PROVISIONS SUPPLEMENTARY TO SECTION 33

HC Deb 22 July 1974 vol 877 cc1189-217

Mr. Norman Lamont

I beg to move Amendment No. 241, in page 55, line 13, at end insert— '( )The carrying out of operations for, or the use of the land for, car parking, provided that such use shall not exceed three years'. I think that this will become known as the famous car parking amendment. It raises a point which was drawn to my attention of my hon. Friend the Member for Gillingham (Mr. Burden) and which was not covered in Committee. It is a simple amendment which strikes new ground in these debates. It seeks to exempt from development gains tax any development for use of the relevant land as car parking space when that is the main temporary use of that land between different permanent uses.

There are some provisions in the schedule which cover temporary use of land for one purpose and when that land reverts to the original purpose no development gain arises. That is in accordance with paragraph 7(g). The amendment relates to the situation when there is temporary use of land and the land does not revert to its original use but is then used for another purpose. When land in the middle of a city is to be used for development—when it is derelict for a period or when it is open space for a period—the land can frequently be used as car parking space. I think that the Financial Secretary would want to encourage the provision of more car parking space. I do not think that it is the intention of the legislation that land which is used temporarily as a car park in the middle of a development should give rise to development gain.

There is a parallel situation with advertisement hoardings. Paragraph 7(d) of the schedule spells it out that when advertisement hoardings are put up on a derelict site no development gain attaches.

As long as there are to be any cars in cities, facilities for car parking will be needed. The legislation as it stands may, inadvertently, discourage the use of sites as car parking sites.

Dr. Gilbert

The arguments of the hon. Gentleman are as persuasive as they are eloquent, and I am happy to advise the House to accept the amendment.

Amendment agreed to.

Dr. Gilbert

I beg to move Amendment No. 41, in page 55, line 34, at end insert— '(2) In determining for the purposes of subparagraph (1)(a) or (b) above whether or not the cubic content of the original building has been exceeded by more than one-tenth, the cubic content of the building after the carrying out of the works in question shall be treated as reduced by the amount (if any) by which so much of that cubic content as is attributable to one or more of the matters mentioned in the following sub-paragraph exceeds so much of the cubic content of the original building as was attributable to one or more of the matters so mentioned. (3) The matters referred to in the preceding sub-paragraph are the following, that is to say—

1. (a) means of escape in case of fire;
2. (b) car-parking or garage space;
3. (c) accommodation for plant providing heating, air-conditioning or similar facilities'.

Mr. Deputy Speaker (Mr. Oscar Murton)

With this we are to take the following Amendments:

No. 143, in page 54, line 49, leave out "one-tenth" and insert— the amount set out in paragraph 8 below".

No. 144, in page 55, line 5, leave out "one-tenth" and insert— the amount set out in paragraph 8 below".

No. 145, in page 55, line 34, at end insert— 8. The amount referred to in paragraphs 7(a) and (b) above is the sum of

1. (i) 110 per cent. of the cubic content of the original building, and
2. (ii) the cubic content of means of escape, car parking or garage space, plant rooms for heating or air conditioning equipment, or similar facilities which are contained in the building after the carrying out of the works referred to in the said paragraph 7(a) and (b)".

Dr. Gilbert

Paragraph 7(a) of Schedule 3 provides that the carrying out of works for the maintenance, improvement, enlargement or other alteration of any building, so long as the cubic content of the original building is not exceeded by more than 10 per cent., is not material development. Paragraph 7(b) provides that subject to certain conditions, the carrying out of works for the rebuilding of any building shall not constitute material development provided that the cubic content of the original building is not exceeded by more than one-tenth.

The purpose of the Government amendment and Amendment No. 145 in the name of the right hon. Member for Crosby (Mr. Page) is to provide certain exemptions from the cubic formula with respect to fire escapes, car parking, accommodation for heating and ancillary services. The basic difference between the Government amendment and the right hon. Gentleman's amendment is that while we would both say that fire escapes and services of that sort can be included in the new building without any limit without reference to the cubic capacity of the old building, the right hon. Gentleman goes a little further and would include in the cubic capacity of the basic new building 10 per cent. extra office space on the old building, inclusive of the ancillary services. We think our amendment goes a long way to meet the case made by the right hon. Gentleman.

I commend Amendment No. 41, but I have to say to the right hon. Gentleman that his group of amendments Nos. 143, 144 and 145, go a little further than we intended, but the difference between us is not very great.

Mr. Graham Page

I am grateful to the Financial Secretary for going some way to meet the proposition put forward in Committee. We are certainly in agreement, in that such matters as fire escapes, lifts and so on need special consideration. I believe it was the Chief Secretary who said in Committee that this was all covered by appendix A to the Central Land Board's Practice Note, 1st series. As nobody seemed to have a copy of it in Committee at the time, I took the opportunity of looking it up later, and no doubt the Financial Secretary found the same as I did, that it had nothing whatever to do with the point. That is why these amendments are on the Paper.

There are two differences between Amendment No. 41 and the group of amendments which I put down. First, I have added the whole of the cubic content of means of escape and other matters—not merely the increase. This was to avoid the additional work of having to measure up those things in the old building. It would be extremely difficult from a practical point of view.

The second difference is more important than that. I have suggested that 110 per cent. of the cubic content of the old building should be calculated and that the cubic content of means of escape and so on added on. The Government amendment provides that the cubic content of the new building should be reduced by so much of that cubic content as is attributable to the increase of the cubic content of the means of escape. As the cubic content of the building is to be ascertained by external measurements—that comes in another part of the schedule—it seems doubtul whether it is possible to attribute part of the cubic content of the building to specified internal areas.

I think that that will give rise to some difficulty in practice. My Amendment No. 145 avoids those practical difficulties, and although it gives a little better concession to the developer, I have thought it a far more practical proposition than the Government Amendment No. 41, and I had hoped that it would be accepted.

Dr. Gilbert

It would be churlish of me not to respond to the right hon. Gentleman. I have to agree that the relevance of the code to which reference was made in Committee was somewhat doubtful. In many respects, the code is not applicable to present-day circumstances.

All I can add at this stage is that we take on board the point which the right hon. Gentleman makes. We are considering setting up a working party with the interests involved which will survey all these questions, bringing the code up to date, and I hone that that will in time meet the practical and constructive objections which the right hon. Gentleman has raised. I cannot, however, advise the House to go beyond the Government amendment.

Dr. Gilbert

I beg to move Amendment No. 42, in page 56, leave out line 17 and insert—

Amendment agreed to. '(b) storage purposes (whether or not involvthan storage purposes ancillary to a purposeing use as a warehouse or repository) other falling within Class B or C'.

The purpose here is to enlarge Class E sub-paragraph (b) of paragraph 8 of Schedule 3, as drafted, which is confined to use as a wholesale warehouse or repository, so as to cover use for storage purposes other than retail storage. This amendment fulfils an undertaking which my hon. Friend the Chief Secretary gave in Committee. It will have the effect of bringing into account all forms of industrial storage other than retail; in other words, it will include general commercial and industrial storage, and the restriction in the unamended schedule will, therefore, be considerably relaxed.

Amendment agreed to.

Mr. Graham Page

I beg to move Amendment No. 142, in page 56, line 33, at end insert— (3) For the purpose of sub-paragraphs (2) and (3) above a change of use shall be deemed to take place on the later of the dates that planning permission for the change of use was granted or the date that the land is last occupied for the original use, provided that, if at that time the land is held out as still being available for the original use, the change of use shall be treated as taking place at the time when it ceases to be so available". Basically, this is the amendment which was moved in Committee, but I have altered it by the insertion of the words the later of the dates that planning permission for the change of use was granted. This takes account of some of the Government's objections to the original amendment.

We are dealing here with the question of change of use being material development. Change of use can itself constitute material development, without any physical or constructional development, as the schedule is drawn. This gives rise to both development gains tax and to the charge to tax on a first letting. Accordingly, it is vital to be able to establish when a change of use takes place, and the amendment is an effort to make that precise.

The need for a precise date is of particular importance where, for example, refurbishment not amounting to material development takes place. It may be some time, perhaps some months, between the time when the building ceases to be occupied for the old use and becomes occupied for a new use.

In Committee the Chief Secretary said of the original Amendment: The trouble with the right hon. Gentleman's suggestion is that it could lead to the kind of land hoarding that the previous Government once thought of dealing with by way of a land hoarding charge. If that amendment were accepted and it was allowed that there was no development simply from the point where the land was vacated and no longer in its original use it could be left for some considerable time. 10.45 p.m.

That argument was illogical in this way: if the land ceases to be used at all surely that would not constitute a change of use. The Chief Secretary suggested that if an owner gave up use of the land he somehow gained. But there would not be a change of use. If there was there would be a change every time a tenant moved out of a building unless a new tenant moved into it immediately.

If land has been used for one purpose and is now to be used for something else the taxpayer would not cease to use it for the first purpose and then delay using it for the new purpose in order to avoid tax. If he wanted to avoid tax he would continue to use the land for the old purpose. He said that the amendment would let out from development gains tax many cases where development had not really begun before 18th December. The new amendment would not allow the claim that a change of use had occurred when the owner ceased to use the land for the old purpose but was still awaiting planning permission at 18th December.

Where both planning permission had been obtained and the land had ceased to be occupied for the old use before 18th December, there is no logical reason for saying that development had not begun at that stage, bearing in mind that no work needs to be carried out for material development to take place under "change of use". In drafting the amendment I have taken into account all the objections made to the drafting of the previous amendment in Committee. It is vitally important to be precise over when a change of use takes place. As far as I can make it fair to both the Revenue and to the taxpayer, I think I have done so in the amendment.

Dr. Gilbert

I certainly pay tribute to the moderate way in which the right hon. Gentleman moved the amendment, and I take his point that he has attempted to meet the objections of my hon. Friend the Chief Secretary in Committee by the insertion of the words the later of the dates that planning permission for the change of use was granted. However, under the Bill it is clear, though it sounds tautological, that change of use takes place when a new use commences. Our proposals are somewhat less stringent than those originally anticipated by the right hon. Member for Altrincham and Sale (Mr. Barber) in so far as we have made it clear that development gains are not to be charged if the development had been started under all sorts of definitions before 18th December. The effect of the right hon. Gentleman's amendment is to exclude from the charge to development gains, not where the development had started, but where the land had ceased to be used for its original use before 18th December.

The right hon. Gentleman is saying that, even though there has been no effective development before the date in question, the gain shall be relieved from tax because the previous use was no longer that in question. That undermines the philosophy behind the development gain charge. For that reason I advise the House not to accept the amendment.

Amendment negatived.

Dr. Gilbert

I beg to move Amendment No. 43, in page 57, line 18, leave out 'purpose of this Part' and insert 'purposes of paragraph 7(a) and (b)'.

Mr. Deputy Speaker

I think that it will be convenient to take at the same time amendment No. 44, in line 23, at end insert: 'For the purposes of this sub-paragraph two or more buildings shall not be treated as included in a single development unless they are or were comprised in the same cartilage' and the amendment to the proposed amendment, to leave out "comprised in the same curtilage" and insert: in the immediate vicinity of one another".

Dr. Gilbert

Not for the first time in this series of debates we find ourselves discussing a Government amendment and in tandem an amendment tabled by the right hon. Member for Crosby (Mr. Graham Page). Paragraph 10 of Schedule 3 provides that: where two or more buildings are included in a single development the whole of that development may be regarded as a single building, and where two or more buildings result from the redevelopment of a single biulding the new buildings may together be regarded as a single building. There are two associated amendments on this provision. The first is a drafting amendment to make it clear that paragraph 10(3) is concerned only with the rules of paragraph 7(a) and (b) of Schedule 3. The second amendment provides that two or more buildings should not be treated as within a single development unless comprised in the same curtilage. "Curtilage" is a fairly technical legal term, and I have with me a legal definition of it, if the House wishes me to read it.

We are saying that where one has more than one building on a site—to use a non lawyer's term for "curtilage"—so long as one keeps within the cubic capacity, plus the given permitted increment of 10 per cent. on the original cubic capicity, it does not matter how many buildings one redevelops, given those constraints, so long as they fall within the same curtilage.

The effect of the right hon. Gentleman's Amendment (a) is to lift the restriction that the buildings have to be within the same curtilage and merely to require that they are in the immediate vicinity of one another. We believe the effect of his amendment would be to relax the restriction in such a way that it will be possible to clear a large site outside the original curtilage—a series of continuous sites—and put a massive development on the new aggregation of sites and still escape the development gain charge. The effect of agreeing to the right hon. Gentleman's amendment would be extremely expensive and would also in certain circumstances seriously undermine the development gains charge.

Mr. Graham Page

I am shocked by the Government amendment. I thought that they accepted the Opposition amendment in Committee on this subject, but this amendment demolishes that.

The Government amendment is too narrowly drawn. For example, it would prevent the exemption of two adjacent shops. One cannot say that buildings of that sort are in the same curtilage. The amendment restricts paragraph 10(3) to cases where two or more buildings are included in a single development, or are comprised in the same curtilage.

The Financial Secretary said that "cartilage" was a very technical expression t it is not. It is a common phrase perfectly well understood in legal circles. It means the sort of property expected to be included in the sale of another property—the garden of a house, the garage of a house, the yard or shop premises, those things within the curtilage of the main premises. There is nothing very technical or complicated about it. It is frequently used for ordinary commonsense purposes and it certainly would not include two adjacent shops, the example I have given.

I thought that the Government wanted to exclude major redevelopment projects from the provisions about 10 per cent. material development, but this amendment excludes virtually all development covered by paragraph 10(3), a paragraph that the Committee accepted on, I thought, the Government's acknowledgement that they did not wish to deter major redevelopment. There is no loss to the Government in our proposal. We are considering merely whether when developing the full site, a whole row of shops or a whole row of offices, for example, the 10 per cent. excess may be switched from over the original site to one end of the block and not divided accurately among the several properties concerned in the development.

There is no tax to be lost. The Financial Secretary said that our proposal would create a loss, but it would not. The Government amendment will be more inconvenient for development. It will lead to farcical situations in design as attempts are made to show when, in my example, a row of shops is being developed, the increase of a particular shop is not more than 10 per cent. The Government amendment is a wrecking amendment.

Mr. Costan

I support my right hon. Friend the Member for Crosby (Mr. Page). We shall get some extraordinary planning decisions and proposals as a result of the Government amendment. This is like going back to the window tax. The amendment will produce planing abortions.

Mr. Mark Hughes (Durham)

indicated dissent.

Mr. Costain

I see the Parliamentary Private Secretary indicating dissent. I would rather have that dissent from the Government Front Bench.

11.0 p.m.

Dr. Gilbert

The right hon. Gentleman is right in saying that two shops side by side would normally be in separate curtilages and, therefore, under the Government amendment, would not be exempt from the tax. It is a question of drawing the line.

The right hon. Gentleman had in mind a row of cottages or terraced houses. They would be within the same vicinity under any definition. One could make a tidy development gain by demolishing a long terrace of houses, either of the poorer type or of the more expensive old Victorian or Edwardian type with high ceilings. The terraced houses could be demolished and a large block of flats with lower ceilings could be erected. With the same cubic footage plus 10 per cent. considerably increased density could be obtained and higher rentals—all the gains to be expected from a large-scale development. Under the right hon. Gentleman's amendment developments of that sort would be relieved of the charge, and it is no purpose of ours that they should be relieved.

I grant the right hon. Gentleman that there may be certain difficulties where there are two properties side by side. If the two are taken together anomalies arise with the third. The argument is capable of indefinite extension. It is another exercise in line-drawing which has to be undergone when drafting legislation.

Under our proposals it will still be possible, for example, to replace an old factory, together with all its outhouses on a widely dispersed site, by a modern factory which is much more productive, and, so long as the 10 per cent. tolerance is observed, relief from the tax is available.

Mr. Graham Page

I do not follow the hon. Gentleman's mathematics. There can be a 10 per cent. increase in the cubic capacity of the new building compared with the old, and there is no material development. If there are ten buildings the size of each can be increased by 10 per cent., but one cannot increase the area of one of the 10 buildings by 100 per cent. and by not more than 10 per cent. of the whole. The Financial Secretary said that there might be a development with increased density which would not be material development, but his mathematics are not right.

Dr. Gilbert

I am sorry if I have not made myself clear. Let us forget the development gains charge for the moment. If a big old building is pulled down and if there is put in its place a new building, less rambling and with lower ceilings, a higher population density can be achieved within the same cubic capacity as before. That is why so many handsome old buildings built in a generous style are pulled down and replaced by modern blocks of flats. The Bill does not refer to the number of people but to cubic footage. The right hon. Gentleman's proposals are far more generous than I can recommend the House to accept.

Mr. Ridley

Will the hon. Gentleman go over this again? If there is a row of terraced houses and they are to be replaced by a block of flats, is the hon. Gentleman saying that the 10 per cent. increase in the total volume of the block of flats is not adequate to protect one from the gains tax, that one is, so to speak, assessed on the increase to each of the original terraced houses? I did not get it quite clear, and it is important. I should be glad if the hon. Gentleman would repeat the argument. If one pulls down 10 terraced houses and replaces them with a single structure containing 10 or more units of accommodation, how is the 10 per cent. to be reckoned in such a case?

Dr. Gilbert

It all depends on whether they are within the same curtilage under the amendment. That is the point at issue between the right hon. Member for Crosby and myself. We say that, as long as they are within the same curtilage, they can be composited and one can get a 10 per cent. increment or tolerance on the total within the same curtilage. The right hon. Gentleman is seeking to establish the same 10 per cent. tolerance but over a much wider area, since he would apply it over different properties within the same area. We believe that that would be to go too far.

Mr. David Howell

Would the hon. Gentleman not be wiser if he were to accept the argument of my right hon. Friend the Member for Crosby (Mr. Page), or at least its spirit? The hon. Gentleman seems to have got into mathematical nonsense. The Government's argument seems to be that where there are 12 units there can be a 10 per cent. addition to each unit within its own curtilage as defined—in other words, in the area of the backyard and so on—but that if someone proposes that there shall be a 10 per cent. increase overall to the entire area covered in the first place, and the 10 per cent. comes at one end or at a particular point convenient to or making sense in architectural or planning terms, then the Government say, "That bit at the end is not in the curtilage of the 12 but is only attached to it. It exceeds the curtilage of the 12, and the whole thing becomes liable for tax". Is that what the hon. Gentleman is saying? If so, it seems a recipe for muddle and confusion.

Dr. Gilbert

I think that we have agreement as to the workings of the formula in either set of circumstance. I think that the hon. Gentleman has taken that point accurately. The distinction is that we are saying that one could aggregate the cubic capacity within a given curtilage and increase it by 10 per cent., and that, up to that point, one is free of development gains charge and can composite as many buildings as are within that curtilage and get the benefit of the 10 per cent. tolerance.

The right hon. Member for Crosby is seeking to say that, within a much wider area, which could comprose several curtilages, one could do precisely the same thing and aggregate. As long as one kept under the 10 per cent. tolerance limit, one would still be free of the development gains charge.

The hon. Member for Guildford (Mr. Howell) is suggesting that one could get planning anomalies as a result of our amendment. But one has to draw the line somewhere. The right hon. Gentleman refers to the "immediate vicinity", which is a phrase capable of fairly elastic interpretation. The point at issue is that if one extends the amount of individual curtilage, one is allowing, without any further constraint, to be free from development gains charge very considerable development of the sort I am suggesting One could get a very considerable increase in density of occupation. Obviously one could not go above 10 per cent. in terms of cubic capacity—there is no dispute about that—but if one increased the amount of the curtilage one could get an increase in density.

Mr. Higgins

We seem to be having some problem in communication. I intervene only because it seems that the point is transparently clear to us but not to the hon. Gentleman. Suppose there are 10 identical houses, each with a back garden. As I understand it, if the volume of the building that is put on one of those properties is less than a 10 per cent. increase, it is free of development charge. The same is true of the second, third, fourth and all the other houses down to the tenth. At that point the Government will not collect any development charge.

I suspect that both my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) and my right hon. Friend the Member for Crosby (Mr. Page) know infinitely more about this area than I do and, I suspect, the hon. Gentleman does. The fact is that one could take these 10 houses and expand the accommodation by 10 per cent. and there would be no loss to the Revenue because this could have been done on an individual basis anyway—one to 10. All that happens is that there is a certain amount of flexibility. The development may be larger, but one could have got an equally large development split into 10 sections with no development charge.

The point made by my hon. Friend the the Member for Folkestone and Hythe that if we accept the Minister's view we get the situation that anyone planning development has to do it in this little itsy-bitsy way, instead of having a sensible development. The Minister cannot come back to us on this Finance Bill, but I hope that he will give further thought to the matter because it seems to be something of an absurdity. No Revenue consideration is involved. One could have the same kind of extension of accommodation without paying the development charge. The only reason that someone pays a development charge is that he wants a sensible development rather than one that is fragmented. I hope we can persuade the Minister that there is a point that he ought to consider again.

Dr. Gilbert

At least there is no dispute between the Opposition and myself about the interpretation of what the two amendments are seeking to achieve. Like the hon. Member for Worthing (Mr. Higgins), I bow to the technical expertise in these matters of the right hon. Member for Crosby (Mr. Page) and the hon. Member for Folkestone and Hythe (Mr. Costain).

The point is that if there is a single large terraced house one would be unlikely to try to redevelop that on its own. If, however, someone wanted to do so he could estimate the gains charge if he kept within the 10 per cent. tolerance rule. But where there is a long row of houses—and this is a question of degree which becomes one of kind—the situation is different.

The hon. Member for Worthing has some magnificent rows of terraced property in his constituency—that is my recollection from attending Labour Party Conferences in the past; the only occasions on which I have had the pleasure of visiting the hon. Gentleman's constituency—with high ceilings, and four or five storeys high. If someone were to pull down the whole row of properties—perish the thought—he could put up a much higher density within the 10 per cent. tolerance on to the buildings and get a huge development gain.

Theoretically the hon. Gentleman is right. It could be done separately with each property and the mathematical effect would be the same, but the practical effect would be a nonsense, because no one would pull down one house in a terrace. It is clear that we are talking about a difference in kind. The Opposition amendment is drafted widely and talks about "in the immediate vicinity", whereas the Government amendment is intended to be restrictive.

Mr. Costain

Suppose there are 10 individual houses in a row. For proper planning, one of those houses may need a boiler house. What worries me is whether, in that curtilage, one of these individual houses can have the extra area to have the boiler house for the new block of flats.

11.15 p.m.

Dr. Gilbert

Perhaps I should point out that I am not seeking to detain the House in any way—[Interruption.]

Mr. Deputy Speaker

Hon. Members must not make interruptions from sedentary positions when a Minister, or any other Member, is speaking.

Dr. Gilbert

I take on board the point made by the right hon. Member for Crosby (Mr. Page) and the hon. Members for Folkestone and Hythe (Mr. Costain) and Worthing (Mr. Higgins). I undertake to see before the next Finance Bill whether there might be some relief in this direction.

Amendment agreed to.

Amendment made: No. 44, in page 57, line 23, at end insert: 'For the purposes of this sub-paragraph two or more buildings shall not be treated as included in a single development unless they are or were comprised in the same curtilage'.—[Dr. Gilbert.]

Dr. Gilbert

I beg to move Amendment No. 45, in page 57, line 36, leave out 'mentioned in' and insert 'given by'.

Mr. Deputy Speaker

With this amendment it will be convenient for the House to consider the Government amendments Nos. 46, 54 and 55.

Dr. Gilbert

This group of amendments is designed to improve the drafting of paragraph 11(3) and 12(2) of Schedule 3 and paragraph 5 of Schedule 6. No point of substance is involved.

Amendment agreed to.

Dr. Gilbert

I beg to move Amendment No. 122, in page 59, line 3, leave out 'after 6th April 1965'.

This amendment is designed basically to correct a minor drafting defect in paragraph 12 of Schedule 3 which affects the interaction of paragraph 12 with paragraph 15 of Schedule 3 and paragraph 6 with Schedule 6. It is a little wider than the drafting but the actual effect is not great. It adds to the current use value expenditure on a house or property whether or not expenditure took place before 6th April 1965, a date that will be burned into the minds of hon. Members who are present at this hour.

By adding to the current use value at the date of acquisition all the costs that were incurred before 6th April 1965 it will reduce the current use gain and to that extent increase the development gain. While the amendment tightens on gains, it relaxes the situation with regard to losses. The amount of money involved is unlikely to be great. I hope that the House agrees that this is the right way to approach the matter.

Amendment agreed to.

Amendment made: No. 46, in page 59, line 11, leave out 'mentioned in' and insert 'given by'.—[Dr. Gilbert.]

Dr. Gilbert

I beg to move Amendment No. 47, in page 61, line 5, after '1965' insert: 'or paragraph 17A(4) of this Schedule'.

Mr. Deputy Speaker

With this amendment it will be convenient for the House to consider Government amendments Nos. 49 to 51.

Dr. Gilbert

The purpose of this group of amendments is to enable certain taxpayers to defer payment of part of the tax on development gains if the disposal proceeds are reinvested in new business assets other than land. I have a massive and imposing brief, but would not wish to weary the House with it unless hon. Members wish it.

Mr. Graham Page

I am sorry but Amendment No. 51 is not a drafting amendment, but a substantial one. It carries out an undertaking in Committee by the Chief Secretary that there should be roll-over provisions, but it would act capriciously. I had hoped that I might have been able to amend it a little.

An example would be the quickest way of explaining the difficulty. Suppose that a manufacturing company sells a factory and reinvests part of the proceeds in acquiring a new factory and part on acquiring land a mile away as a car park for its transport fleet. The new factory will be a qualifying asset but the land for the car park will not come within these provisions. A number of those who might have thought that they were entitled to the roll-over provisions would be disappointed in such a case.

It would have been reasonable to delete the requirement that some of the new assets must include land. For example, suppose that the factory is sold and the vendor wishes to reinvest some of the money in plant in another factory. The roll-over provisions would not apply to that because no land would be involved. I do not see why, logically, they should not. Nor will relief be given if the new asset is bare land and is retained as bare land. Finally, the roll-over provisions do not provide that the excess over 30 per cent. of the tax on a development gain which is reinvested in the new asset can be paid in instalments.

These petty restrictions should not have been included. We were grateful when the Chief Secretary told the Committee that these provisions would be made. I compliment the draftsmen of Amendment No. 51 on covering so much ground. Perhaps I am being niggling, but these are practical defects, and may cause great disappointment to those who are baulked by some small point like this.

Dr. Gilbert

I am grateful to the right hon. Gentleman for his exposition. I did not suggest that these were drafting amendments. I am grateful for his compliments to the Chief Secretary. I am always a little diffident about taking on the right hon. Gentleman on his own ground, but he may be unduly pessimistic. Under the proposed paragraph 17A a trader will be able to claim relief in respect of a development gain arising on disposal of land and buildings which have been used for his trade if the disposal proceeds are reinvested in new trade assets other than land. Reinvestment in land will not be excluded, however—I think that this meets some of the right hon. Gentleman's point—if the land forms the site of the building or is ancillary to the use and occupation of the building. I think that that will cover the case of a car park—certainly not one at some remove, but within the same curtilage at least.

Mr. Graham Page

I did not say the same curtilage. Again, in view of what the hon. Gentleman has said about "ancillary", it could be at some distance and not necessarily within the same curtilage.

Dr. Gilbert

I was jesting when I said that. I think that it could probably go beyond the same curtilage. That is why we have the word "ancillary" in the Bill. I think that this will go a considerable way to meet the difficulties which the right hon. Gentleman fears.

On the other hand, word reaches me that the purchase of a site for a transport park will not attract the relief. But as that is a new word that has just reached me, the best thing that I can say at present is that as it is too late for the right hon. Gentleman to move amendments, I shall obviously take very seriously what he has said, and if we have any practical problems it will be quite easy to remedy them on the next Finance Bill.

Amendment agreed to.

Amendments made: No. 94. in page 61, line 9, after 'reduced', insert 'or further reduced'.

No. 50, in line 11, after '(2)(b)' insert: 'or the said paragraph 17A(4)'.

No. 51, in line 12, at end insert:

'Replacement of business assets

17A.—(1) If the consideration which a person carrying on a trade obtains for the disposal of. or of his interest in, assets (in this paragraph referred to as "the old assets") used, and used only, for the purposes of the trade throughout the period of ownership is wholly or partly applied by him in acquiring other assets, or an interest in other assets (in this paragraph referred to as "the new assets") which on the acquisition are taken into use, and used only, for the purposes of the trade, and—

1. (a) the old assets and new assets are within the classes of assets listed in subsection (6) of section 33 of the Finance Act 1965 (replacement of business assets) and the old assets consist of or include land in the United Kingdom; and
2. (b) some or all of the new assets are qualifying assets; and
3. (c) development gains accrue to the person carrying on the trade in respect of the disposal; and
4. (d) the amount of the consideration for the disposal applied as aforesaid is greater than the difference between the whole of that consideration and the amount of those development gains, then, if the person carrying on the trade makes a claim as respects those development gains, the provisions of sub-paragraphs (2) to (5) below shall apply.

(2) There shall be ascertained the following amounts, that is to say—

1. (a) the amount by which so much of the consideration for the disposal as has been applied as described in sub-paragraph (1) above exceeds the difference mentioned in sub-paragraph (1)(d) above; and
2. (b) the amount of the consideration for the disposal which has been so applied in acquiring qualifying assets; and in the following provisions of this paragraph "the material amount" means whichever of those amounts is the smaller (or, if 1207 they are equal, the amount which is equal to each of them).

(3) The income tax or corporation tax to which the person carrying on the trade is chargeable for the chargeable period in which the disposal was made shall be reduced by an amount equal to whichever of the following amounts is the smallest, that is to say—

1. (a) 30 per cent. of what is, under subparagraph (5) below, the appropriate amount;
2. (b) 30 per cent. of the amount; if any, by which the development gains accruing to him in that chargeable period exceeds the development losses, if any, accruing to him in that period (so that if the amount under this head is nil, no reduction will fail to be made under this sub-paragraph);
3. (c) the total amount of the income tax for which he is liable for that chargeable period or, in the case of a company, the total amount of the corporation tax for which the company is liable for that chargeable period after setting against that liability the amount of any advance corporation tax falling to be set against it under section 85 of the Finance Act 1972, but before any set-off under subsection (5) of section 240 of the Taxes Act (income tax on distributions etc. received by United Kingdom company).

For the purposes of paragraph (b) of this sub-paragraph a man and his wife living with him shall be treated as one person if the result of so treating them is to increase the amount given by that paragraph.

(4) Where a reduction falls to be made under the preceding sub-paragraph, the person carrying on the trade shall be treated for the purposes of Part III of the Finance Act 1965 as if the consideration for the acquisition of, or of the interest in, such of the new assets as are qualifying assets were reduced (or further reduced) by what is, under sub-paragraph (5) below, the appropriate amount; but this subparagraph shall not affect the treatment for those purposes of the other party to the transaction involving the old assets of or the other party to the transaction involving the new assets.

(5) For the purposes of sub-paragraphs (3)(a) and (4) above

1. (a) if the material amount is equal to or greater than one-half of the development gains accruing in respect of the disposal, the appropriate amount is the full amount of the development gains so accruing;
2. (b) if the material amount is less than one-half of the development gains so accruing, the appropriate amount is an amount equal to twice the material amount.

(6) The following provisions shall, with any necessary modifications, apply for the purposes of this paragraph as they apply for the purposes of section 33 of the Finance Act 1965, namely—

1. (a) subsections (3), (5) and (7) to (11) of that section; and
2. (b) paragraph 3 of Schedule 12 to the Finance Act 1968.

(7) Without prejudice to the provisions of Part III of the Finance Act 1965 providing generally for apportionment, where consideration is given—

1. (a) for the acquisition or disposal of assets some or part of which are assets in relation to which a claim under this paragraph applies and some or part of which are not; or
2. (b) for the acquisition or disposal of assets some or part of which are, in relation to a claim under this paragraph, qualifying assets and some or part of which are not, the consideration shall be apportioned in such manner as is just and reasonable.

(8) For the purposes of this paragraph assets are, in relation to a trade, qualifying assets if they are within the following classes of assets, that is to say the classes listed in section 33(6) of the Finance Act 1965, excluding assets within paragraph (b) of head A in class 1 other than land constituting the site of any asset within paragraph (a) of that head (including in the site any land in the immediate vicinity of the asset which is occupied for purposes ancillary to the occupation and use of the asset).

Replacement of business assets: depreciating assets

17B.—(1) Paragraph 16 of Schedule 19 to the Finance Act 1969 (replacement of business assets: depreciating assets) shall have effect in relation to the preceding paragraph as it has effect in relation to section 33 of the Finance Act 1965, subject to the modifications specified in the following provisions of this paragraph and any other necessary modifications.

(2) For sub-paragraph (1) substitute: (1) Paragraph 17A of Schedule 3 to the Finance Act 1974 shall have effect subject to the provisions of this paragraph in which—

1. (a) the 'tax reduction' means the reduction in the income tax or corporation tax to which the person carrying on the trade is chargeable which is made under subparagraph (3) of the said paragraph 17A in connection with a disposal of an asset (called 'asset No. 1');
2. (b) the 'expenditure reduction' means the related amount by which, under subparagraph (4) of that paragraph, and apart from the provisions of this paragraph, the expenditure allowable in respect of another asset (called 'asset No. 2 ') is reduced;
3. (c) any reference to an expenditure reduction of any amount being carried forward to any asset is a reference to a reduction of that amount in expenditure allowable in respect of that asset".

(3) In sub-paragraph (2)—

(a) for the words from the beginning to "until" substitute—

"(2) If asset No. 2 is a depreciating asset, the expenditure reduction shall not be carried forward, but when—";

(b) after "comes first" add "an amount equal to the tax reduction may be assessed to tax and recoverable accordingly.

Any assessment to income tax or corporation tax under this paragraph shall be made under Case VI of Schedule D.".

(4) In sub-paragraph (3)—

1. (a) for "section 33" substitute "paragraph 17A";
2. (b) for "the gain held over from asset No. 1 "substitute" the expenditure reduction".

(5) In sub-paragraph (4)—

1. (a) for the words from "the time when" to "accrue" substitute "the occurrence of whichever of the events mentioned in subparagraph (2) above comes first";
2. (b) for "the postponed gain" substitute "the expenditure reduction".

(6) Omit sub-paragraphs (5) and (8) and, in sub-paragraph (9), for "section 33" substitute "paragraph 17A".'.

No. 86, in page 61, line 19, leave out 'or debentures in' and insert 'in or debentures of'.—[Dr. Gilbert.]

Dr. Gilbert

I beg to move Amendment No. 87, in page 61, line 21, at end insert: '(2) Where, in the case of a disposal of shares in or debentures of a company made in the circumstances mentioned in the preceding sub-paragraph, the amount of any development gain accruing in respect of that disposal falls by virtue of that subparagraph to be computed as if the said paragraph 6 did not apply in relation to the exchange, the provisions of paragraph 14 of Schedule 9 to this Act (postponement of payment of tax), excluding sub-paragraphs (2) and (4), shall, with any necessary modifications, apply in the case of that disposal as they apply in the case of a disposal of an interest in land which is deemed to have been made as mentioned in sub-paragraph (1) of the said paragraph 14, but as if in the said sub-paragraph (1) for the reference to the total tax chargeable in respect of a gain accruing on the disposal there were substituted a reference to such part of that total tax as is equal to the amount by which that total tax exceeds the tax which would have been chargeable but for sub-paragraph (1) of this paragraph'.

Mr. Deputy Speaker

With this we are to take Amendment No. 146, in page 61, line 21, at end insert: (2) Where in subsection (1) above the company issuing shares or debentures, the person to whom the shares or debentures are being issued, and the company whose shares or debentures are being exchanged are all members of a group as defined in Section 272 Income and Corporation Taxes Act 1970, subsection (1) above shall not apply".

Dr. Gilbert

Here again, the House finds itself debating simultaneously a Government amendment and an amendment in the name of the right hon. Member for Crosby (Mr. Page). The effect of our proposal is that for capital gains tax purposes a form of roll-over relief is provided for shareholders where shares of another company are issued to them in place of their original holdings on the occasion of a take-over or under a scheme of reconstruction or amalgamation. What we are proposing is to allow the payment of tax on a development gain in situations of this sort to be spread over a period of eight years.

We think that we are going a long way to meet what the Opposition asked us to do in Standing Committee, particularly with respect to the Amendment No. 93 then moved by the hon. and learned Member for Dover and Deal (Mr. Rees), who, unfortunately, is not in the Chamber at present. The Chief Secretary, while not accepting Amendment No. 93 in all its fullness, undertook to bring forward an amendment that would go some way to meet the hon. and learned Gentleman's proposals.

Amendment No. 146 in the name of the right hon. Member for Crosby would go a good deal further than we are proposing to go and would leave the door open to tax avoidance on a considerable scale. I am not suggesting for a moment that that is the purpose of the right hon. Gentleman's amendment, but I am advised that that would almost inevitably be its effect. Therefore, I have to advise the House against accepting the right hon. Gentleman's amendment.

11.30 p.m.

Mr. Graham Page

I was accused of putting down an amendment calculated to avoid an immense amount of tax. I expected to get the answer to Amendment No. 146 that it was not necessary and that it was already in the law. I was merely clarifying the law. I should like to address my remarks particularly to Amendment No. 146, because I agree with Government Amendment No. 87, and I am grateful to them for putting it down, which applies the eight-year spread of tax on development gains to a tax arising on a company in amalgamation—that is, where all or part of the consideration is satisfied by the issue of shares. I am please to have that as part of the law.

Amendment No. 146, however, is a very specific and narrow one. It was on the Amendment Paper in Committee but somehow it was grouped with other amendments and it was never discussed. If I may stick fairly closely to my notes I shall get through the point much quicker than waffling over it—provided I am not interrupted by the hon. Member for Gloucestershire, West (Mr. Loughlin). I would ask him to let me get through this or perhaps to go somewhere else and wait until I have finished.

My amendment deals with a specific situation in a group of companies. To take an example, suppose that A Ltd. has a number of subsidiaries, one of which is B Ltd. which owns land with development value. A Ltd. decides to rationalise its group structure and in the course of this purely internal reorganisation it transfer its shares in B Ltd. to a now company C Ltd. in exchange for the issue of shares in C Ltd. C Ltd. is a wholly-owned subsidiary of A Ltd.

For capital gains tax purposes no tax would be payable by A Ltd., the first company, on the disposals of its shares to B Ltd. by virtue of the share exchange provisions. If the share exchange provisions do not apply for development gains tax purposes. it may be that the reorganisation would crystallise development gains tax in respect of the disposal of the B Ltd. shares.

It may be—this was what I thought would be said to me in reply to the amendment—that the exemption for intergroup transactions in Section 273 of the Taxes Act 1970, with which I am sure everybody in the House will be familiar, would apply. It is not clear, however, that it does apply. It is possible that the specific provision of paragraph 18 of Schedule 3 would have the effect of overriding the more generous rules in Section 273 of the 1970 Act.

All I want to do in the amendment is to clarify the fact that it applies. I was hoping that this was such a simple, little, specific amendment that the Financial Secretary would say that it was welcome and that he would accept it.

Dr. Gilbert

I followed as best I could the learned remarks of the right hon. Member for Crosby (Mr. Page) through the very helpful commentary of my hon. Friend the Member for Gloucestershire, West (Mr. Loughlin). All I would say at the moment is that I am grateful that the right hon. Gentleman appreciates the thrust of Amendment No. 87 and that he welcomes it as a step towards what the Opposition were seeking to achieve in Committee.

I think we could agree on both sides of the House that the whole question of inter-corporate liability for taxation on capital gains is an extremely complex one. As I understand it, the provisions of the law are already adequate and the Bill in its present form does not hinder internal reorganisations as between companies.

However, possibly it will be as well if we can leave it at this. As the right hon. Gentleman will be aware, there is a working party already in existence consisting of representatives from the various accountancy bodies, the Confederation of British Industry and the Association of British Chambers of Commerce which is looking into this whole complex of technical questions concerning capital gains tax in groups of companies. We will be looking at the recommendations of that working party in due course and, in the light of those recommendations, will wish to consider whether further amendments to existing legislation, or even to the Bill, should be brought forward. I do not think that there is any prospect of any legislation being brought forward before the 1975 Finance Bill at the earliest.

Mr. Norman Lamont

I am listening to the hon. Gentleman with great interest. Am I not right in saying that on the first letting charge there is an exemption of a parallel kind to that suggested by my right hon. Friend for Crosby (Mr. Page), which is lettings within a group of companies? Why cannot those principles of exemptions be translated to company reconstructions where a development gain would accrue? I cannot see why they are not parallel situations.

Dr. Gilbert

The hon. Member is right. There is a roughly parallel provision under the first letting charge proposals. However, at this stage we would not wish to change the development gains situation until we have had a chance to see how it operates in practice and until we have the report of the working party. As I have said, I would not wish to lead the House into thinking that there was a commitment to legislate in the 1975 Finance Bill, but as soon as the working party has reported I think that it will be generally agreed that we could make progress.

Amendment agreed to.

Dr. Gilbert

I beg to move Amendment No. 154, in page 61A, line 45, at end insert: 'arising for general annuity business and'.

Mr. Deputy Speaker (Mr. George Thomas)

With this we are to take Government Amendments Nos. 149 to 152 and Nos. 155 to 158.

Dr. Gilbert

These are Government amendments which give effect to the Government's decision to exempt life insur

'Computation of development gain in respect of disposal of interest in land with planning permission for the winning and working of minerals

23.—(1) Without prejudice to any other provisions of this Schedule as to the computation of the amount given by subsection (3)(c) of the principal section, this paragraph shall apply in relation to a disposal of an interest in land to which the principal section applies if at the time of the disposal there is in force, as regards the land or any part of it, planning permission authorising material development consisting of the winning and working of minerals.

(2) For the purpose of computing the amount given by subsection (3)(c) of the principal section, the amount of the chargeable gain accruing on the disposal shall be taken to be what it would be if the amount which, in the computation of that chargeable gain, falls to be taken as the consideration were reduced to the sum of the following amounts, that is to say—

(a) the market value of the interest at the time of the disposal calculated on the assumption that it was at that time, and would continue to be, unlawful to carry out any material development of the land consisting of the winning and working of minerals; and

(b) one-half of the amount by which the actual consideration for the disposal exceeds the said market value.

In this sub-paragraph "the actual consideration for the disposal" means the amount which, in the computation (apart from this paragraph) of the chargeable gain accruing on the disposal, falls to be taken as the consideration.

(3) Sub-paragraph (3) of paragraph 1 of this Schedule shall apply for the purposes of this paragraph as it applies for the purposes of paragraph 1; and in this paragraph "minerals" has the meaning given by paragraph 10(1) of this Schedule.

(4) For the purposes of this paragraph the winning and working of minerals includes the carrying out of any ancillary operations requisite therefor.'

Mr. Deputy Speaker

With this we are to take the following amendments to the Government amendment No. 243—

(a), in line 5, leave out from beginning to 'this' in line 7.

(b), in line 8, at end add: 'or the carrying out of ancilliary operations requisite thereto'.

(c), in line 13, leave out sub-paragraphs (2) and (3) and insert: '(2) Where the principal section applies in relation to the disposal of an interest in land the development gain accruing on the disposal shall be reduced to one-half of the amount calculated, in accordance with subsection (3) of the principal section'.

Dr. Gilbert

We are now discussing a Government amendment and an amendment thereto in the name of the official

ance companies from the charge for development gains tax in respect of their pension business. This relief will correspond with the exemption granted in respect of gains made by self-administered pension funds. I commend the amendments to the House.

Amendment agreed to.

Dr. Gilbert

I beg to move Amendment No. 243, in page 61B, line 5, at end insert:

Opposition as well as two amendments to the Government amendment in the name of the right hon. Member for Crosby (Mr. Page).

The purpose of the Government amendment is to limit the development gains charge in the case of a disposal of land with mineral rights if at the time of disposal planning permission is in force to win and work the minerals. Our amendment provides, in effect, that one-half only of the development gain attributable to the mineral rights is to be taxed as income.

I am advised that the official Opposition amendment is unnecessary in that its effect is subsumed by the Government amendment, which I hope will be welcome to the hon. Member for Worthing (Mr. Higgins) who I understand is to reply to the debate.

The proposals of the right hon. Member for Crosby go considerably wider and would exempt a situation where the land is sold with planning permission for mineral development and could also have been sold for an alternative use—for example, housing—at a price in excess of its current use value.

As I understand the right hon. Gentleman's amendments, where there is a parcel of land which has attached to it a gain part of which can be attributable to the mineral rights and part of which can be attributable to some other use—as, for example, where one has been digging a certain sort of clay and subsequently the site, when it has been cleared, is used for housing development—the effect of the amendments would be to extend the relief to the entire development gain, whereas the effect of our amendment would be to restrict the relief to that slice of the gain that was applicable to the development of the mineral rights.

Our amendment originated from some remarks made by my hon. Friend the Chief Secretary in Standing Committee, and, in our view, that is as far as we should go in those circumstances. The right hon. Gentleman's amendments would merely increase the distortions which would be involved.

Mr. Higgins

I should like to say a word about sub-amendment (b). The Financial Secretary said that this point is covered by the clause. I wonder whether he would spell it out a little more clearly so that we can be sure that that is, in fact, the case.

Very often a site of this kind may be for a proposed mine and it may belong to several landowners. As the Government amendment stands, my impression is that only the landowner who owns the area on which the shaft of the excavation of the intended mine is likely to be sited will enjoy the reduction, whereas the person who owns an immediately adjoining piece of land for the site of the winding gear or the engine house or something of that sort will not.

Having looked quickly through the Government amendment in the light of what the Financial Secretary has said, I am not entirely clear whether that point is covered. He says it is, but obviously we want to be certain. Therefore, I shall be obliged if he will spell out precisely how it is that in cases of multiple ownership of the entire site the relief extends to all the landowners who happen to have an interest.

Dr. Gilbert

It may help the hon. Gentleman if he were to cast his eye on sub-paragraph (4) of the amendment which was placed on the Paper recently and was intended to meet the point made by the hon. Gentleman.

Mr. Graham Page

I do not see why I should be regarded as such a villain and a rogue for putting down my amendments which are intended to exempt mineral owners from paying the full development gain in cases which the Financial Secretary suggested. As I understand it, the Government Amendment is intended to carry out the undertaking given in Committee for the 50 per cent. reduction of the development gain on the sale of mineral rights. I thought the development gain in such a case would be calculated in the same way as one calculates any other gain, as in Clause 33(3) where there are three different ways of calculating the gain. In the Government Amendment it applies only where the development gain is calculated under Clause 33(3)(c). It does not allow for the calculation under subsection (3)(a) or (b).

It was the intention of my amendments to include within the 50 per cent. reduction the calculation of the gain under those other heads. I do not know whether the suggestion is that, by doing that, I have flung the door wide open. I do not see that I have done anything of the kind. I have merely left it to the discretion of those who have to calculate the development gain to use any of the three systems of calculation.

11.45 p.m.

Dr. Gilbert

This is one of those oocasions on which I shall require some inspiration from on high before I am able to deal adequately with the Point which the right hon. Member for Crosby (Mr. Page) has raised. Again, it seems to me, this is one of the occasions when, even unconciously and ingenuously—I emphasise that I do not say disingenuously—the right hon. Gentleman, turning his mind to the construction of an amendment, has allowed generosity to flow from his pen to an extent greater than he had, in fact, expected.

I am informed that the effect of the right hon. Gentleman's amendments would be, first, that a vendor offered the same price for his land by a builder, on the one hand, and by somebody who wanted to set up a mineral enterprise, on the other, would be bound to prefer the offer of the mineral enterprise. I recognise that that distortion will to some extent exist under our proposal, but the effect of the right hon. Gentleman's amendment would be to make this inducement even greater than it is under the Government amendment.

It might take some time if I were to take the right hon. Gentleman's amendment line by line. I have a lengthy brief on the subject—

Mr. Higgins

I bet you have.

Dr. Gilbert

I feel that I should rest on the advice that I have given, that the effect of the right hon. Gentleman's amendment would be to exempt a considerable amount of development from the development gains charge even if there were only a peripheral gain associated with the mineral rights.

I m advised that the right hon. Gentleman is quite right in saying that the effect of our amendment is to bring in only the third of the three tests. The reason is that it was not possible to bring in the other two tests in paragraphs 33(3)(a) and (b) without halving the whole of the development gain rather than just the mineral element. I hope that the right hon. Gentleman is satisfied with that clarification, as far as it goes.

Amendment agreed to.