OPTIONS TO ACQUIRE INTERESTS IN LAND ETC. (Hansard, 24 June 1976)

§ Mr. Ian Stewart (Hitchin)
I beg to move Amendment No. 26, in page 11, line 27, at end insert— '(2) The development value realised by the grant of an option shall not exceed the development value that would have been realised on a disposal at the time of the grant of the option of the interest in land in respect of which the option was granted for a consideration equal to the aggregate of—
(a) the consideration, if any, given for the grant of the option; and

(b) the price payable for the interest in pursuance of the option.'.
I move the amendment in the regrettable absence of my hon. Friend the Member for Melton (Mr. Latham), who is indisposed. My hon. Friend raised the general question of options in Committee. As the Minister of State admitted at the time, options present certain problems and complications within the context of this legislation, as in other legislation.
In Committee my hon. Friend asked whether the Minister of State would be good enough to reconsider his comments on options between Committee and Report and to outline his reflections on the matter. That is what I ask him to do at this stage.

§ Mr. Denzil Davies
The amendment seeks to provide that on the grant of an option the development value realised shall not exceed that which arose on disposal at the time of the grant of the option and the interest subject to it. We debated this matter at some length in Committee when I got into a few tangles on options—

§ Mr. Graham Page
We all did.

§ Mr. Davies
Yes, as the right hon. Gentleman says, we all did.
I tried to explain, as the amendment indicates, that the disposal of an option 1857 is the disposal of an asset in itself. If it has development value—that depends on the price paid for the land subject to the option—the option is treated as having development value under the Bill. If that is the case, in principle development land tax is charged on the disposal of the option, subject to its having development value.
It was argued in Committee that we should bring the two factors together and not charge tax until there had been disposal of the land. In practice, that is what would happen. The Revenue would wait, as under the capital gains tax provisions, to ascertain whether the option was exercised. The principle of the Bill has to remain, because if the option is abandoned—this is the point that the amendment does not meet or deal with—and it is an option to buy land having development value, there is no reason for the option not being charged to tax because it is profit to the individual. The option has not been created in the sense that a base value has been provided for it.
For that reason we feel that the option should in principle be taxed, although in practice it would not be taxed unless it were an artificial option. I gave such an example in Committee—namely, an option of £500,000 to buy land for £1. However, the normal commercial option is not taxed until disposal of the land. If an option is abandoned and it has development value, tax will apply. That is the situation which the amendment does not take into account, and that is why we split the two factors in the Bill. For that reason I cannot accept the amendment.

§ Mr. Ian Stewart
I am grateful for the Minister's comments. He has somewhat elaborated his comments in Committee. We feel that there are still some difficulties about the interpretation of options within this measure. When an option is abandoned, the case has not really been fully made out for there being a separate interest of land on which development land tax is potentially payable. However, with the benefit of the Minister's explanation, I beg to ask leave to withdraw the amendment.

§ Mr. Ian Stewart
I beg to move Amendment No. 245, in page 12, line 38, at end insert: 1858 '(8) This section shall not apply in relation to options granted for a lease solely relating to the carrying out of material development consisting of the winning or working of minerals.' In effect, the amendment provides an additional paragraph to the clause, which covers the difficult topic of options. It has been represented to us that it would not be proper for an option granted in the circumstances described—namely, for a lease solely related to the winning or working of minerals—to be treated as a part disposal.
It must be emphasised that we are dealing with a situation in which the lease would relate solely to the purpose of carrying out the winning and working of minerals and that the development value would not come about at that time or as a result of the lease itself, as that would depend on the planning permission having originally been granted for working minerals and would not be related to the lease or the option applying to it.

§ Mr. Denzil Davies
I take it that the hon. Gentleman is concerned with a lease that is granted for mineral development within the definition of section 29 of the Finance Act 1970. He seemed to be indicating that the lease itself would not be within the charge to development land tax. If he is saying that in view of that the option for the lease should also not be within the charge—I take it that this is what the amendment is seeking—I must say that I have some sympathy with the amendment. If the lease is not within the development land charge—that is the grant of the lease—it is arguable that there is not much point in bringing the option within the charge. In those circumstances I am happy to recommend that we accept the amendment.