham)	O'Malley, Brian	Swain, Thomas
Jones, T. W. (Merioneth)	Oram, Albert E. (E. Ham, S.)	Symonds, J. B.
Kenyon, Clifford	Orme, Stanley	Taylor, Bernard (Mansfield)
Kerr, Mrs. Anne (R'ter & Chatham)	Oswald, Thomas	Thomas, lorwerth (Rhondda, W.)
Kerr, Dr. David (W'worth, Central)	Owen, Will	Thorpe, Jeremy
Lawson, George	Padley, Walter	Tinn, James
Ledger, Ron	Page, Derek (King's Lynn)	Tomney, Frank
Lever, Harold (Cheetham)	Paget, R. T.	Urwin, T. W.
Lewis, Arthur (West Ham, N.)	Palmer, Arthur	Walden, Brian (All Saints)
Lewis, Ron (Carlisle)	Pannell, Rt. Hn. Charles	Walker, Harold (Doncaster)
Lipton, Marcus	Pargiter, G. A.	Wallace, George
Lomas, Kenneth	Park, Trevor (Derbyshire, S E.)	Wells, William (Walsall, N.)
Loughlin, Charles	Parkin, B. T.	Whitlock, William
Lubbock, Eric	Pavitt, Laurence	Wilkins, W. A.
Mabon, Dr. J. Dickson	Pearson, Arthur (Pontypridd)	Willey, Rt. Hn. Frederick
McCann, J.	Peart, Rt. Hn. Fred	Williams, Alan (Swansea, W.)
MacColl, James	Pentland, Norman	Williams, Mrs. Shirley (Hitchin)
MacDermot, Niall	Perry, Ernest G.	Williams, W. T. (Warrington)
McGuire, Michael	Popplewell, Ernest	Willis, George (Edinburgh, E.)
Mclnnes, James	Prentice, R. E.	Wilson, Rt. Hn. Harold (Huyton)
McKay, Mrs. Margaret	Price, J. T. (Westhoughton)	Wilson, William (Coventry, S.)
Mackenzie, Alasdair (Ross&Crom'ty)	Probert, Arthur	Winterbottom, R. E.
Mackenzie, Gregor (Rutherglen)	Pursey, Cmdr. Harry	Woodburn, Rt. Hn. A.
Mackie, George Y. (C'ness & S'land)	Randall, Harry	Woof, Robert
Mackie, John (Enfield, E.)	Rankin, John	Wyatt, Woodrow
McLeavy, Frank	Rees, Merlyn	Zilliacus, K.
MacMillan, Malcolm	Rhodes, Geoffrey
MacPherson, Malcolm	Richard, Ivor	TELLERS FOR THE NOES:
Mahon, Peter (Preston, S.)	Roberts, Albert (Normanton)	Mr. Charles Grey and
		Mr. William Howie.

Amendment made: In page 38, line 25, after first "of", insert "or".—[Mr. MacDermot.]

Sir Martin Redmayne (Rushcliffe)

I beg to move Amendment No. 364, in page 39, line 7, at the end to add:

1. (12) (a) This section applies where an individual carrying on a trade either alone or as a partner personally acting therein—
1. (i) ceases so to carry on the trade by retiring at the age of 60 years or some greater age, and
2. (ii) on or in connexion with that retirement disposes before his death of, or of his interest in, assets used, and used only, for the purposes of the trade throughout the period of ownership.
2. (b) the first £15,000 of the aggregate of gains which accrue to each individual from disposals falling within this section shall not be chargeable gains.
3. (c) in arriving at that aggregate of gains—
1. (i) the respective amounts of the gains shall be computed in accordance with the 1198 provisions of this Act (other than this section) fixing the amount of chargeable gains,
2. (ii) any loss accruing to the individual from a disposal falling within this section shall be deducted, and the provisions of this section shall not affect the computation of the amount of any allowable loss, and
3. (iii) gains and losses shall be aggregated or deducted although different or separate trades are concerned;
4. and for the purposes of determining which gains and losses constitute the first £15,000 of the aggregate of gains, the gains and losses shall be taken in the order in which they accrue.
4. (d) where the aggregate of gains accruing to the individual during his lifetime and so arrived at in respect of all disposals made by him and falling within this section exceeds £10,000, section 23 (2) of this Act shall in relation to that individual have effect as if for the reference therein to £5,000 there were substituted a reference to the amount (if any) by which the excess falls short of £5,000.
5. (e) if an asset was not used for the purposes of the trade throughout the period of ownership this section shall apply as if a part of 1199 the asset representing its use for the purposes of the trade having regard to the time and extent to which it was, and was not, used for those purposes, were a separate asset which had been wholly used for the purposes of the trade, and this section shall apply in relation to that part subject to any necessary apportionment of consideration for an acquisition or disposal of, or of the interest in, the asset.
6. (f) this section shall have effect as if section 31(9), except paragraph (a) thereof, were repeated in this section.
7. (g) section 31(11) shall apply in relation to this section as well as in relation to a claim under subsection (1) or subsection (2) of section 31.
8. (h) where an individual who is for the purposes of Part IV of this Act a director of a close company carrying on a trade and who is devoting substantially the whole of his time to the service of the company in a managerial or technical capacity—
   1. (i) ceases so to devote substantially the whole of his time by retiring at the age of 60 years or some greater age, and
   2. (ii) on or in connexion with that retirement disposes before his death of any, or his interest in any, shares or securities in that company,
   this section shall apply as if the company were a lawful partnership carrying on the trade and the individual were a partner personally acting therein and the other holders of shares or securities in the company were also partners therein and his and their respective shares and securities in the company were respectively interests in its assets, those interests carrying respectively, as nearly as may be, the same rights as those shares and securities.

This Amendment is designed to deal with the disincentive to retirement which now appears to be written into the Bill. Since various things have been said last week from the Treasury benches leading one to believe that perhaps the principle of this Amendment might be accepted I will try to move it as briefly as I can.

As the Bill is drafted it is clear, in the words of the Memorandum of Dissent of the Radcliffe Report, that a man whose economic power is unearned, may have substantial capital gains throughout his old age which he will not realise and liability will then occur on death. It could be argued that given a capital gains tax at all, death is the logical time at which to make an exemption, the amount in the Bill being to the extent of £5,000 of a person's capital gains.

The point of this Amendment is that under the Bill a man who earns his living running his own business has to pay Capital Gains Tax when he retires and disposes of his assets, apart from his dwelling-house, which is specifically exempted. The greater part of a smaller man's business resources throughout his working life are often tied up in his business so that capital gains which he could have achieved up to the date of retirement must be fully taxed under the Bill at the time of his retirement.

Thereafter, in his declining years, his income and his capital resources are probably at a minimum. His capital has just been diminished by the payment of Capital Gains Tax on retirement and, as he has a short expectation of life, and in comparatively few cases will he be able to achieve any substantial amount of further gain after retirement, Clause 31 as it now stands deprives this man of the benefit of anything like the £5,000 bottom slice which is offered on death by Clause 23(2).

We think that this is illogical. Hitherto, the general attitude of the Income Tax and the Finance Acts suggests that where economic power has been earned it is more deserving of bottom slicing than where it is unearned. For example, for Income Tax there is earned income relief and for Estate Duty a 45 per cent. reduction in respect of plant machinery land and so forth. But, under the Bill, if any trader retires instead of dying in harness, when he would get the advantages set out in the Bill, he is offered the roughest of treatment. He is liable to Capital Gains Tax in full and without any relief on the disposal of his assets. His retirement automatically deprives him of the 45 per cent. reduction in Estate Duty which he would have got had he died in harness. The Capital Gains Tax payable on retirement is not deductible from the Estate Duty as it would have been had he died in harness and he has scant chance of obtaining any benefit from the £5,000 exemption under Clause 23(2) because it is unlikely that his assets will appreciate after he has realised them on retirement.

On the other hand, the trader who hangs on through increasing age and diminishing efficiency, eventually dying in harness is again liable to Capital Gains Tax on the disposal of his business, but he retains the 45 per cent. reduction of Estate Duty on his plant, and so forth. The Capital Gains Tax payable on disposal of his business is deductible from the Estate Duty valuation and he has on death the full benefit of the £5,000 exemption.

It is perfectly true, as I said last week, that in considering any case of this sort, where the choice is between retirement alive and retirement dead it is death which gives the best bargain. It puts a very heavy penalty on retirement prior to death. Therefore, this Amendment proposes that where business assets are sold on retirement there should be a bottom slice in the same form as the £5,000 on death of, say, £15,000 which would be exempted from tax. Equally, the £5,000 exemption on death as a balancing factor should be reduced by any excess over the £10,000 bottom slice.

It is also proposed that there should be an age limit of 60 or more for retirement. On considering this further I wonder whether one should have an age limit, because retirement may well have to come earlier for a variety of reasons. If a man was prevented from continuing In business by virtue of incapacity or sickness, then exactly the same arguments would apply.

The fact that in agriculture the Capital Gains Tax is chargeable on the disposal of business assets on retirement tends to put the farmer in a more difficult position than those engaged in other trades because, on ceasing farming, he automatically renders himself homeless. The disincentive against retirement is therefore, even stronger in agriculture than elsewhere.

Equally, it will be seen that although the Amendment as drafted relates primarily to a partnership or a man in business on his own account, it is proposed that it should be extended also to the man trading through the medium of a controlled company. By the terms of the Amendment, such a man would be regarded as being in the same position in relation to his company as a partner in respect of his partnership.

This is eminently a reasonable proposition and I shall not go into it in any great detail. The figures we have put in are arguable. Equally, it would be arguable whether the provision should work on a sliding scale so that it might cover private enterprise businesses realising, say, from £25,000 or £30,000 up to about £100,000. It is true that without some such provision as is outlined in the Amendment, old men—and this was said last week, and it is true—will hang on in business or in farming until death gives to their sons or heirs the relative benefits of death now written into the Bill.

I hope that the Amendment will receive a favourable reception. I would not like to destroy the goodwill we recently failed to insert in the Bill, but I am sure that even the Treasury Bench cannot accept that, in this day and age, they can allow to go on the Statute Book a provision with such a definite disincentive in it.

Mr. MacDermot

I would begin by paying a tribute to the skilful and comprehensive way in which the Amendment has been drafted. Obviously, a great deal of thought and professional skill has gone into drafting that has commanded the admiration of people who are much more expert than I am in attempting such things.

I have already indicated a number of times during our discussions that this Amendment aroused my interest, and my favourable interest. It obviously raises a very helpful point in connection with this tax. It is concerned particularly to help the small businessman who wants to retire at normal retiring age and dispose of his business to provide for retirement, but who might, at that moment, have an unusually high liability to Capital Gains Tax.

Our tax system already provides reliefs in a variety of ways for people who are making provision for retirement. It is open to the man who runs a small business of his own to take out a retirement pension annuity, if he wants to, and so obtain some of those benefits in tax, but I am informed, that this is not what happens in practice; that he not unnaturally tends to plough back into his business what he has earned, looking on that as his provision and his security for old age.

There is, therefore, a reasonable case for saying that a man in that position should have some tax relief. There is also the obvious relation of the possibility of relief of this kind to the relief already in the Bill of the death exemption of £5,000. This carefully thought out Amendment very constructively suggests, in part, a set-off for this relief against the death exemption. That is an attractive proposal, and one that we should like to consider further.

I hope that the Opposition will not find it necessary to press this Amendment to a Division, because I can give a clear assurance that we are attracted to this proposal and would like to bring forward proposals on these lines. Perhaps I may here indicate the points we have in mind to consider further, by reason of which we would rather not accept the Amendment as it stands.

4.45 p.m.

We think that it might be wise to consider some tapering provision for age. I do not think that we could accept the suggestion that there should be no age requirement, but it might seem a little sharp if there were such a division that on one's birthday a man would be entitled to no exemption at all and then on the next day become entitled to quite a substantial exemption. We might, for a period of, say, five years, have a tapering provision—

Sir M. Redmayne

Earlier than 60 as well as later?

Mr. MacDermot

It could be around 60, or it could be between 60 and 65, which is more normal in considering such provisions.

We should like to consider the cut-off, if this is primarily designed to help the small business man, but that would probably complicate the provision enormously. We should like to consider the scope of the exemption. The hon. and gallant Member for Down, South (Captain Orr) referred to the farmers in Northern Ireland who have the practice of handing over their farms to their sons on retirement, with no money passing. In such a case there would be no sale at all, and the hon. and gallant Member argued a similar case for exemption there. I should like to look at that further.

I should also like to look at the amount. It occurs to me that even with the setoff provision against death exemption, the figure of £15,000 might be thought rather high, and there might be objection if there were too much discrepancy the other way between this figure and the death exemption.

As I say, I should like to look at these points again, but I have already given the Committee an assurance that it is our intention, when we have considered these matters, to bring forward what I would hope would be an acceptable Amendment or Amendments on Report. I therefore trust that what I have said will satisfy the Committee for the time being.

Sir M. Redmayne

The hon. and learned Gentleman has given a very real and reasonable assurance, and without expressing any hope that he will continue in the same vein, I have pleasure in begging to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Mr. Charles Fletcher-Cooke (Darwen)

As far as I can see, subsection (6) relates only to fixed assets or machinery. The reference is to … part of the building and any permanent or semi-permanent structure in the nature of a building… In my constituency, the process of calico printing requires enormously valuable copper rollers. These are not fixed assets. They can be slotted into different machines, but they are much more valuable than the machines themselves. Immense care is required in fabricating and etching them, but they would not come under the exemption. I am sure that a great many other hon. Members can quote examples of a similar nature from their own constituencies.

It may be said, "You can always take your portable assets with you. The object of the exemption is to give you some relief, because you have to buy other fixed assets and cannot carry your fixed assets round with you, but at any rate you could carry these rollers or other portable assets round with you." That, I suggest, would be a very artificial distinction. From the business point of view it is reasonable to sell a plant, along with such portable assets as the copper rollers for calico printing, lock, stock and barrel, and it would be quite artificial to prevent a man or a firm that wished to do that by disallowing him the exemption on assets that are not fixed.

Mr. Barnett

Even if it were exempt from Capital Gains Tax, it would seem to be chargeable to Corporation Tax, and would have been previously. Surely it would previously have been liable to Income Tax and Profits Tax and would now be liable to Corporation Tax.

Mr. Fletcher-Cooke

That may be, but so would be a number of fixed assets. I say that these portable assets, which are used in connection with fixed assets and are in many cases more valuable than the fixed assets, should be treated on the same level as the fixed assets. Otherwise, a totally artificial distinction will be introduced in the case of such things as copper rollers, which may mean that the nature of the sale of a business and purchase of another business will be framed in a false way.

Mr. Mark Carlisle (Runcorn)

I want briefly to raise one matter in view of what the Financial Secretary said when moving the Government Amendment to Clause 31(3) to increase the period of 12 months to such greater period as the Board of Inland Revenue might allow.

During the debate last Thursday on compensation for farmers whose land was compulsorily acquired, I raised the point that under the legislation dealing with new towns development corporations are encouraged to buy land from farmers in advance, obtaining ownership of the land, and they allow the farmers to continue in possession as tenants for several years until the land is required for development.

The Minister without Portfolio, at that stage, drew attention to the fact that there was a Government Amendment to Clause 31 to add after "twelve months" the words "such further period as the Board might allow." The Financial Secretary this afternoon, in giving examples of the type of cases to which this would apply, referred particularly to the fact that it would apply in cases where the person who had disposed of his assets was able to satisfy the Board that during the 12 months he had done his utmost to obtain new assets, but had been unable to do so.

I hope very much that the Financial Secretary does not intend that the Government Amendment will be limited merely to that type of case. If it is, it will fail to deal with the point that I raised on the previous Clause because it would fail to cover the man who is encouraged to dispose of his assets in advance of the time when the land is required for the development.

I hope that the Financial Secretary will bear in mind that the Government Amendment should be interpreted far more widely than he suggested. It should be interpreted to cover not only the man who has attempted during the 12 months to acquire new assets, but the man who has been encouraged to dispose of his existing assets several years before the time when he comes to acquire new assets. If the Amendment is to be of advantage to the farmer or landowner in a new town area, it is essential that the Board should be encouraged to interpret the Government Amendment so as to cover that case as well as the one mentioned by the Financial Secretary.

Mr. Donald Box (Cardiff, North)

Before we come to a decision on the Question before us, I must seek from the Financial Secretary a closer definition of the meaning of "trade" in the Clause. This is causing a certain amount of disturbance to management in some parts of the country. The only clue in the Clause is the reference in subsection (9) to "trade", "profession" and "location" having the same meanings as in the Income Tax Act. I have looked up Section 526 of the Income Tax Act, 1952, which refers to trade as including every trade, manufacture, adventure or concern in the nature of trade". I only wish that I could feel confident that the reference to trade in this Clause was as wide as that implies.

If I have interpreted subsection (1) of the Clause correctly, the deferred payment of capital gains—what the Americans call the "roll over"—applies only when assets are exchanged by a company of the same type and are used for the same trade. Superficially, this may seem fair, but, in practice, many anomalies and difficulties will arise. For example, it seems to rule out any change of activity or production by a company or an exchange where a subsidiary company may be involved. If that is correct, it is particularly serious for the future of our industry.

We are all aware of the need in many industries, particularly the older industries, for a greater degree of rationalisation and a reduction in the number of units employed in an industry. If we are to meet increased competition when we join the larger markets of the world—I think particularly of Europe—this will become even more essential in future. For example, in certain types of engineering production it is comparatively easy, I understand—provided that the capital is available—to make bigger and better machines which will produce six or seven of one product in the time that it previously took to produce one.

But it does not always follow that the demand increases at the same pace as production. I think most people would agree it would be quite exceptional if it did. The result—after all, this is a natural technological trend—is that where the product was previously made by six manufacturers, in future perhaps only one or two will be required. The sooner managements recognise that the trend is inevitable the better it will be for the economy, and certainly the sooner productivity will increase.

No one pretends that this decision is an easy one. In some cases rationalisation may take place by agreement, but I think that in far more cases rationalisation will be dictated by economic forces. It will be difficult enough to get managements to take this unpalatable and uncomfortable decision in future because it may involve disturbing employees, risking capital and a general upset; but if it involves the penalty of Capital Gains Tax as well, the chance of acceptance will be very slim indeed.

5.0 p.m.

I will offer one example to support my case. Until a year ago a company known as Manganese Bronze produced most of the marine propulsion propellers in this country. The other producer of a more or less similar size was Stoney Platt. These companies got together and considered that there was room for only one of them in the production of this item and decided to rationalise, and the result was that Stoney Platt bought out the propeller interests of Manganese Bronze.

Some time later Manganese Bronze acquired a company known as Villiers Engineers, a company which had been making a loss and which, I am assured, ought to be making a profit before long. This decision was in the national interest and the interests of the employees and the shareholders of the companies, and it was taken because at the time the transaction took place the two companies were unaffected by Capital Gains Tax.

I ask the Financial Secretary—he must decide this—whether it is good and desirable that this sort of rationalisation should continue in future and whether it would have taken place if Capital Gains Tax had applied at the time. I feel that if managements are to be discouraged from redeploying their resources by the provisions of the Clause it will prove detrimental to modernisation and improved industrial efficiency. What is wanted is, first, an extension of the type of activity envisaged under Clause 31, and, secondly, the abandonment of the idea of a multi-trade company.

In this respect, I understand that the previous Profits Tax legislation had a Clause which meant that all trades in any one company were regarded as the same trade. I confess that since my arrival this afternoon I have not had time to look up the details. However, I am told that under the present Clause a group of chain stores wishing to open a new shop in a new area—one practising identically the same trade as that pursued by the other shops—could find that the Revenue could claim that it was not the same trade because the new shop did not have the same customers. I am sure that this is not the intention of the Chancellor. It is causing a certain amount of confusion. I hope that the Financial Secretary will be able to give some clear detail as to how he defines "trade" under the Clause.

Mr. J. E. B. Hill

I wish to refer to subsection (5), which limits the operation of the Clause. I had tabled an Amendment suggesting my difficulty, but it was not selected. I am concerned about the way in which the words "wholly or partly" may limit the operation of the concession.

In trying to understand the Clause I looked at the White Paper, which says, on page 14: Subsection (5) withholds relief if the new assets were bought wholly or partly as a speculation. "Speculation", although it is innoccuous in the dictionary, has become somewhat overloaded with political implications, and I hope that that reference in the White Paper will not make the Revenue hold that the transactions in land which I am about to describe are, as it were, tainted, because most purchasers of real property surely hope that their purchases will increase rather than decrease in value over the years, especially in the case of agricultural land where there may be some possibility, almost certainly in the long term, of development.

Therefore, if the subsection were construed strictly we might find it operating almost as a complete prohibition, because of the phrase "wholly or partly", which could make the concession of very little practical value.

When one moves from the general point to the particular instances which are bound to arise in practice, one comes across this set of circumstances. Suppose a farmer either wants to move to a bigger farm or is forced to search for a bigger farm because compulsory purchase of his farm may require him to move at comparatively short notice. It will undoubtedly be very difficult for him to find a suitable farm.

As we have frequently heard in the debates, the demand for farms is far greater than the supply. It will, therefore, often come about that a farm which would be suitable is being sold in conjunction with other assets. This is especially the case when there is an auction of agricultural property. A suitable farm may be sold with vacant possession, but coupled with it in the auction may be another farm which is let, quantities of accommodation land, houses and cottages and possibly some woodland. The only way in which the would-be purchaser could get his farm would be to purchase the whole lot on the vendor's terms.

It may be essential for such a farmer to divest himself, as soon as may be, of the surplus assets which he does not require in order to continue farming, and which, in many cases, he could not afford, because farmers on moving in these circumstances want to buy as big a farm with vacant possession as they can and do not want to indulge in investment in property or let land which they are not themselves able to use. In practice, therefore, a farmer will have to sell off the unwanted asset as soon as he can.

The former may be able to do it in the time between contracting to buy the whole estate, if it is an estate, and the conveyance. He may be able to find a sub-purchaser of the parts which he does not want. Frequently, the tenant of the let farm will himself wish to buy if only he has the chance. But if it is held that this is selling part of the new asset and, therefore, does not come within the concession in the Clause, it will largely destroy the value of the Clause to the farming community.

In my Amendment I suggested the use of the word "substantial" instead of the word "partly", and I did this deliberately to avoid a rigid bar which is found in the Clause as it stands and in the hope that the Revenue would consider the circumstances of the transaction as a whole, because the object of a farmer moving, or being forced, out of his old farm is to set up his farming business in a new situation.

I therefore hope that the Chancellor will see this difficulty and allow the same flexibility in these circumstances as he has already suggested about the time factor. If it could be decided as a question of fact whether, taking the transaction as a whole, this is a genuine attempt to continue in business, then it would become an ordinary matter of negotiation and, if necessary, of appeal. I suggest to the Chancellor that that is a better way of enabling the Clause to work effectively and of helping the farming community and other businesses which may face the same circumstances. It would be better to have flexibility than the rigid bar which seems to exist in the Clause as it stands.

5.15 p.m.

Mr. Geoffrey Hirst (Shipley)

The Clause deals with the replacement of business assets, and it refers specifically to assets used for the purposes of the trade". These were closely defined as the Bill was printed in subsection (6,1,a). I assume that as a result of Amendments this is now Clause 1A. We did not debate closely the Government's Amendments on this point. It would not have been easy to argue the specific case on the whole range of reclassifying the Clause. Basically, the Amendments along these lines are intended to be helpful, and are helpful, in removing some of the rigidity which existed before. To that extent I am grateful.

But I am not yet clear how far the Amendments go. The original printing made no sense at all. After amendment it will be slightly more sensible; one will be able to use one's assets for replacement under the new classification. But in the definition it is clearly stated that a building must be occupied (as well as used) only for the purposes of the trade". This affects quite a few businesses and certainly affects a business in which I have often declared an interest to the Committee. I refer to the brewers and to licensed houses which are occupied by tied tenants.

Such a house is occupied not by the brewer who is in charge of the business. For various reasons, such as compulsory purchase, the replanning of towns and the modernisation of cities, which we all want to see, brewers frequently dispose of licensed premises and also—a horrible phrase—delicensed sites. The latter are sites which are still in the property of the company but the licence has been either transferred or put into suspense. Nevertheless, the case comes under the same heading.

The brewers use the proceeds of the sale, very wisely, and as the country would wish, for the modernisation of their business. They may use it for putting in more up-to-date and economical plant, or for developing beers of the lighter variety, which we are beginning to export in considerable quantity. At one time the sale of lager was a one-way traffic, but now quite a lot of beer is exported from this country. That has come about through great amalgamations and the availability of finance for that type of modernisation. This must apply to other businesses, too.

I may be wrong in my interpretation, and I shall be delighted to be proved wrong, but I do not see why businesses should be penalised in this way. The relationship is a tied or tenanted relationship and the property is not actually occupied by the brewer. Because of the very close definition in the Bill at present, tenanted houses—which are very substan- tially part and parcel of the trade—are not brought within the scope of the concession.

I could perhaps make the point even clearer by giving the Committee the benefit of the knowledge—which, no doubt, many of them already have—that managed houses are within the scope of the Clause. Other houses are tied, for quite specific reasons—partly from the need for the great modernisation which has taken place in our public houses, raising the standards remarkably—and millions of pounds have been poured into these licensed houses. Without this tied relationship that would not have been done. I have not given the Financial Secretary any notice, and this is a technical point. If he cannot answer today, perhaps he would write to me. Any comment that he makes will be helpful.

May I raise another point in the same main field though on a wider issue? It is not such a major point in respect of the industry to which I have referred. I refer to the acquisition of a site as defined in subsection (3). It reads: This section shall only apply if the acquisition of, or of the interest in, the new assets takes place, or an unconditional contract for the acquisition is entered into… A time factor is given. Assets are often acquired on building leases which at the time of acquisition are not unconditional contracts. Nevertheless, a building contract is entered into. This is a much shorter and a technical point, and again I accept that I am bowling a fast one at the Financial Secretary. If he cannot answer now, I shall be happy if he answers in writing. I hope that he will not overlook the point, which is important and which affects a wide range of industries.

Sir A. V. Harvey

My hon. Friend asks the Financial Secretary to give him an answer in writing. But we should all like the answer to the question. May we be given the answer in Committee and not in correspondence?

Mr. Hirst

Nothing would satisfy me more. I realised, from those who stood up to catch your eye, Dr. King, that I was one of the last speakers to be called in the debate and that this did not give the Financial Secretary much time to get the answer on a technical point. But possibly someone else will keep the debate going long enough for him to get the answer. That would be better than his writing to me about it, because neither point is entirely parochial. The second point does not have a particularly wide application to the very large industry which I have mentioned, but it is a wide issue and, therefore, is very important.

Mr. MacDermot

I have not followed the second point made by the hon. Member.

Mr. Hirst

Subsection (3) provides that to be included in this advantage there must be an unconditional contract at the time of acquisition. On many occasions there will be acquisition on building leases which are not unconditional contracts, but a building contract is subsequently entered into. The intention is, and is shown to be at the time of the transfer of the assets, that such building will take place, but there is not an unconditional contract in the period of time written into the Bill.

Owing to the unpunctuality of British Railways I was not here when a previous Amendment was discussed, but I assume that the Government were not kind enough to accept an earlier Amendment considerably extending the period of time. Of course, if the Financial Secretary accepted that Amendment, we should be a long way to winning the battle. I spend most of my time in Committee, but at that moment I was absent.

Mr. Peter Walker

They have not accepted the period of time which we suggested, but they have accepted that it shall be at the discretion of the Board of Inland Revenue.

Mr. Hirst

I am not sure whether that is a good answer, and I will wait to hear more.

Mr. David Mitchell (Basingstoke)

May I put one or two questions before the Financial Secretary replies? In spite of some elucidation from him during the debate, there are one or two points on which I am not clear. We have been told that if a farmer sells an arable farm in order to purchase a pig farm, he does not pay Capital Gains Tax even though the pig farm is in a totally differ- ent part of the country. Would that apply to a market gardener?

Can the Financial Secretary explain why it is that a pig farmer can sell his pig farm and become a chicken farmer without paying tax, but a sweet shop cannot be changed to a book shop or a grocery shop in the same way? What is so heinous in having built up a business as the owner of a sweet shop or a book shop or as a chemist and then wanting to go into the grocery business in another town? I should like to know what is the principle whereby the Government feel that a man should pay Capital Gains Tax on the work which he has put into building up a business over his life time.

If a business is not being sold and, therefore, no cash is being received from outside, from where is the money supposed to come to pay the Capital Gains Tax? If a man gives the business to his son or his family, from where does the money come to pay the tax? Many farms, many grocer shops, many small businesses in my constituency have been passed on from father to son and father to son for generations. This is the young man's skill. This is what he has learned to do.

It is no good saying that he should pay the Capital Gains Tax, for he has not the money. It is no good saying that the father should pay, for he has not the money, either. The business is not being sold outside the family and no money is coming in. Where is the money to come from to pay the Capital Gains Tax when a business of this sort is passed on in the family as a gift? Where is the money to come from to pay the Treasury?

Mr. James Scott-Hopkins (Cornwall, North)

One of the points which my hon. Friend the Member for Basingstoke (Mr. Mitchell) raised was referred to earlier, and, as I understand—

Mr. MacDermot

May I point out that it does not arise on this Amendment.

Mr. Scott-Hopkins

As I understand, we are not discussing an Amendment. We are on the Question, That the Clause, as amended, stand part of the Bill.

Mr. MacDermot

The question of a farmer who gives his farm to his son does not arise on this Clause.

Mr. Scott-Hopkins

I am sorry that the Financial Secretary saw fit to interrupt me.

I was going on to say that we had had an earlier debate about this matter and that my hon. Friend was right in saying that the Financial Secretary had not been as forthcoming as we had hoped on the point which he raised. When I first came into the Chamber, I was extremely disturbed about the restrictive nature of the Clause, and I was unconvinced that it went wide enough. However, it would be churlish if I did not acknowledge the concessions which the Financial Secretary has given. They will be of value, and we must accept them as such.

My hon. Friend the Member for Shipley (Mr. Hirst) referred to the first concession about the extension of the one-year period. The Financial Secretary said that the Inland Revenue would look at this sympathetically. In my view—and I hope that my hon. Friends agree with me—this is not quite as specific as we should have liked, and I am sure that the Financial Secretary is aware of this. We should have liked a specific period of up to three years within which members of the farming community could look for an alternative farm and reinvest their assets. This must apply to other businesses as well as agriculture.

I hope that the Financial Secretary will pay particular attention to what has been said by my hon. Friends and that he will instruct the Inland Revenue, when the time comes, to be particularly sympathetic about this matter, because I assure him that we feel extremely strongly about it.

I should like clarification of the word "trade". My hon. Friend the Member for Cardiff, North (Mr. Box) asked for a definition of the word. I should like confirmation from the Financial Secretary that it includes horticulture, agriculture and forestry. I assume that it must do so, but I am advised by professional bodies outside that there is some legal doubt about whether it does. I should like the Financial Secretary to clear up this point in a definitive manner.

My hon. Friend the Member for Norfolk, South (Mr. J. E. B. Hill) made a point about subsection (5). I support everything that he said. I should like to go further and draw the attention of the Financial Secretary to an Amendment which was not called, namely, Amendment No. 365 in the name of my right hon. Friend the Member for Rushcliffe (Sir M. Redmayne), in page 37, line 35, at end insert: (6) Notwithstanding the provisions of section 26(2) of this Act, where there is a disposal of an asset by way of a gift, and the donor and donee jointly so elect, the donee shall be deemed to have acquired the asset and the donor shall be deemed to have disposed of the asset at the value at which and on the date on which the donor acquired the said asset, and this section shall apply as if the donor and the donee were one and the same person. This dealt with valuation for the purposes of Capital Gains Tax. Although the Chair did not see fit to call that Amendment, I should like to draw the Financial Secretary's attention to the fact that members of the agricultural community feel very strongly about this matter.

The value at purchase, if there is a sitting tenant, is very different from the value on sale if it is sold with vacant possession. In 1947, by an act of the Government, the tenant was given special security as it could be argued, and it is argued, that the landlord in 1947 was deprived of an asset in land, not through his own fault, but through Government action. Therefore, in cases of land held before 1947, a case can be made out that on disposal of an asset the valuation should be at the same constant level, whether there is a sitting tenant or vacant possession.

I think that the various concessions which have been made, particularly that which the Financial Secretary made concerning the retirement of small men, and indeed large men, after having built up their business, in view of the fact that as things stood it was more advantageous for them to retire, are welcome. They will be of benefit not only to the agricultural community, but to others.

Mr. MacDermot

The hon. and learned Member for Darwen (Mr. Fletcher-Cooke) asked me why the relief was limited to fixed assets, and he mentioned the case of rollers for calico printing. That is a technical point, and I should like to look into it. I think that the general principle underlying the distinction of fixed assets is clear.

The hon. Member for Runcorn (Mr. Carlisle) raised a point about the compulsory purchase of farms and the extension of the 12 months' period. I gave that as an example of the sort of case where there might be a case for extension. The hon. Gentleman referred to the case of a new town corporation which bought land and left the farmer as a tenant, perhaps for a number of years, before he was evicted. The hon. Gentleman said that the time would naturally come when the farmer would want to repurchase.

The intention is that the discretion would be exercised if it was not possible for the businessman concerned—in this case, the farmer—to undertake the replacement of the asset in question within the time limit by using ordinary foresight and prudence. Clearly, if the basis of the acquisition by public authority was that he should continue farming there for some years, it would not be reasonable to expect him to replace that asset while he was still continuing to farm as a tenant farmer. I cannot commit the Revenue in advance about how it exercises its discretion, but, as I understand, this is precisely the sort of case which it would want to look at favourably.

Sir Douglas Glover (Ormskirk)

It is clear that the Inland Revenue would look at the matter sensibly, from the point of view of the farmer. But suppose that a man running a business was taken ill, and that he was ill for some time and had to sell the business and get a capital profit on selling but had every intention of starting again as soon as he had recovered. Suppose that he was not able to start for two years. Would he have to pay Capital Gains Tax on his first business and, therefore, have less money to reinvest in his new business when he had recovered? This is more important than the question of the farmer who is deprived of land through compulsory purchase.

Mr. MacDermot

I should not go further than state the general principle on which it is contemplated that the Inland Revenue would exercise its discretion. Hon. Members are as capable as I am of applying that principle to particular facts. I do not think that I should commit the Inland Revenue in advance on particular examples which I have not had time to consider with the care which, obviously, should be given to them.

The hon. Member for Cardiff, North (Mr. Box) asked me two questions. The first was what "trade" meant. We are importing the Income Tax Acts definitions, which are extremely wide. The save very wide definition would apply in Clause 31. The hon. Gentleman went on to ask about the position of the same trade for the operation of these provisions. He referred to the case of a trader who was a multiple trader and carried on several trades simultaneously. That situation is covered by paragraph 6 of the Twelfth Schedule, where is provided that in the case of a multiple trader the several trades are to be treated as one. Therefore, the trader can switch within the trades that he is carrying on.

Mr. J. E. B. Hill

May I raise a rather different point which is important in rural constituencies? There is the case of the village store with a sub-postmastership attached. The store is sold and the owner takes a new store without the sub-postmastership. Will that, or a change the other way, be considered a change to a different business? This is a point of some substance in rural areas, although the scale is small.

5.30 p.m.

Mr. MacDermot

I should think that that, clearly, is carrying on his trade as a storekeeper, and there will be no problem. The particular provision I am talking about is one related to companies, which provides that all the trades carried on or the trades of a group of companies shall be treated as a single trade. It is on page 179 of the Bill.

The hon. Member for Cardiff, North and others asked why it was necessary to confine these roll-over provisions of Clause 31 to the same trade. Why should they not be completely at large? The answer is that, unless one does confine it in this way, it will afford such opportunities for deferment and delay that realisation would almost cease to be an occasion for taxation to capital gains and, when a person is really winding up one business activity, it is reasonable that that should be an occasion of charge.

Mr. Box

I am encouraged by what the hon. and learned Gentleman has said about the definition being drawn widely.

The sort of case I have in mind is this. A company carrying on specialised engineering activities decides to continue no longer one of its subsidiary companies in that line and then goes into some other business, say, the business of printing or of plant hire. Is the hon. and learned Gentleman assuring us that the Revenue will take a lenient or generous view of the definition of "trading"? He can see the difficulties which will arise. I am not thinking of years in between, but of a reasonable period, say, one or two years, but not longer than that.

Mr. MacDermot

Again, I am a little chary of trying to answer on particular examples which I have not had time to study. The general principle is that, if a company or trader is branching out into what is, for him, a new trade, he does not get the advantage of the Clause 31 provisions. If, on the other hand, a company or group of companies has been carrying on a number of trades, those are treated as a single trade. Subject to that, the trader must show that the activities, both the old and the new, are within the same trade as that term has come to be defined and interpreted by the courts in relation to the Income Tax laws.

I was asked about this question particularly in relation to agriculture. As I understand it, for these purposes all branches of agriculture are treated as the same. It would be all forms of farming, including horticulture and forestry. Very wide switching of activities, as it were, will still enjoy the benefit of Clause 31.

The hon. Member for Norfolk, South (Mr. J. E. B. Hill) asked why the expression "wholly or partly" is still used. This appears at line 33 in subsection (5). He had an Amendment down on the point. We are following the wording which was used in the Finance Act, 1962, and we see no reason for making the law more lax here than was done on that occasion. It would be impractical to expect the Revenue to try to adjudge, where a person had bought with the intention of realising a capital gain, whether that was the substantial or only a partial reason for the purchase.

On the particular example the hon. Gentleman gave to illustrate his point, I can, I think, allay his fears. A farmer whose farm has been compulsorily acquired or who has for one reason or another given up his old farm and who buys a new one may, of course, have to buy a bigger farm with more assets than he wants. He may have no use for some of the assets and sell them off. I do not imagine that it would be difficult for him to persuade the Revenue authorities that that was his purpose in selling them off. It is only when the Revenue can establish that the purpose of his acquiring those assets was in order to realise an immediate quick gain, or, rather, a capital gain on the new assets —I had better not say "an immediate quick gain"—that he will be deprived of the benefit of the Clause.

Mr. J. E. B. Hill

Will the hon. and learned Gentleman accept that, in disposing of the surplus assets, the farmer might get rather more than they were thought to be worth and, to that extent, would cheapen the new asset? I hope that that factor will not vitiate the benefit of the Clause.

Mr. MacDermot

That is the point I was trying to make. The farmer may fortuitously make a modest capital gain in disposing of the assets which he did not require; but that would not deprive him of the benefit of the Clause if it was in that sense incidental to his true purpose, that is, acquiring a new farm to carry on his activities as a farmer. It is only if his motive in making the switch from one farm to another was partly to realise that particular capital gain that he would be deprived of the benefit.

The hon. Member for Shipley (Mr. Hirst) asked me two questions. The first was a rather technical one about a brewer disposing of delicensed sites. The answer to the question is "No"; that situation is not covered by the Bill and would not be within the Clause.

Mr. Hirst

The point about delicensed sites was one element of the question, and a more important element was the question of the tied house occupied by the tenant, not by the brewer. It is more than just a question of delicensed sites.

Mr. MacDermot

If I find that my answer needs qualifying in any way, I shall write to the hon. Gentleman. I think that the answer to his whole question, of which the delicensed site point was only one element, is, "No, it is not covered".

The hon. Gentleman's second question related to the unconditional contract point, with reference to assets acquired on building leases. I should like to look at that again to see whether it is adequately covered by the Bill.

Mr. A. P. Costain (Folkestone and Hythe)

When the hon. and learned Gentleman is considering that point, will he bear in mind that there may be many cases in which planning consent is held up by local authorities? It would be quite wrong if, for some reason, the person was deprived of the benefit but he was not responsible. It is the expression "unconditional contract" which concerns me most in that context. I want the hon. and learned Gentleman to look at the point very carefully.

Mr. MacDermot

The hon. Gentleman means that the contract might be subject to the condition of obtaining planning permission and, without any fault on the part of the taxpayer himself, it is held up?

Mr. Costain indicated assent.

Mr. MacDermot

I think that a case like that would clearly be covered by the new powers which we have now written in to give the Revenue a discretion. It there are particular points in relation to building leases, I should like to look into them.

I was asked, also, about realising vacant possession value. I take the view that that is almost an extreme case of a passively acquired capital gain which is properly the subject of taxation.

Mr. Scott-Hopkins

I brought that matter up in relation to the 1947 Act, when there was a deliberate act on the part of the Government which changed the situation as regards landlord and tenant. That was the only instance in which I raised the matter.

Mr. MacDermot

I am not sure that I have quite taken the point. There are many provisions in the law relating to agriculture and in landlord and tenant law under which there is a statutory limitation on the right to obtain possession. If circumstances change so that that control goes it will produce a sudden and considerable increase in capital value. I do not see any reason why it should not be taxed. It is well known that there are people—I was going to say many more respectable people than Mr. Rachman—who buy up properties which are tenanted by elderly people, looking forward to the capital gain they will realise when those people cease to occupy it and the protection is lost. So I cannot hold out any hope on that point.

Mr. Eric Lubbock (Orpington)

Will the hon. and learned Gentleman bear in mind the case of the landlord of controlled property which is at an artificially low value because of the control provisions, and who may suddenly make a large capital gain because the tenant dies or leaves so that the landlord gets vacant possession? Is it really fair that he should pay Capital Gains Tax on the full value of the increment as the result of this suddenly happening? Or ought not the dwelling to be valued as at 6th April at the price which it would have been possible to ask had it not been inhabited by a controlled tenant?

Mr. Mitchell

I am grateful to the Minister for what he has said in summing up, but I am afraid he has not answered the two questions I put to him. The first was, why is selling a pig farm and buying a poultry farm all right while selling a chemist's shop and buying a bookshop or a grocer's is all wrong? The second was, when a business is passed on in the family from father to son, where is the cash to come from with which to pay the Capital Gains Tax?

Mr. MacDermot

I did answer the first point, though the hon. Gentleman may not have liked my answer. I have stated the reason why we consider it right to tax the gain when a person is selling up one business. The second question does not arise on this Clause, and that is why I did not answer it.

Mr. Lubbock

The hon. and learned Gentleman shook his head in answer to an intervention of mine a few moments ago, and so I must press this point. I quite appreciate that he says that there is every reason why a landlord who has acquired a property with a controlled tenant in it, in every expectation of getting a quick capital gain, should be made to pay 30 per cent. tax, but I am not thinking of that kind of case at all. I may tell the hon. and learned Gentleman of a particular example which I have in mind. A constituent of mine lived in a property in another part of London until 1935 and then moved into Orpington. He let his property at a controlled rental of £1 2s. 6d. a week. Since that date the rental has risen to something like £1 7s. 6d. only. I understand that the net rental is brought down to 16s. 10d. taking into account his expenses on repairs and removals. Therefore, he has had virtually no income from this property for some time. Its actual value with vacant possession—

Mr. MacDermot

I am sorry to interrupt the hon. Gentleman, and that I did not answer any more than by shaking my head, but I think he is under a misconception. He is not made immediately subject to tax. He is made subject to tax only when he disposes of the asset. When he disposes of the asset with vacant possession he has money in hand with which to pay the tax. There could be a perfectly passive—I was going to say in some cases massive—capital gain.

5.45 p.m.

Mr. Lubbock

There could be a quite considerable loss. At the time when my constituent let his property in 1935 perhaps £1 2s. 6d. was quite a reasonable market price. I think from what he has told me that his expenses were only about 2s. 6d. in those days, so that he was in fact receiving a net rent of £1 a week, and £1 a week was worth considerably more then than it is now, but the value of his property has been depressed by reason of the fact that it is controlled. He is receiving only 16s. 10d. a week taking into account the repairs and renewals. What the hon. and learned Gentleman is now saying is that it is quite fair for him to have to pay Capital Gains Tax, if the tenant dies, on the whole amount of the difference between the price at 6th April, with the controlled tenant in the property, and the vacant possession price.

I am saying it is inequitable and that some consideration ought to be given to the fact that this landlord has been letting the house at an artificially low price ever since the beginning of the war. The hon. and learned Gentleman ought to be a little more forthcoming on this, and should give some discretion to the Inland Revenue, so that it can discriminate against landlords such as Mr. Rachman who acquire property in the expectation of being able to get somebody out, and perhaps using unorthodox and undesirable means to do so, and a person like my constituent who performs a valuable social service for many years in making high-class property available and keeping it in good repair but whom the hon. and learned Gentleman now penalises by making him pay Capital Gains Tax on the value which he has not in fact realised but which was always there as soon as he could get vacant possession. I think that, on reflection, the hon. and learned Gentleman will agree that this is most unfair.

Mr. James Ramsden (Harrogate)

I should like very briefly to ask the hon. and learned Gentleman to look again at the point made by my hon. Friend the Member for Shipley (Mr. Hirst) in connection with the licensed trade. I used to work in this trade, and I can assure the hon. and learned Gentleman that every word my hon. Friend said is correct. We have at the moment, as I understand it, the position where a licensed house, when it is managed, gets the benefit of the operation of this Clause, but when it is tenanted it falls outside the scope of the Clause, simply because under the law the house which is tenanted is technically occupied not by the brewery but by the tenant. So we have two indistinguishable assets, one of which is included, one of which is not. I hope that the hon. and learned Gentleman will look at this point, because otherwise the only effect will be that all houses will become managed houses and not tenanted, and that, from no point of view, would be a desirable development.

Mr. Harold Lever

I want to make one short point. I hope my hon. and learned Friend will acquit me of any discourtesy, but I did not hear the whole of his speech because although I was on the premises I had to be about other duties. If he has dealt with this point already I hope he will stop me straight away. I am concerned with this question of realising one set of assets and investing the money in another. I wonder if my hon. and learned Friend would look at this matter again. I know that it presents certain difficulties, but in subsection (3), where it says an unconditional contract for the acquisition is entered into, not later than twelve months after the disposal… I wonder whether we could insert some such words as or such other period as the Commissioners may allow upon the application within the period of twelve months". I think this would be the justice of the case. Would it not—

Mr. MacDermot

My hon. Friend suggested that if I had dealt with the point I could interrupt him. I would draw his attention to Amendment No. 431, which I moved and the Committee accepted.

Mr. Lever

I am very happy not to press my hon. and learned Friend further. It seems to me to meet the justice of the case.

Mr. Peter Walker

I do not want to detain the Committee any longer on this Clause. Many points have been raised which the Financial Secretary has said he will look into before Report. That illustrates how right we were when we suggested originally that companies should be excluded altogether.

However, there are just two points to which I should ask the hon. and learned Gentleman to give particular attention, and one is that put by my hon. Friend the Member for Cornwall, North (Mr. Scott-Hopkins). I recognise the argument that if somebody has purchased a tenanted property and it becomes vacant and he makes a capital gain, it is fair to tax him, but the case made by the hon. Member for Orpington (Mr. Lubbock) was different. If two people bought similar houses in 1935, and one let his house furnished and it never came under control, and the other let his unfurnished and it therefore came under control—and the same applies to agricultural properties under the 1947 Act—as a result of Government action one man's property will have been depressed in value during the period it was under control. If those two people obtained the possession of their properties in 1966, the one who had let it furnished would pay a much lower Capital Gains Tax than the one who had let his property unfurnished. Surely that is wrong and worthy of examination to see whether something can be done about it.

My hon. Friend the Member for Ormskirk (Sir D. Glover) made an important point about a person being ill. This is particularly apt in a small business. If the proprietor is taken ill and he decides to dispose of his business, will any provision be made for him should he decide to enter a similar business after his illness? I recognise that because a man is ill it is not possible to defer the payment of the Capital Gains Tax, but I hope that if after his illness he decides to go into a similar business the Revenue will consider giving him a rebate of tax.

That consideration should apply whether it is the man himself who goes sick and gives up his business, or he gives it up because of the illness of his wife or a dependent relative. If, at a subsequent date, he is able to go back into the business, if the goodwill is taxed he will have paid a 30 per cent. tax and will have suffered to that extent.

There have been some Amendments to the Clause, and it has thereby been improved. The Financial Secretary has promised to look at other matters and we expect that on Report the Clause will be considerably altered. In the hope that that will be so, I suggest that we should now accept it.

Mr. Hirst

Before we pass the Clause, which is no doubt desired, I must ask the Financial Secretary to pay some attention to the arguments which I have advanced. He must not merely say that he will look into this matter. We will not make progress if all that he and other Ministers say in answer to a detailed argument on a specific point is that the section of business in question is not included. I referred to the licensed trade and tied houses.

Mr. MacDermot

I thought that that was the only question which the hon. Gentleman asked. I thought that he asked only whether that was included, and I answered that it was not. He did not suggest that if it was not the law should be altered, and I have not heard arguments from other hon. Members that it should be. Nor has anyone said that this would lead to all tenanted houses becoming managed houses.

There is a great difference between a tenanted house and a managed house from the point of view of the brewer and the business of the brewer. But if the hon. Gentleman and his hon. Friends have further arguments to advance on this matter, and they would like me to consider them, I shall do so. I believe that it is the wish of the Committee to make further progress on these matters today, and I suggest that if there are some new points which have not been covered by the Amendments it is a little unfair on the Committee to take up too much time on them when we have reached a conclusion on many matters on which hon. Members have tabled Amendments.

Mr. Hirst

That is rather a travesty of the facts. I do not propose to make my speech over again. It is in HANSARD, and the hon. and learned Gentleman can read it there.

I drew a distinction between the two sections of the licensed trade, and said that brewers' tied houses should not be penalised in this way. I knew that they were not included. I do not need the hon. and learned Gentleman to give me facts of that character. I prepare those before I come to this Committee. I do so in great detail, and I know what I am talking about on this subject. I know that they are not included. That is why I raised the point about them being penalised. I know that the hon. and learned Gentleman carries a lot of "can" on that bench. I ask him not to accuse someone of not having made a point because he does not go over it six times.

When a brewery is carrying on its business of selling beer, it uses various avenues to sell. One is the use of managed houses, in which case the man there is the employee of the brewery. The other case is the more beneficial one because it adds to the individual character of our English public houses and gives that freedom which is widely enjoyed in the management thereof. These are the tenanted houses. I know that they are not included. I have had this argument before in other contexts, on other legislation, to which I must not refer.

I do not want to be told that they are not included. I want to know why they are not included. Technically I know the answer, but bearing in mind that they are the ordinary normal way of doing business they are surely the same. If a brewery loses some of its licensed sites because of the redevelopment of cities, and obtains the money by way of compensation, if it is in respect of a managed house it can devote the money to the modernisation of its buildings. If, on the other hand, it is a tied house it cannot so renovate without paying a fine. I want to get that point clear, otherwise we shall have to come back to this on Report. I already have a long list of points to raise then, and we shall make little progress.

I do not expect answers to everything at once. Perhaps I was rather too magnanimous. I was challenged for being a little kind to the hon. and learned Gentleman, and I found it rather disconcerting. I appreciate that it is not possible to answer everything on the spot. I accept that there was not an Amendment down to deal with this point, but I was waiting for clarification of the Clause which I hoped would cover this point. I have since learned that it does not, so I am back to square one—and so is the Minister.

Mr. J. E. B. Hill

I was disappointed with the hon. and learned Gentleman's answer about agricultural land values. Comparing the value of land without vacant possession with the value of land with vacant possession is not comparing like with like. Surely it will follow from the hon. and learned Gentleman's answer that if an owner of land in possession chooses to let it, which he will be free to do, at the next disposition, or notional disposition, presumably he or his successors will be able to claim a capital loss. I should have thought that that was undesirable and that it was far better to compare like with like.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.