DEVELOPMENT LAND TAX (Hansard, 25 July 1977)

§ Mr. Ian Stewart
I welcome this amendment, which has been put down in response to amendments moved by the Opposition in Committee in relation to the Government's earlier proposals to get round the anomaly which appeared in the development land tax legislation. We feel that this Government amendment has gone all or most of the way to meet the major problems which emerged from our debate on the taxation of a part disposal of a pre-let development.
Comments have already begun to come in since the tabling of the amendment, and I wish to raise one or two points in the hope that the Minister of State will take them into account and either comment now or consider their implications in relation to the working of this new provision.
First, is there not a problem in a case where the ceiling value introduced by the amendment represents the value of the whole of the landlord's interest, while the letting is a disposal of only part of the interest, since in that case there would be a comparison not of like with like? In practice, where the lease is a long lease there would probably be no difficulty, but in the case of a short lease or one for a relatively short period the anomaly of the pre-letting situation might continue.
It has been suggested that a way of dealing with this would be to apply the formula which is already to be found in Part II of Schedule 2 to the Development Land Tax Act—that is, PD over PD plus MR—to the calculation of the ceiling as well as in the original calculation. That is a very technical point but I am sure that it will not be lost on the Minister of State.
I take next the problem of the basis of valuation. It has been put to us that it would be most unfortunate if the valuation for calculating the ceiling produced an enhanced figure by virtue of knowledge of the pre-letting arrangement at the time. As the clause stands with this amendment, the valuation would have to include, or might include, an element which represented the increased development value arising from the knowledge of the pre-letting itself. Obviously, this would be inequitable because some developments are started after their pre- 224 letting and others are not, and the tax consequences of the two would differ.
I suggest that in that case it should be normal form when determining the ceiling value which would apply that no pre-letting would be assumed to have been arranged at the date of the deemed disposal.
My next point also is about valuation, and it concerns the question which we raised in Committee regarding the problem of pre-sold developments as opposed to pre-letting. I have had a letter from the Minister of State, dated 14th July, which is so important for those who are interested in this matter that I shall quote from it. The hon. Gentleman mentions the example of a builder disposing of an interest in land to a purchaser and undertaking to bear the cost of putting a house on that land for an overall price covering both the land and the building. He says: For DLT purposes the date of the disposal of an interest in land is the date of the contract, and we thus have to look at what interest the builder had at that time. In the example I have given, it is an interest in the bare land. On the other hand, the consideration he receives is not wholly consideration for that interest; part of it is for puttng up the house in the future. The composite consideration must therefore be apportioned under Section 4(5) of the Development Land Tax between that part attributable to the interest the builder is disposing of under the contract and that attributable to the work that remains to be done. That being so, I think it right to tell you that the Government do not see any need to put an amendment down to what is now Clause 47 to deal with the pre-sale arrangements. I accept entirely what the Minister has said about that, but it is a matter of concern outside the House, and I hope that he will be able to confirm that he still has no anxiety that that is the correct position.
1.0 a.m.
A final point about the valuation could arise if the developer acquired land for, say, £100,000 which at that time was the full market value of the land with the benefit of planning permission. If he were to spend, say, £1 million on constructing a building, he might, before the building work was completed, enter into an agreement for the sale of the completed development at a much higher cost —say, £1½ million. In those circumstances, the developer would naturally 225 argue under Clause 4(5) that the consideration of £1½ million should be apportioned as to £100,000 for the land and the balance of £1.4 million for the cost of the building, interest and profit. But the Development Land Tax Office might argue that a different apportionment should be made on the basis of £1 million for the building work. In that case, the figure for the land would be £500,000 instead of £100,000. That would give rise to quite a substantial tax charge.
The difficulty could apply, in the case, not of a sale and lease-back, but of a lease and lease-back, because this is often the way in which such matters are financed by local authorities. If a local authority wanted to carry out a development, it might well grant a lease to a financing institution such as a pension fund, which would be followed by a lease-back to the local authority for the building and development. In those circumstances, the parties to the contract would perhaps intend that the exchange of both documents should be regarded as simultaneous and the sale of the lease in the first instance before entry into the second part of the lease could produce a high and unreal market value.
Because there are anxieties of this sort about the valuations which may arise under this system, I ask the Minister to take into account that, although clearly Clause 47 and the amendment go all or most of the way to meeting the problem, there is still anxiety about the way in which the valuation provisions may be operated. There is need for the Treasury or the Development Land Tax Office to make clear the basis on which they intend to operate the tax in such cases and perhaps issue guidance notes because in the first instance it will be district valuers who will be making assessments to tax and the taxpayers will have only a right to appeal.
I hope that I shall be permitted to welcome Amendment No. 74 and the underlying clause which we have achieved from the Government.

§ Mr. Denzil Davies
I am sure that the House and the hon. Member for Hitchin (Mr. Stewart) would not wish me to go into the details of PD over PD plus MR, but a number of the points which the 226 hon. Gentleman made have been made by the Royal Institution of Chartered Surveyors in a representation to us. There is a satisfactory answer to them and perhaps I can write to the hon. Gentleman on them. I think and hope that he will be satisfied when he receives my letter.

§ Mr. Graham Page
It is not very satisfactory for the Minister of State to say simply that he will write to my hon. Friend the Member for Hitchin (Mr. Stewart)—or even also to me. We have had considerable representations which show that the clause is not fully understood, and it cannot be understood without the Minister giving a reasonable explanation. It may be understood by my hon. Friend and myself, as well as by one or two other hon. Members sitting in the House, but I would have thought that something ought to be put on the record by the Minister of State. If not, will he give an assurance that very full guidance will go out? Not only surveyors are concerned. We have also had representations from property owners who are not professionals in this business. They need an explanation.
I shall take the Minister's assurance that he has covered all the points raised by my hon. Friend, but I want that assurance to go out to the public in some form. If it is too late tonight to put it on the record in Hansard let us have a promise that there will be guidance to those who deal in property.