HC Deb 13 July 1976 vol 915 cc579-87

"Section 488 of the Income and Corporation Taxes Act 1970 shall be amended in respect of any gain realised after 1st August 1976 by inserting in subsection 14 after '1969' the words 'and where the person chargeable under this section realises the gain after 1st August 1976, the amount (if any) of any development land tax payable in respect of the disposal of the land shall be deducted in determining the tax chargeable on that gain under this section but if the amount of the development land tax payable exceeds the tax chargeable under this section the excess shall not be repaid'."—[Mr. Ian Stewart.]

Bought up, and read the First time.

Mr. Ian Stewart (Hitchin)

I beg to move, That the clause be read a Second time.

The purpose of the clause is to resolve one of the loose ends from our discussion of the Development Land Tax Bill. We have run this race before, although over a different course, and I shall not repeat the arguments in detail.

Section 488 of the Income and Corporation Taxes Act 1970 is an anti-avoidance measure designed to catch what the Inland Revenue might regard as a trading transaction even though it was presented in the form of a capital transaction. Section 488(1) says: This section is enacted to prevent the avoidance of tax by persons concerned with land or the development of land. It can relate to land or property direct or to an indirect interest such as shares in a land-owning company.

The problem that concerns us relates to a direct interest in land. We have development land tax of 80 per cent. with a useful, but only temporary concession of a 66⅔ per cent. rate up to £150,000. The rate is due to rise eventually to 100 per cent. and the danger of the Inland Revenue of taxpayers getting away with a 30 per cent. rate of capital gains tax seems to have largely disappeared.

A specific allowance should be made to provide against the possible double charge of development land tax. Otherwise, a personal tax rate of 83 per cent. combined with a development land tax rate of 80 per cent. or 100 per cent. could produce a horrendous rate of 163 per cent. or even 183 per cent. This may be regarded as unlikely to happen in practice, but it is clearly a possibility.

I recognise the difficulty of including a precise provision of the sort we should like in the Development Land Bill. The appropriate Schedule could not be easily amended in the appropriate way.

In Committee, the Minister recognised the problem, but declined to accept an amendment on the ground that Section 488(6) provided that the method of computing the gain should be just and reasonable in the circumstances. He said: There is no problem… I should have thought the taxpayer has plenty of protection in the provisions of subsection (6) of Section 488."—[Official Report, Standing Committee J, 13th May 1976; c. 1224.] After we had both had a weekend to consider the matter further, it was raised in the "clause stand part" debate, and the Minister said: I am bound to say that there is a slight problem here. The argument I adduced in Committee was that, because of the 'just and reasonable' apportionment in Section 488, the DLT paid would be taken into account in computing Section 488 tax. Indeed, that would override the provision in the clause that generally there shall be no deduction from other taxes in respect of DLT. Section 488 talks specifically about computing on the basis of what is just and reasonable. I recognise that there is some difficulty here. It will probably work out all right in practice, but it is not entirely clear from the words of the two sections that this result would strictly be achieved."—[Official Report, Standing Committee J, 18th May 1976; c. 1282.] Section 488(6) says— For the purposes of this section such method of computing a gain shall be adopted as is just and reasonable in the circumstances, taking into account the value of what is obtained for disposing of the land, and allowing only such expenses as are attributable to the land disposed of, and in applying this subsection—… (b) account may be taken of the adjustments to be made in computing such profits or gains under subsections (2), (3) and (4) of section 142 of this Act (allowance for tax on premiums on leases). 2.30 a.m.

Here are two specific instructions about the computation of tax under Section 488(6), the first allowing only such expenses as are attributable to the land disposed of. That is clearly not a reference to tax on disposal, as development land tax legislation and other tax legislation makes clear.

There is a reference to one type of tax which may be taken into account, but that is tax on income. That is here specified, so the presumption is that other taxes should not be taken into account in such computation. I wonder whether, if with reference to Section 488, there was a charge to development land tax and it went to appeal, the taxpayer would have a watertight defence in every case against a Section 488 assessment.

This could easily be remedied at no cost to the Exchequer and I call on the Minister to put the matter beyond doubt. It would cost the Revenue nothing, and would remove the dangers, remote though they are

Mr. Denzil Davies

When I saw that this new clause had been selected I was delighted, because our debates late at night would never be complete without some reference to development land tax. I can give the hon. Member for Hitchin (Mr. Stewart) the assurance I thought I had given him in a letter to try to clear up the difficulties that arose in Committee. Those were created by my bad use of the words "deduction of tax".

The hon. Member was right in pointing out that under development land tax provisions other taxes are not allowed to be deducted and that double taxation relief is given not in the way it is in part I of Schedule 6. There is no deduction. Relief is given not by deducting the actual tax but by taking the amount of the tax computed out of the liability. I shall repeat what I said in my letter. The aim is to achieve—and this will be achieved—what part I of Schedule 6 secures in all other situations. It will be achieved because of the "just and reasonable" words in Section 488(6) of the Income and Corporation Taxes Act 1970.

It would not be just and reasonable to impose double taxation, and a computation under Section 488 will exclude development land tax liability. There will be no double charge. The charge under Section 488 will be merely a charge under that section, and development land tax will not be charged on the same transaction because it would not be just and reasonable to charge two taxes on one transaction. So there is no possibility of the Inland Revenue raising the kind of assessment which the hon. Member fears. If that assessment were raised, the Commissioners, there would be little doubt, would hold that it was not just and reasonable to charge two lots of tax.

I see the hon. and learned Member for Dover and Deal (Mr. Rees) moving in his seat, but not quite rising, but I assure him that that is the position, and again I give him the assurance that there will be no double taxation, because of the "just and reasonable" provision of Section 488(6).

Mr. Peter Rees

The Minister is quite right; I did move uneasily in my seat, because the assurances of a Minister carry no weight in courts of law. They are called upon to construe the legislation that we hand down, however imperfectly, from this House. They are not entitled to take any account of what is said here. It may be that on a side wind, a skilful advocate can sometimes bring in the course of our debates, but what is said here has no significance in a court of law.

Perhaps the Minister of State will allow me to uncover my worries to him. He says—and one recognises his aptitude in this—that there is provision in Section 488 that the measure of liability is to be computed on a basis that is just and reasonable, but he will recognise that that provision long ante-dated development land tax and capital gains tax, so it could well be that a court, called upon to consider a position in which there was a possible interaction and overlap between the two taxes, would come to the conclusion that the draftsman of Section 488 could not possibly have had in mind the development land tax, because it had not even been conceived; neither had its predecessor, the development gains tax. It would be quite reasonable for the court to come to the conclusion that the draftsman could not possibly have had the fact in his mind that there would he an overlap of taxes.

Beyond that, I remind the Minister that it is very unusual—I cannot call to mind any case in recent years—for there to be in such a roundabout way the provision for deduction of one tax in the computation of another. I cannot think of any recent situation in which a tax imposed by Parliament has been counted as a deductible expense in a computation of liability.

However well intentioned the Minister may be—and I recognise that he has the glimmerings of sympathy for the taxpayer—it is his duty to rationalise our irrational tax system. His words, however well thought out and carefully constructed, will not give must comfort to anyone outside this House who has knowledge of these matters.

The Minister of State could admit that there is a genuine worry here and tell us that he is prepared to accept the amendment devised by my hon. Friend. That would be a far better way of approaching the problem. The Minister of State may find technical defects in the amendment —that is a habit of Government. If so, we must rest content with his assurances for the next 12 months, and hope that he will assure us that in next year's Finance Bill a properly constructed clause will be introduced to put beyond doubt this fear that we feel.

Mr. Graham Page

We must press this matter a little further. The Opposition's Gemini of the Development Land Tax Bill, although it has moved up a couple of Benches, still has the tenacity it had during discussions on that Bill. The Minister of State will remember that when this matter was first discussed he expressed the view that the "just and reasonable" provision gave a remedy here. But on the second occasion, he had his doubts.

It may be that the court will have doubts also. I have no doubt that Section 488 does not specifically deal with this problem, or solve it. It does not deal with development land tax, and if one assumes that this tax came in 16 years after Section 488 was drafted, one still cannot read it into that section and get the remedy that we require by this new clause.

The Minister relies on the fact that it would not be just and reasonable to charge double taxation, but if the section gives no other relief, it means that the unfortunate taxpayer having suffered a wrong assessment—a double assessment—must go to court and prove that it is just and reasonable that he should have it amended.

No harm whatever can be done to the Exchequer by including the new clause. We are not asking for relief from taxation; we are merely asking for the matter to be put beyond doubt. It is in doubt now. It was shown to be in doubt during the Committee stage, when the Minister changed his mind over the weekend. At one moment he said that it was quite all right. After the weekend he said: I recognise that there is some difficulty here. It will probably work out all right in practice, but it is not entirely clear from the words of the two sections that the result would strictly be achieved. I accept that that is not an entirely satisfactory situation, and I shall certainly look at that point again."—[Official Report, Standing Committee J, 18th May 1976, c. 1282.] The Minister has looked at it again. He has changed his mind again. He now thinks that it is satisfactory. If the Minister's mind is changed so frequently over this, this matter may come before a court and we shall not know how it will be decided. There is no harm in putting it beyond doubt now by the inclusion of the new clause.

Sir Geoffrey Howe

Far be it from me to add more than a word or two to the utterances of the promoted, translated, Gemini or genii, but it strikes someone who might almost be described in this context as an outside observer—a man on a kind of Clapham Front Bench—that doubt has passed through the Minister's mind about the adequacy of the provisions of the Bill. It certainly seems to be well founded. We cannot very easily rely on legislation 16 years old to preempt the niceties to which my right hon. Friend referred. If the expressed words contained in the new clause meet the point and place it beyond doubt, or at least go some way towards doing so, would it not be wiser for the Minister to consider accepting something on those lines, rather than leaving it in this state of nebulosity, which is uncharacteristic of his own good nature?

Mr. Denzil Davies

I expressed doubts in Committee and considered the matter again. I discussed it with the Inland Revenue, and I am satisfied that it is the Revenue's view that assessments would not be raised in a case of this kind. The Revenue takes the view that it would not be just and reasonable to impose double taxation on the same transaction. I do not say that my remarks here could influence the courts, but the Revenue is the assessing authority, and as far as I am aware, no one can be brought to the courts for tax liability without an assessment from the Revenue.

The Revenue takes the view that it is not just and reasonable to impose double taxation in a case of this kind, therefore no assessment would be raised. The whole object is to get the kind of interaction relief that is contained in Part I of Schedule 6, and the relief will operate in exactly the same way.

I have been asked why the new clause cannot be accepted. Perhaps I can explain the difficulty. Section 488, as will be realised, does not apply just to disposals of direct interest in land. We are not concerned only with direct interest in land. Section 488 is also concerned with the disposal of shares. The clause, therefore, does not meet the point, because it is directed at the general Section 488 situation and not at the particular situation of a disposal of a direct interest in land.

With the best will in the world, I could not accept the new clause, for that very reason. I am satisfied about it, having discussed the matter with the Revenue, but I shall certainly keep the matter under very close review, and if problems arise I shall ensure that they are put right at the earliest possible opportunity.

Mr. Peter Rees

The very example which has been given demonstrates the kind of difficulty in which the taxpayer may find himself. He is assessed by reference to a sale of shares in a company which holds, or once held, land. It may well be that somewhere down the chain there will be a disposal of land which will give rise to development land tax. The individual will then save tax on the sale of the shares and be met by the objection "There is no question of double tax, because we are charging only on the sale of shares. Someone else to whom you gave the opportunity of making a profit will be subject to tax." There is no conection between the two. The very example that the Minister gives demonstrates the difficulty that can only be solved by a clause of this kind.

2.45 a.m.

Mr. Davies

The hon. and learned Gentleman did not follow our debates very closely on the Development Land Tax Bill Committee, as he was not a member of the Committee, but he will recognise, as the hon. Member for Hitchin (Mr. Stewart) recognised, that we are not concerned with that problem. It is not intended that relief should be given in that situation. We are concerned with the disposal of a direct interest in land when for some reason there would otherwise be a charge both to development land tax and income tax or corporation tax under Section 488. We are not concerned with shares disposed of today and land being disposed of by the company in two years' time. We are concerned merely with the direct disposal of land. In that case I am satisfied that there would not be a double taxation liability.

I recognise the misgivings that have been expressed. We shall keep the matter under close review, and if there appears to be a problem, or if indecision is created, we shall put it right at the earliest possible moment.

Mr. Graham Page

I presume that the Minister will be sending out a circular, pamphlet, leaflet or directions in explanation of the terms of the Finance Bill. Will he include in that document a statement similar to the one he made to the House? It is true that he said that the Inland Revenue would not assess in these cases, but that statement does not get out to the public, whereas a circular does.

Mr. Davies

I shall be happy to do that in whatever may be the best way of doing it. I shall be pleased to issue a circular or a Press release to clear up the point.

Mr. Ian Stewart

I am grateful to the Minister for his explanation. I omitted to refer to his letter, not through lack of courtesy but because it did not seem to say anything different from what he had already intimated to me.

I welcome the Minister's categoric statement that in his view and that of the Inland Revenue an offset will be available for any development land tax paid on a direct charge which might also be potentially caught by Section 488.

It is a completely new interaction of tax, as my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) said. Therefore, it is necessary to give it publicity and make certain that the position is widely understood outside the House. That can be achieved by an explicit statement on the lines of the Minister's statement tonight, included in an explanation from the Inland Revenue, as my right hon. Friend the Member for Crosby (Mr. Page) suggested. With the assurance that this will be done, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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