RELIEF IN RESPECT OF LOANS TO TRADERS (Hansard, 13 July 1978)

§ Mr. Graham Page
I beg to move amendment no. 182, in page 32, line 29, after 'trade', insert '(other than that of a solicitor)'. I must at once admit an interest, but an interest on behalf of the young entrants to my profession. Clause 41 is welcome in giving relief in respect of loans which 1792 the borrower fails to repay. The relief is specified in subsection (2): If, on a claim by a person who has made a qualifying loan —the lender who has made the loan— the inspector is satisfied that— (a) any oustanding amount of the principal of the loan has become irrecoverable it can become an allowable loss equal to the amount that had accrued to the claimant when the claim was made. The difficulty is the definition of the qualifying loan. That occurs in subsection (1): In this section 'a qualifying loan' means a loan in the case of which— (a) the money lent is used by the borrower wholly for the purposes of a trade carried on by him, not being a trade which consists of or includes the lending of money". I should like to deal with the word "trade". As the clause stands, trade would not include a profession or vocation. A later amendment will alter that, so I am anticipating acceptance of that later amendment, that "trade" will include a profession. Therefore, it would include the profession of a solicitor.
In the solicitors' profession it is normal to accommodate clients with loans in order, for example, to bridge the gap between the purchase of one house and the sale of another. Frequently, solicitors assist clients with short-term loans in that way. It is not a major part of the practice, but it would certainly come within the definition that the trade or profession includes the lending of money.
I put some of these points to the Minister in Committee. I appreciate that those words are necessary for the generality of borrowers. Obviously, a qualifying loan should not be a loan to enable the borrower to relend it or to go into the business of relending it, but if the clause remains unamended it will mean that the young solicitor who may wish to borrow capital to start in practice will not be as sure a borrower as anyone else setting up in trade. If the lender took the trouble to read this legislation, he might say "This is a profession in which money is sometimes lent to clients. Therefore, it includes the lending of money. If this young solicitor should fail and not return the money, I shall not be able to treat this loan as an allowable loss." Therefore, he would 1793 hesitate to lend the young solicitor the money to set up in practice.
I do not want young entrants to my profession to be put in that difficulty. Therefore, I propose this amendment, which would insert after "trade" (other than that of a solicitor)". It is a narrow amendment. It cannot possibly open the floodgates to any avoidance of tax. I am sure that it will be of great assistance to the young in a profession which does not go in for the business of lending money. There can be no cheating of the Inland Revenue, as there might be if we removed the words altogether. I suggest that making this slight exception can do no harm to the Inland Revenue.

§ Mr. Denzil Davies
The right hon. Member for Crosby (Mr. Page) raised this matter in Committee, and he has pursued it on the Floor of the House.
I wrote to the right hon. Gentleman explaining why it was necessary to deny the relief in the clause for money lending in general. I think that he accepted the reasons for that. I understand that he seeks to safeguard the position of a solicitor being thought to be carrying on the trade of lending money. That is where the difference between us lies. As I said in Committee upstairs, I do not believe—indeed, there is authority—that the lending of money by a solicitor in the way described by the right hon. Gentleman is the carrying on of the trade of lending money. There are apparently two tax cases on the books which represent authority for that proposition.
At the end of the day it must be a question of fact, but I should say that most solicitors engaged in lending as an incidental part of their profession are not carrying on the trade of lending money. Indeed, if a solicitor establishes himself as carrying on the trade of lending money—if that is possible for a professional person—I do not see why he should get the relief in the clause. I think that the right hon. Gentleman agrees with that.
The right hon. Gentleman seems to think that the incidental lending of money by solicitors means that they come within the clause, in the sense that their profession includes the lending of money. There is nothing to fear here. It will 1794 be exceptional for it to be said that the profession includes the lending of money when the solicitor is merely lending money incidental to his business. For that reason, I cannot accept special relief in the Bill for this group.

§ Mr. Peter Rees
It has always been a matter of surprise to me that debts, other than debts on a security, have been excluded from capital gains tax, particularly the reliefs for losses under capital gains tax. But there it is, and I should not be in order if I were to widen the debate to raise that matter.
The Opposition were glad to see clause 41 in the Bill. The motives which led the Government to introduce it are perhaps slightly suspect. However, I do not want to reopen the debate that we had yesterday on the reliefs for small businesses.
My right hon. Friend the Member for Crosby (Mr. Page), as one would suspect, made a small but important point. The Minister of State has not entirely satisfied me with his reply. He referred to two cases. I do not think that they establish the point that he endeavoured to make. It is true that a solicitor will not, in other than exceptional circumstances, be regarded as a money lender. The point is that this provision excludes moneys lent to people whose trade consists of or includes the lending of money. As "trade" is to be defined, if the House accepts amendment no. 14 in the name of the Chancellor of the Exchequer, it will include "profession".
I do not believe that any of the cases to which the Minister of State has been referred by his assiduous advisers establish that the profession of a solicitor does not include, even though it is a subsidiary aspect of his profession, the lending of money. My right hon. Friend made a very good point.
I know that the Minister of State is open-minded on these matters. I should not be disposed to encourage my right hon. Friend, if he needs encouragement or discouragement, to press the amendment to a Division. However, I ask the Minister of State to go back to his advisers in the hope that they may be disposed to take advice from one of the Law Officers on the precise scope of clause 41(1)(a). If they feel that there is any merit in this proposition, as I do—I was persuaded by my right hon. 1795 Friend's argument—I hope that the Minister of State, at least informally, will say that he will introduce a remedial measure in the next Finance Bill if he is fortunate or unfortunate enough to be commending it to the House.

§ Mr. Graham Page
I cannot say that I am satisfied with the answer by the Minister of State. I hope that he will look into this matter again to see whether he can allow this very narrow except ion.

§ Mr. Denzil Davies
I beg to move amendment no. 14, in page 32, line 37, at end insert— '(2) In subsection (1) above references to a trade include references to a profession or vocation; and where money lent to a company is lent by it to another company in the same group, being a trading company, that subsection shall apply to the money lent to the first-mentioned company as if it had used it for any purpose for which it is used by the other company while a member of the group.'.

§ Mr. Deputy Speaker
With this we may take Government amendments nos. 15, 16, 17 and 18.

§ Mr. Davies
These amendments are in two groups. Amendments nos. 14, 17 and 18 implement three undertakings which I gave in Committee. Amendment no. 14 extends the scope of a qualifying loan to include money lent to a borrower who uses it for the purposes of a profession or vocation carried on by him. It also extends the clause to include money lent to a company which, in turn, lends it to a trading company in the same group. Amendment no. 17 provides for relief for a member of a group which guarantees a loan made to a trading member of the same group by a person who is not a member of that group. Amendment no. 18 gives the necessary definition of a trading company. These three amendments meet commitments which I made in Committee.
Amendments nos. 15 and 16 deal with points raised in Committee by the hon. Member for Hitchin (Mr. Stewart). He asked whether the relief was due for a guaranteed payment in respect of the irrecoverable amount of a debt and a security. Amendment no. 15 achieves that result by including a debt and a 1796 security for a qualifying loan for the purposes of relief for guaranteed payments. The hon. Member also argued that relief should be given for guaranteed payments in respect of irrecoverable interest as well as for the principal of the loan. I accepted that argument in Committee, and amendment no. 16 fulfils the undertaking that I then gave.

§ Mr. Graham Page
My hon. Friend the Member for Hitchin (Mr. Stewart) has asked me to apologise for his not being present. He is engaged on other parliamentary business in the precincts of the Chamber. On his behalf, I thank the Minister in particular for introducing amendments nos. 14, 15 and 16 for which my hon. Friend pressed.
My hon. Friends and I were eager that these amendments should be made. We are grateful that they have been redrafted. Last night I began to count the score of goals. We have scored another five in this group of amendments. We are grateful for the concessions.

§ Mr. Deputy Speaker
The right hon. Member for Crosby (Mr. Page) will be playing in the World Cup football match when next it is played.