|33.—(1) In this Schedule 'year of assessment' has the same meaning as in Part III of the Finance Act 1965 and 'company' and 'accounting period' have the same meanings as in Part IV of that Act.|
|505||(2) Any reference in this Schedule to chargeable gains which accrue or accrued, or would (if any specified conditions had been fulfilled) have accrued, to a person or company shall be construed as including a reference—|
|510||(a) to chargeable gains which, by virtue of any provisions of the enactments relating to capital gains tax or corporation tax, are deemed so to accrue or to have accrued, or which by virtue of any such provisions would (if the specified conditions had been fulfilled) have been deemed so to accrue, and|
|515||(b) to chargeable gains which, in the case of a person who has died, were by virtue of any provision of those enactments included in the gains accruing to him, or to the trustees of a settlement under which he was a beneficiary, in the year of assessment in which he died or would (if the specified conditions had been fulfilled) have been so included.|
|34.—(1) In this Schedule 'the assumed tax condition', in relation to a disposal, means the condition that none of the provisions of the Finance Act 1965 specified in the next following sub-paragraph has or had effect in relation to that disposal or in relation to the corresponding acquisition.|
|520||(2) The provisions of the Finance Act 1965 referred to in the preceding sub-paragraph are section 33 (replacement of business assets), paragraph 20 of Schedule 7 (which relates to disposals between husband and wife) and paragraphs 2 and 3 of Schedule 13 (which relate to transfers within a group of companies).|
|525||(3) In this paragraph 'disposal' means any act or event which for the purposes of any provisions of Part III or Part IV of the Finance Act 1965 constitutes a disposal, and 'the corresponding acquisition', in relation to a disposal, means the act or event whereby the person or company making, or deemed to make, the disposal acquired the interest in land to which the disposal relates or related.|
|530||35.—(1) In this Schedule 'inspector' has the same meaning as in the Income Tax Acts, and 'the appropriate inspector'—|
|535||(a) in relation to any act or event appearing to the Commission to be a taxable disposal in accordance with paragraph 1 or paragraph 2 of this Schedule, means the inspector for the district in which the chargeable gains (if any) which accrue on that disposal, or would so have accrued if the assumed tax condition had been fulfilled, would be assessable to capital gains tax or corporation tax, as the case may be, and|
|540||(b) in relation to any act or event appearing to the Commission to be such as is described in paragraph 9 of this Schedule, means the inspector for the district in which the chargeable gains (if any) of the taxpayer for the relevant year or period are or were, or if the assumed tax condition had been fulfilled would have been, assessable to tax.|
|(2) Section 3(3) of the Income Tax Management Act 1964 (which relates to the functions of inspectors) shall have effect in relation to matters arising under this Schedule as it has effect in relation to income tax.|
|545||36.—(1) In this Schedule, in relation to a chargeable act or event, 'the chargeable interest' and 'the chargeable owner' have the meanings assigned to them by paragraph 2(1) of Schedule 5 to this Act.|
|550||(2) In this Schedule 'disposition falling within the antecedent period' has the meaning assigned to it by paragraph 2(2) of that Schedule, and 'if the antecedent period had extended to the first appointed day' means if in paragraph 2(2)(b) of that Schedule the words from 'and was so made' to the end had been omitted.|
|555||37. Nothing in this Schedule shall be construed as indicating an intention to exclude the operation of section 19 of the Interpretation Act 1889 (whereby, unless the contrary intention appears, 'person' includes any body of persons corporate or unincorporate) in relation to any provisions of this Act.|
|38. In relation to any chargeable act or event falling within Case F, regulations made under this Schedule may provide that the provisions of this Schedule shall have effect subject to such modifications of any of those provisions (except paragraphs 1, 2 and 9) as may be specified in the regulations.—[Mr. Willey.]|
§ Brought up; and read the First time.
Mr. Deputy Speaker
I suggest that it would be convenient to discuss, at the same time, the three Amendments to the new Schedule standing in the name of the hon. Member for Lewisham, North (Mr. Moyle), in line 517, leave out' none 'and insert' neither'; in line 521, after 'assets', insert 'and'; and in line 522, leave out from 'wife' to end of line 523.
§ Mr. Willey
We are here providing for an overlap between the levy and Capital Gains Tax, providing that if there 1492 is such an overlap, there shall be a deduction from the levy. I emphasise again that this is a relief which we are providing in favour of the levy payer.
In view of what has been said, I am anxious to emphasise that in this case a duty will be placed on the Commission. Earlier, we were discussing an Amendment in the name of the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) in connection with Section 28 of the 1931 Act. One of the merits of that provision, to which the right hon. and learned Gentleman called our attention, is that the Commission itself will do what it can to 1493 ensure that the levy payer has the benefit of the relief.
There are two circumstances—and, in a sense, these are transitional provisions—in which, on the first chargeable act or event for levy after the first appointed day, it is possible for the levy and Capital Gains Tax both to bite on the same increase in value. There is also a third case where, although there is not strictly an overlap, the Government consider that an allowance should be made. The new Schedule is concerned with providing for relief from Capital Gains Tax where these conditions obtain.
The first condition exists where, for the purposes of levy, the base value—that is, under Schedule 5—is the consideration for a disposition in the antecedent period. No adjustment is practicable in those cases for changes in current use value since the date of the earlier disposition and it is possible, therefore, that the levy will bite on an increase in the current use value, which is also subject on the same occasion to Capital Gains Tax.
That is the first case. The second is the one where there is strictly no overlap, but where the land was bought during the interim period at a price including development value and which, but for the ineligibility of disposition through this period, would have been used for a base value under Schedule 5. For the chargeable act or event after the appointed day, the levy might be taken on the already paid development value and may also be liable for Capital Gains Tax on the same occasion; and the Government think it right to give relief in that case. The circumstances surrounding these two cases are set out in Part I of the new Schedule.
The third case arises where it was a disposal on death, by way of gift, or in relation to a settled property, before the appointed day, which was a chargeable occasion for Capital Gains Tax, but which was not a disposition for valuable consideration and, therefore, cannot provide a base value for the levy. In this case, relief will be given. These circumstances are set out in Part II of the new Schedule.
Part III is concerned with calculating the amount of deduction to be made for 1494 Capital Gains Tax. The formula may appear to be complicated, but in principle it is very simple. It is this. Capital Gains Tax is applied to net gains arising in the year of assessment, and that is not concerned with individual gain separately. It may not operate at the flat rate of 30 per cent.; in many cases the estimate is made on an alternative basis, relating to Income Tax and Surtax rates, where this is in the interests of the taxpayer. The principle applied, as in the previous Schedule, is known as the "top slice of income" principle. The effect is that relief is given as though the particular disposal had been the last gain to be made in that year and was, therefore, taxed at the highest rate applicable. When the allowance has been made in respect of more than one disposal it is calculated as though these were successive slices from the top. In other words, the calculation gives the maximum possible relief to the levy-payer.
Relief is given in circumstances where, because of the operation of the provisions of the Finance Act, which are referred to in paragraph 34 of the Schedule, Capital Gains Tax may not be charged for the year of assessment, but liability for tax is postponed to some future occasion. Relief is then given on the notional tax taken to have been chargeable. This effect is achieved by the "assumed tax condition".
Part IV of the Schedule is concerned with procedure. The basis for any certificate depends upon the satisfaction of certain conditions in the assessment of levy. The Commission must apply to the inspector of taxes for a certificate describing the conditions on which the inspector is to base his certificate. These assumptions can be challenged in the course of the assessment of levy. The inspector's certificate based on the assumptions given, is a matter of simple arithmetic in the light of factors which will have been determined and been open to appeal in the course of determining the tax liability of the levy-payer or his predecessor. Since these factors are open to challenge in other ways, the inspector's certificate is made conclusive.
Part V of the Schedule is concerned solely with interpretation.
What we have endeavoured to do is to deal with the three cases in which there 1495 is an overlap or there might be harshness if we did not make such allowances, and to be as favourable as we can to the levy-payer.
I have noticed the Amendments to the Schedule and I can say that I would be happy to accept them. They would provide for a reconciliation between this Schedule and Schedule 9.
§ Mr. Graham Page
Until the Minister started on this Schedule we had the Chief Secretary to the Treasury here, and I thought that he was attending specifically for this Schedule, because it deals with Capital Gains Tax and Corporation Tax, which is "just up his street". We have been asking all day for a Treasury Minister to attend the debate to assist us and I am very disappointed to have to say that just at the moment when he might have been of some use to the Minister and to hon. Members on this side of the House the right hon. Gentleman chose to leave.
We are being asked in these 12 pages of Schedule to assume that in nearly 12 months' time there will be some other legislation on the Statute Book, which will make certain provisions. The whole of this Schedule depends upon whether the Capital Gains Tax is altered in the next Finance Bill.
The Schedule is based on an assumption that after the Finance Bill becomes an Act in 1967, Capital Gains Tax will be charged at an increase in current use value only. This is putting the legislation of this House into a completely nonsensical position. Why could we not have had this in the Bill? Why could we not have had the alteration to Capital Gains Tax here and now, so that we are not legislating in a vacuum?
We are legislating by this Schedule, if it is now passed. It is not even postponed to come into operation when the Finance Bill, 1967, gets the Royal Assent. We are merely assuming, and this is a grossly impertinent assumption by any Government, that the House will pass some law some nine or ten months hence. I protest most strongly that we should have to consider this Schedule on the basis of not knowing how the next Finance Bill will be worded, and when we are told to assume that the Finance Act, 1967, will 1496 provide for Capital Gains Tax and Corporation Tax to bite only on an increase in current use value, and, therefore, leave the levy to be imposed on an increase in net development value. I suppose we must assume that, if we are to debate this Schedule at all as, otherwise, it is purposeless and meaningless. But it does not appear from the Schedule itself, or from anything that has been before the House in any formal manner, even tonight.
I happen to know it, because the Minister was courteous enough to write me a letter about a fortnight ago and explain the position to me, but as my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) has said, this is legislation by correspondence—government by correspondence. I would not have understood a word of this Schedule if it had not been for the courtesy of the Minister in telling me that he hopes that the Labour Government will still be in office at the time of the next Budget, that there will still be a Socialist Chancellor of the Exchequer to bring in a Finance Bill, and that in that Bill an unknown provision—unknown in words—will provide for Capital Gains Tax to apply only to current use value, and that that will pass through the House.
I am sorry if I have spent some time on that aspect, but it is a protest that should be made because it goes to the very base of the Schedule. We have 12 pages of closely printed and extremely difficult matter—I hear a more expressive description coming from the benches behind me. We are asked to discuss the Schedule on an assumption of some other law and some other Act at a future date.
The Minister has explained to the House the skeleton, if I may say so, of the Schedule. He has told us that when we have a new law under the Finance Act, 1967, there may be an overlap between the levy and the Capital Gains Tax; that where, for example, with the first case he gave, the levy has been calculated on the consideration in the last conveyance, the base value is taken as the sale and purchase price for the last conveyance and that happened in the antecedent period before 23rd September, 1965, there might well be an overlap because Capital Gains Tax will have been charged based on April, 1965.
The Minister gave the second case, where someone has bought property 1497 during the interim period between 23rd September, 1965, and an appointed day on 1st March, 1967. Again, if Capital Gains Tax has been paid I presume that it may have taken into account some of the net development value for the period.
This is where we come up against it again. It must be assumed that any gain on property during this time is divided into these two factors—current use value and any development value—and that, if Capital Gains Tax has been paid as the law stands at present, it may have been paid on net development value which will eventually be subject to levy.
The third case given by the Minister was a gift before the appointed day or a settlement before the appointed day.
The Minister presented those three cases to the House. I admit that I cannot say whether there are any more cases. I am sure that my right hon. and hon. Friends are interested in the fact that there are three cases but cannot tell me whether there are any more cases which the Minister should deal with. How are we to know that the Minister has dealt in these 12 pages of Schedule with all the cases which need to be dealt with without a far closer scrutiny on the Schedule and the subject with which it tries to deal?
Part II describes how the appropriate deduction is calculated. I do not understand this, because in the end one gets a certificate of what the appropriate deduction is. Is this a direction in Part III to the citizen as to how he should calculate the appropriate deduction, or is this a direction to the Treasury officials as to how to do it? I do not know. In the end, one gets a certificate which is partially conclusive and partially not conclusive. The Schedule finishes with a couple of pages of interpretation.
Although the Minister has given us this skeleton and given us some understanding of what he hopes is done by the Schedule, there is a great deal of detail. We are precluded from dealing with this in detail because of the lateness of its appearance on the Notice Paper. I was shocked when the Parliamentary Secretary told one of my hon. Friends that he was taking advantage of him in referring to details in the Schedule. How 1498 much advantage has been taken of us by putting these Schedules on the Notice Paper at this late hour. I have tried to extract the principles. It is bad legislation, in that it is trying to anticipate other legislation. It is bad mathematics in dividing up the gains from property into two factors, charging tax on one of those factors and a levy on the other. I do not know how on earth anybody is to work it out.
§ Mr. Roland Moyle (Lewisham, North)
I, too, am rather sorry that my right hon. Friend the Chief Secretary to the Treasury is no longer with us. If he had been here, I should have liked to have told him that, as a result of my brief encounter on the Bill, I look forward to next year's Finance Bill with feelings of pleasurable anticipation as a delectable morsel to be consumed in the small hours of a summer morning next year.
My Amendments are to leave out "none" and insert 'neither' in line 517; to insert 'and' after 'assets' in line 521; and in line 522 to leave out from 'wife' to the end of line 523. All three are designed to achieve the same object of reconciling this new Schedule with Government Amendment No. 177, which is to insert a new Part I to Schedule 9.
The point arises in the first instance from the transitional provisions which will be necessary in the period from the first appointed day to the time of the first sale of a piece of land, when the Capital Gains Tax, Corporation Tax and the levy might be levied in some cases on the same increment in value. It is intended that the betterment levy will be reduced by the amount of the Capital Gains Tax which would be paid.
It also arises from the point that there are three cases in which Capital Gains Tax is postponed; transfers between husband and wife; where there is sale of a business and the money is reinvested in a similar business; and where there is transfer of property between companies of the same group. The tax is postponed, with the possibility that it may be paid later. The object of paragraph 34 is to provide that where that occurs the levy will be reduced by the amount of the Capital Gains Tax which would have been levied had the provisions for postponement not applied.
1499 If the House adopts it, the new Part I of Schedule 9 will provide that disposals between members of a group of companies shall not be chargeable acts for the purposes of the levy. In other words, the matter will be taken care of in another part of the Bill, and therefore paragraph 34, in so far as it refers to transfers between companies who are part of the same group is superflous. I should have thought that that in itself was a good reason for making the Amendments standing in my name.
But this is not just a tidying-up exercise. If the provision is left in the new Schedule and the circumstances when the land was disposed of outside a group of companies after the first appointed day were such that there would be an entitlement to reduction for corporation tax, the deduction would, without this change, be limited to the disposal out of the group of companies and not to the increment in value which had occurred from when the property first came into the group's possession. I should have thought that the Amendments were not objectionable to right hon. and hon. Gentlemen opposite. I am glad that my right hon. Friend sees fit to accept them, and I hope that the House will adopt them.
§ Mr. Costain
I congratulate the hon. Member for Lewisham, North (Mr. Moyle) for being the first hon. Member on the back benches opposite to speak on the Report stage of the Bill today. I shall be out of Order if I refer to the fact that we only wish that he had been here to support us during our appeals for charities, because he seems to have better ability to persuade the Minister than we have.
When the Minister said that the Schedule had been put in to help the taxpayer I was reminded of my form-master, who every time he caned me assured me that it hurt him more than it hurt me. I feel the same in some ways when the Minister talks about the Schedule. My hon. Friend the Member for Crosby (Mr. Graham Page) has referred to the fact that the Schedule's main point is to tie up with some future Finance Bill. We are getting used to this hopscotch legislation, when every Bill of any importance before the House on taxation and finance depends on another Bill which we do not know anything about. However, as the Government have at least got nine months 1500 properly to conceive the next Finance Bill we should get something a little more legitimate than this one.
Some of the more optimistic people who read these Schedules have a glimmer of hope that the Schedule is meant to imply that the Government do not intend to introduce double taxation on land. If the Minister will give us an assurance on the point, it will be most helpful, as some optimists believe that to be so. But then comes the problem when we tie the provisions of this Schedule in with the Corporation Tax. It is a complicated point—the whole thing is complicated—and perhaps I may spell it out.
It is understood that an element of double taxation will occur even in straightforward cases. In cases where betterment levy would arise from dealing in land within 12 months, thereby giving rise to assessment under Case VII of Schedule D, there is, apparently, a double charge to tax. This arises because the betterment levy is not credited in full against the Corporation Tax liability but is merely a deduction in arriving at the profit chargeable to Corporation Tax.
Where this condition arises, the liability to betterment levy and Corporation Tax will total 64 per cent. When the remaining 36 per cent. is distributed, a liability to Income Tax of a further 14.85 per cent. will arise, giving a total liability of no less than 78.85 per cent. Surely, it cannot be even this Government's intention that that rate of taxation should arise on any land deals.
I do not expect the Minister to be able to give a detailed answer on the point. I shall not press him on it, but I want an assurance: is it the Government's intention to avoid double taxation on deals of this sort, and will he have a word with the Chancellor of the Exchequer—who ought to be here anyway—to ensure that these matters are properly considered when the next Finance Bill comes along?
§ Notice taken that 40 Members were not present;
§ House counted, and, 40 Members being present—
§ Mr. Robert Cooke
I am immensely flattered to find so many hon. Members here to listen to me. Before they leave 1501 the Chamber, I wish to assure them that their removal from places of refreshment had nothing to do with me. It was merely my rising to my feet to speak which seemed to move one of my hon. Friends to call a Count.
I want to ask two questions, not to make a speech. In view of the trouble over double taxation, may we have a Double Taxation (United Kingdom) Relief Order, 1967?
Second, I would like an assurance from the Minister. Will he undertake to deposit in the Library all documents issued to hon. Members in response to questions during these debates which he has not been able to answer here but has said he will answer in correspondence afterwards? If we are to have government by administration, correspondence or whatever it may be, at least the people, through other Members of Parliament, should have a chance to know what this is all about, and that knowledge should not be restricted to the few hon. Members who have the privilege and pleasure of reading the Minister's replies sent personally to them.
§ Mr. Willey
To reply to the hon. Member for Bristol, West (Mr. Robert Cooke), who seemed surprised when so many came in to hear what he was telling us, as far as I am aware I have not given any assurances at all about corresponding with any hon. Member, but if I find, on looking at HANSARD, that I am in error in my recollection I will certainly see that the hon. Gentleman is informed.
§ Mr. Robert Cooke
The right hon. Gentleman will appreciate that every Minister answers for every other Minister and that Ministers of the Crown are as one when facing the House of Commons. The right hon. Gentleman's hon. Friend the Parliamentary Secretary has given at least two assurances this evening on this point. Will the Minister see that his Department, or whoever made the promise, has these papers deposited in the Library?
§ Mr. Willey
My hon. Friend the Parliamentary Secretary has heard the hon. Gentleman and I am sure that he will undertake to do what I would have undertaken to do in similar circumstances and will let the hon. Gentleman have a copy if the hon. Gentleman with whom 1502 he said he would correspond has no objection.
§ Mr. Robert Cooke
I thank the right hon. Gentleman for giving way, but it is not as easy as this. The Minister answering for the Department of the right hon. Gentleman has told the House that he cannot answer questions in detail from the Dispatch Box. He said he will send an answer through the post, and will correspond with an hon. Gentleman on this side. But the hon. Gentleman on this side was asking the question on behalf of all hon. Gentlemen on this side, and for all I know, hon. Members who are not in the House, too. Could we have an assurance that these papers will be deposited in the Library?
§ Mr. Willey
I do not think that there is any need for such an assurance. I have given a very fair assurance to the hon. Gentleman and it is up to him to pursue the matter, if he feels he ought to pursue it, by Question or in some other way. But since he feels that he should be a party to the correspondence between my hon. Friend and his hon. Friend, he shall be informed of it.
I would like to reply to the hon. Member for Crosby (Mr. Graham Page), who made the point about legislation or government by correspondence. But he will remember that I did, in fact, say in the Standing Committee that provision would be made about Capital Gains Tax in the Finance Bill.
The hon. Gentleman queried the assumption on which I should make such a statement, but I do not think that there is any question about the fact that the next Finance Bill will be introduced by the present Government, and that this undertaking will be fulfilled.
The hon. Gentleman asked a fair enough question. He said, "You have found two cases of overlapping and one case for which you have made provision" and admitted that he was unaware of any other cases. I, too, am unaware of any other cases. We have thoroughly considered the possibility of other cases and if there were any further cases we would have dealt with them. As I have assured the House we have endeavoured to be as fair as we possibly can to the taxpayer who is also a levy-payer.
1503 The hon. Gentleman asked about the certificate and the importance of the provisions we are making in this Schedule. Of course, the importance of these provisions is that they guide and bind the inspector of taxes and also, of course, they place a duty on the Commission. It is important that if we are making provision for relief like this we should go to these pains meticulously to bind the inspector so that we can ensure in every case where there is overlap not only that allowance is made for the overlap, but that the extent of the overlap is properly calculated.
I am obliged to my hon. Friend the Member for Lewisham, North (Mr. Moyle). As I said, the Government will be happy to accept his Amendments.
§ Question put and agreed to.
§ Schedule read a Second time.
§ Mr. Deputy Speaker (Sir Eric Fletcher)
There are Amendments in the name of the hon. Member for Lewisham (Mr. Moyle). I take it that in the hon. Member's absence the Minister will formally move them.
§ Mr. Willey indicated assent.
§ Amendments made: In line 517 of the proposed Schedule, leave out 'none' and insert 'neither'.
§ In line 521, after 'assets', insert 'and'.
§ In line 522, leave out from 'wife' to end of line 523.—[Mr. Willey.]
§ Schedule, as amended, added to the Bill.