HC Deb 21 February 1968 vol 759 cc470-6
Mr. Peart

I beg to move Amendment No. 11, in page 6, line 32, leave out ' resettlement of the tenant ' and insert: ' reorganisation of the tenant's affairs '. We are introducing this Amendment to allay certain fears expressed by the hon. Member for Edinburgh, West (Mr. Stoddart) during debates in Committee. It might, he suggested, be arguable whether a sum described as being to assist in the resettlement of a tenant would be payable to a tenant who was dispossessed of only a part of his holding, since such a tenant would not have to resettle himself physically in the sense of picking up his goods and chattels and taking them somewhere else. It is not the Government's intention to render such tenants ineligible for the payments for which the Clause provides. In view of that, I hope that hon. Gentlemen opposite will agree that the Amendment puts the eligibility of tenants beyond doubt.

Sir Charles Mott-Radclyffe (Windsor)

The right hon. Gentleman will remember that during the Second Reading debate we discussed the original phrase in the Clause. The discussion was about whether any payments made by a landlord to a tenant in compensation for notice to quit because the farm was required by a local authority for building or other development purposes would be deduct-able against any possible Capital Gains Tax or development levy. Neither the right hon. Gentleman nor the Secretary of State for Scotland knew the answer then, but my right hon. Friend the Member for Grantham (Mr. Godber) raised the same point in Committee, and on 12th December the right hon. Gentleman said: He "— that is, my right hon. Friend— has asked me whether, when the landlord sells and pays the additional sum to his tenant, he can offset this against any gain on the transaction before Capital Gains Tax is charged. The answer is ' Yes '."—[OFFICIAL REPORT, Standing Committee B, 12th December, 1967; c. 214.] Later on, however, the right hon. Gentleman was less clear about whether this would apply to any development charge. He said that these were complicted matters, and that he would let my right hon. Friend know the answer later, subject to confirmation by the Treasury. As far as I am aware, this matter is still outstanding.

If the assurance in respect of Capital Gains Tax about a landlord's compensation payments was clear in the old phrase of the Bill— a sum to assist in the resettlement of the tenant "— I imagine that it is equally watertight in respect of the Amendment, which describes it as a sum to assist in the reorganisation of the tenant's affairs. I imagine that there is no technical difficulty about that, but I would like the right hon. Gentleman's assurance that this is so.

The other point was that raised in Committee by my hon. Friend the Member for Clitheroe (Sir Frank Pearson). I hope that the right hon. Gentleman is following this.

Mr. Peart

I assure the hon. Gentleman that I am not being discourteous. I was making certain that I had a copy of the letter which I wrote to the right hon. Member for Grantham (Mr. Godber).

Sir C. Mott-Radclyffe

This is a slightly technical point. My hon. Friend asked whether, if a landlord gave a tenant notice to quit on a 50-acre farm, of which 30 acres were required by a local authority for building, and the notice to quit had to be in respect of the whole holding because the 20 acres remaining would not be viable, and, therefore, the landlord would have to pay the tenant four years' rent compensation for the whole of the 50 acres, that compensatory sum could be offset against any sum which the landlord might receive by way of the purchase price of the 30 acres before attracting either Capital Gains Tax or any possible development charge.

Let us assume that a 50-acre farm is rented at £10 an acre. This means an annual rent of £500. On the basis of four years' rent compensation, the landlord would have to pay the tenant £2,000 in respect of the whole holding. Would the total compensation be offset against any liability for Capital Gains Tax if it arose, or for any development charge if it arose, in respect of whatever price he received for the 30 acres being compulsorily acquired by the local authority?

Those are technical points, but they ought to be made clear. I do not wish to cast the slightest doubt on the assurance given by the right hon. Gentleman in Committee, but I think that it would be helpful, in case these situations arise, if, now that the right hon. Gentleman moved an Amendment to insert a new phrase describing the resettlement of the tenant, made this clear.

Mr. Godber

I am glad that my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) has raised this point. I think the Minister will agree that it is a difficult and intricate one. Both on Second Reading and in Committee we discussed the phrase relating to the resettlement of a tenant. The Minister explained the reason for it was to assist in clarification for taxation purposes.

Subsequent to the discussion in Committee upstairs, in which my hon. Friend the Member for Edinburgh, West (Mr. Stodart) played an important part, the Minister has introduced this new phrase. I think that it clarifies the tenant's position, and we are all grateful for this. We all wish to achieve the same objective with regard to the taxation position of payments which will be made under this Clause. It would be nonsense if the benefits were taken away in a way which was never intended by the Government.

We are satisfied about the position of a tenant, but the position of a landlord is somewhat different. The Minister was kind enough to write to me on 17th January, and I think that my hon. Friend has seen a copy of that letter. I do not think that it entirely disposes of the point made by my hon. Friend, but it is clear from the Minister's letter that this is a difficult matter to dispose of. We had hoped that it might have proved possible for the Government either to have spelled out the position more clearly in relation to the wording of the Clause, or to have given an assurance from the Despatch Box about the way in which the matter would affect landlords.

If the Minister can say something further on this aspect of the matter, I think that it might help to clear the air. If he cannot do so fully now, perhaps in another place a precise form of words can be included to make the position clear. I think the Minister will appreciate that, in justice to the landlords, as well as to the tenants, this is a matter which requires clarification.

Mr. Peart

I am grateful to the right hon. Member for Grantham (Mr. Godber) for what he has said. I appreciate his concern, and that of the hon. Member for Windsor (Sir C. Mott-Radclyffe). As I said earlier, I hope that the hon. Gentleman will not think that I was being discourteous when he was addressing me. I was looking at the letter which I wrote to his right hon. Friend and another letter which I wrote on 23rd January to the hon. Member for Clitheroe (Sir Frank Pearson). In my letter to the hon. Gentleman I said: In Standing Committee on the Agriculture (Miscellaneous Provisions) Bill you asked whether a landlord who gave his tenant notice to quit a 50-acre holding in order to sell 30 acres for development would be able, for Capital Gains Tax purposes, to offset the whole payment he had made to the tenant under Clause 9 of the Bill against the sale proceeds for the 30 acres. I am advised by the Inland Revenue that he would not. The Clause 9 payment, like the original cost of the land, would be apportioned in proportion to the current use value of the land sold and the land retained. This is a difficult matter, and right hon. and hon. Gentlemen opposite are right to ask whether the new payments will be liable to Capital Gains Tax, Income Tax, or betterment levy.

5.30 p.m.

Tenants will not be liable for Capital Gains Tax, Income Tax or betterment levy on sums received under Clauses 9 and 12. These sums do not constitute a capital gain or, in the Land Commission's view, a realisation of development value, nor do they constitute a part of the tenant's taxable income. The Financial Secretary replied on this point to my hon. Friend the Member for Cardigan (Mr. Elystan Morgan) on 21st February, 1967.

The following is the position on the landlord's liability. Hon. Members moved an Amendment in Committee with the proper objective of clarifying the landlord's tax liabilities in regard to payments under Clause 9, and there was a full debate, reported in the Committee HANSARD in Cols. 211–16. If a landlord sells his land with vacant possession, after paying the appropriate sum under Clause 9 to the tenant, he can offset the payment against his gains for Capital Gains Tax purposes. I said this in the debate, in Col. 214, and add that, in practice, the incidence of Capital Gains Tax on land sales is not yet great, because the starting date for the reckoning price is 1965 and the tax hits only the enhancement of the land's value for its existing use.

On betterment levy I understand that the Land Commission take the view that when a landlord pays the new sum to an outgoing tenant, he will not be able to add it to the base value of his interest for betterment levy purposes when he sells the land for development. Questions of liability for betterment levy are the responsibility of the Land Commission and a Bill like this cannot legislate away existing liabilities. However, a landlord is not obliged to sell with vacant possession, although he will no doubt do so when—as will generally be the case when he sells for development—he thereby gains enough on the sale price to leave him well in pocket after paying the new sum to the tenant and discharging his tax liabilities.

This is a complicated matter, but I can give the right hon. Gentleman the assurance he wants. If more precision is necessary here or in any other related part of the Bill, I will certainly ensure that it is remedied elsewhere. I note what has been said, and will have close consultations. I have tried to clarify the subject and I trust that what I have said will be helpful.

Sir C. Mott-Radclyffe

I hope that I have understood the Minister's explanation. He seems to be saying that, if a landlord gets Y thousand pounds for the sale of an agricultural holding but has, rightly, to pay Z thousand pounds to the tenant who is dispossessed of part of the holding, he cannot set off one against the other for a development levy.

Mr. Peart

The landlord is in the clear on Capital Gains Tax. He could offset the payment under Clause 9 against the gains. For betterment levy, however, he will not be able to add the sum to the base value of his interest. That is the advice which I have, but I will try to get more precision if it is needed.

Frank Pearson

I am glad that the right hon. Gentleman wrote to me on 23rd January about a small holding of which only a part is taken for development. If he is to consider capital gains, would he consider this again also? I entirely understand the logic of the ruling by the Income Tax authorities, but as a matter of policy, it may lead us into difficulties. I can imagine a situation in which part of a small park was to be used for development and the landlord did not serve notice to quit on the tenant with a farmhouse and 20 remaining acres but left him there, possibly without enough land to earn a living, until the tenant said that he must go, which would mean that the tenant would not get his compensatory payment.

Would it not encourage the right hon. Gentleman's policy of the merger of small units if, in this case, he allowed a certain concession, so that, when a landlord serves a notice to quit on a tenant who has been left with the stub end of a holding and has to compensate him, the compensatory payment for the whole unit is allowed against the sale price of the land for Capital Gains Tax purposes? This would follow the Minister's policy. If we do not do this, we may encourage the retention of small units.

Mr. Peart

I note what the hon. Gentleman says. The difficulty is that I cannot alter tax law in the Bill, although I will take note of what has been said.

Mr. Godber

We obviously cannot pursue this complicated matter now. What the right hon. Gentleman said has not reassured me but seems to have gone back in some sense on what I understood was his position in his letter to me. I hope that he will have further consultations before the Bill goes to another place and that some statement can be made there which will not only clarify the matter but reassure landlords. I fear that they will be worried otherwise.

Mr. Peart

I said that I will do this and I can give the right hon. Gentleman that assurance.

Amendment agreed to.

Mr. James Davidson

On a point of order. May I speak to the Question, That the Clause stand part of the Bill?

Mr. Deputy Speaker

There is no such Question on Report stage.

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