HC Deb 22 July 1974 vol 877 cc1225-30
Mr. Ridley

I beg to move Amendment No. 218, in page 24, line 58, leave out Clause 36.

My supporters on this amendment, members of the Liberal Party, are noticeable for their absence. I can see none of them present. But it is past midnight and I gather that it is standard for them to melt away. I must also confess that my confident expectation was that an earlier amendment fixing the rate of tax at 53 per cent. for the individual would be carried, as it would have been if my supporters had not just melted away but melted into the Government's lobby on that occasion. This all makes it difficult for me to press Amendment No. 218 because it would have been consequential upon the passing of that earlier amendment.

I will not, therefore, detain the House for long, nor seek to press Amendment No. 218. I merely ask the Chief Secretary one question. It concerns spreading the tax liability for persons who have made gains by transactions in shares—paper transactions, as they came to be known in Committee. The hon. Gentleman indicated then that there was a case for spreading liability to pay tax over a number of years and said he would consider tabling an amendment on Report enabling the spreading of the tax. I cannot see such an amendment and perhaps the hon. Gentleman will now explain the Government's intentions about allowing tax liability to be spread in these cases.

I take this opportunity to say how grateful I am for the concession which the Government have made on tax liability for the shareholdder, but I must record my disapproval of Clause 36 and the underlying thought behind it—that shareholders who in no way have been party to a transaction in land can be put in a position where they have to pay tax on dividend which they may not have received due to the apportionment rules. There is no precedent for legislation of this sort.

I do not think that it would be possible to make the tax watertight without some provision of this sort if one accepts that taxation must be at income and surtax rates upon such gains. But that only reinforces what we said earlier—that 53 per cent. is enough. It is this attempt to treat these capital gains as income and surtax which has led us to legislation of which we should be ashamed, as is the case with Clause 36.

I hope that the Chief Secretary will accept from me that it is only the desertion of the other half of the coalition which prevents me from pressing this amendment.

Mr. Peter Rees

Although I cannot hope in my person to compensate my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) for the desertion of his other allies, I think he is making a point here on extreme importance. He says that there is no precedence for such a clause, but in fact there is one, and it is not very attractive.

Why is it necessary to have Clause 36 along with section 488 of the Income and Corporation Taxes Act, which was originally introduced by the present Home Secretary when he was Chancellor of the Exchequer? It seems to me in any case that where a person, to avoid development gains tax, puts land into a company and then sells his shares in that company, he will almost inevitably be caught by Section 488. Once again the Treasury is going for overkill. I shall not weary the House by relating the hardships and anomalies which will arise under Clause 36 if it is enacted, but simply ask the Chief Secretary why we have to have Clause 36 as well as Section 488.

12.15 a.m.

Mr. Joel Barnett

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) must have missed it, but about an hour ago we passed Amendment No. 87 which gave the deferment for which he asked in Committee.

The hon. and learned Member for Dover and Deal (Mr. Rees) asked whether the clause is necessary. It is true that Section 488 covers many cases, but it does not cover every case that is covered by this clause. It does not cover cases where shares were acquired for some reason other than realising a gain. They would be caught by the clause if they were shares of a material shareholder in a close land-owning company and by reason of the sale the shareholder was realising indirectly a development gain. I am sure that that is clear to my hon. Friends, and I know that it will be to the hon. and learned Gentleman.

Amendment negatived.

Amendments made:

No. 127, in page 25, line 11, leave out 'a development gain' and insert: 'an excess of development gains over development losses'.

No. 128, in line 20, leave out from ' exceed ' to ' that ' in line 21 and insert: 'one-half of the excess of the total development gains over the total development losses'.

No. 129, in line 22, leave out 'such part of that amount' and insert: 'one-half of such part of that excess'.

No. 130, in line 23, at end insert: 'If a claim under section 35(2) of this Act could have been made in respect of any disposal which is to be assumed for the purposes of this subsection, that claim shall for these purposes be assumed to have been made.'—[Mr. Joel Barnett.]

Mr. Joel Barnett

I beg to move Amendment No. 71, in page 25, line 46, leave out 'one-half' and insert 'three-quarters'.

Mr. Deputy Speaker

With this we are to take Government amendments Nos. 72 and 73.

Mr. Barnett

The first two amendments relate to undertakings that I gave in Committee. Clause 36(6) provides that a land-owning company is a company owning an interest in land valued at more than half the value of its total net assets. These amendments substitute three-quarters for one-half.

Dealing with Amendment No. 73, Clause 37(8) provides that a settlement is a land settlement if the settled property consists of interests in land valued at more than one-half of the net value of all the settled property. The amendment substitutes three-quarters for one-half, and follows similar amendments to Clause 36.

Amendment agreed to.

Mr. Joel Barnett

I beg to move Amendment No. 74, in page 26, line 6, at end insert: 'if in the said subsection (6) for "5 per cent", in both places, there were substituted "10 per cent." '.

Mr. Deputy Speaker

With this we are to make Amendment No. 75, in page 27A, line 5, leave out from ' if ' to end of line 7 and insert: 'for "'10 per cent.'"there were substituted" '20 per cent.'

Mr. Barnett

Amendment No. 74 again relates to an undertaking that I gave in Committee. Only shareholders who have a material interest in a company are liable under the clause to development gains tax on gains arising from the disposal of their shares in that company. Subsection (6) defines "material interest" in a company by reference to the conditions in Section 285(6) of the Taxes Act. One of these is that the holding in question amounts to more than 5 per cent. of the shares issued. This amendment increases the 5 per cent. limit to 10 per cent.

Amendment No. 75, too, relates to an undertaking that I gave in Committee. It increases the 15 per cent. limit to 20 per cent. in the case of portfolio shareholders and certain public quoted companies.

Amendment agreed to.

Amendments made:

No. 72, in page 26, line 8, leave out 'one-half' and insert 'three-quarters'.

No. 131, in page 26, line 14, leave out 'a development gain' and insert: 'an excess of total development gains over total development losses'.—[Mr. Joel Barnett.]

Mr. Joel Barnett

I beg to move Amendment No. 63, in page 26, line 33, leave out 'subsection (8)' and insert 'subsections (8) to (8B)'.

Mr. Deputy Speaker

With this we are to take Government Amendments Nos. 64, 65, 66, 67, 68, 69, 70 and 85.

Mr. Barnett

These are further amendments which relate to an undertaking that I gave in Committee. Subsection (8) contains the rule under which buildings occupied and used for the purposes of a trade carried on by the company are disregarded in determining whether a company is a close land-owning company. The intention of the amendment is to exclude from the definition of relevant land any building which the inspector or the commissioners concerned are satisfied the company acquired with the intention of occupying within three years. The let-out also extends to the intended occupation by another member of the same group of companies.

Dealing with Amendments Nos. 69, 70 and 85, subsection (10) of Clause 37 contains the rule which has the effect of excluding from the definition of relevant land, for the purposes of determining whether a settlement is a land settlement, buildings occupied and used for the purposes of a trade carried on by the trustees of the settled property. The purpose of the amendments is to exclude from rele- vant land buildings which a trust acquired with the intention of occupying within three years.

Amendment agreed to.

Amendments made: No. 64, in page 27, line 35, leave out 'and this subsection' and insert— '(8A) If, in the case of a building or part of a building in which a company has an interest, it is established to the satisfaction of the inspector or, on appeal, of the Commissioners concerned that the company or, in a case where the company is a member of a group of companies, some other member of the group intends within three years of the relevant disposal of shares to occupy and use that building or part as mentioned in paragraph (a) or, as the case may be, paragraph (b) of the preceding subsection, that paragraph shall have effect as if the company were so occupying that building or part. (8B) Subsections (8) and (8A) above—'.

No. 75, in page 27A, line 5, leave out from if ' to end of line 7 and insert: 'for" '10 per cent. ' "there were substituted" '20 per cent.' "'.—[Mr. Joel Barnett.]

Mr. Joel Barnett

I beg to move Amendment No. 163, in page 27A, line 23, at end insert— '(11) A disposal of an interest in shares in a company which under paragraph 3 of Schedule 7 to the Finance Act 1965 (capital distributions by companies) a person is treated as having made in consideration of a capital distribution from the company in the form of an interest in land shall be disregarded for the purposes of this section if the distribution is made or due in respect of share capital in the course of a dissolution or winding-up of the company'. Where a company on a winding-up distributes land with development value to its shareholders, the Bill as it stands provides for a development gains charge on the company under Clause 33 and also a development gains charge on the shareholders under Clause 36. This amendment removes the double charge by taking away the charge on the shareholders.

Amendment agreed to.

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