HC Deb 12 July 1989 vol 156 cc1066-8 9.15 pm
Mr. Allan Stewart (Eastwood)

I beg to move amendment No. 106, in page 237, line 5, at end insert— `(c) For the purposes of this section, use and occupation of any property by a Scottish partnership shall, notwithstanding section 4(2) of the Partnership Act 1890, be treated as use and occupation of it by partners'. The amendment has been proposed by the Institute of Chartered Accountants of Scotland to which I am an adviser. It is a technical amendment and its purpose will be fairly evident to my hon. Friends.

In the Finance Bill as it stands the holdover relief, which is intended to be availabe to individuals and trustees on the gift of business assets, will be denied to members of Scottish partnerships. In law, under the Partnership Act 1890, the Scottish partnership, unlike an English partnership, is a separate legal person. The amendment will, therefore, ensure that members of a Scottish partnership receive identical treatment to other partners and that the transfer of business property of a partnership by way of gift can benefit from the capital gain being deferred. It does not change the purpose of schedule 14. The problem arises from the 1890 Act. I hope that my amendment will receive a sympathetic response from my right hon. Friend.

Mr. Norman Lamont

The amendment seeks to preserve capital gains tax gifts relief for business assets used in Scottish partnerships. I am advised that I am able to reassure my hon. Friend that his amendment is unnecessary. Although in partnership law a Scottish partnership is treated as an independent entity, for capital gains tax purposes it is transparent. That follows from specific provisions in section 60 of the Capital Gains Tax Act 1979.

Accordingly, gifts relief, like retirement relief, will be available to partners on gifts of business assets used in a Scottish partnership in exactly the same way as for partners in an English partnership.

I shall, of course, study what my hon. Friend has said. If anything causes me to re-examine the advice given to me I shall do so. I am, however, advised as I have told my hon. Friend.

Mr. Stewart

I am extremely grateful to my right hon. Friend for that reassurance. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Michael Colvin (Romsey and Waterside)

I beg to move amendment No. 104, in page 237, leave out lines 14 to 18.

The amendment effectively removes the definition of a holding company, a trading company and a trading group. My purpose is to offer the House the opportunity to debate the implications of the Chancellor's proposals in the Bill on capital gains tax holdover relief. At this late hour I doubt that that invitation will receive many takers.

Holdover relief means the postponement of capital gains tax until such time as assets are sold. It was rightly introduced by the Government to avoid double capital taxation through capital transfer tax and capital gains tax and to encourage the creation of wealth. It has worked extremely well.

In 1986, however, the Chancellor abolished capital transfer tax on lifetime gifts and introduced inheritance tax instead to encourage lifetime giving or the passing of one's assets to the next generation. That was a welcome move.

Now the Government seem to be reimposing a tax on lifetime giving as clause 124 repeals the general holdover relief for gifts or disposals made after 14 March 1989, although it retains it for gifts of business, farm and heritage assets; and, of course, gifts between husband and wife will continue to be exempt. The issue was given an airing in Standing Committee and is recorded in column 456 of the Official Report. The Government have now brought forward their amendment to allow capital gains tax gifts roll-over relief to be retained for agricultural landlords qualifying for agricultural property relief at 30 per cent. Therefore, my right hon. Friend the Chancellor has demonstrated his willingness to consider specific categories of investor. I believe that 51 per cent. family-owned trading companies also join the list of exemptions.

I argue that the Chancellor's list of exemptions is too narrow, but, more important, the arbitrary nature of the holdover reliefs that are left in place is contrary to the declared strategy of our party on taxation. I note that Butterworth's Handbook says: The restriction of hold-over relief will have a profound effect on estate planning, for it will mean gifts of assets with substantial accrued gains are unattractive. Unless the gift is one of those limited categories where hold-over relief is still available, it will carry the risk that both CGT and IHT will he payable. I do not know how much revenue the Budget proposal on this issue is likely to raise. I believe that £40 million was mentioned, but perhaps my right hon. Friend the Financial Secretary will enlighten us when he replies.

With the leave of the House, it is my intention to withdraw my amendment if I can prise out of my right hon. Friend an undertaking to receive representations from individuals and companies, particularly close companies on which the proposal is harsh, and to monitor most closely the effect of his measures so that in next year's Budget the list of exemptions can be widened so as not to deter the creation and retention of wealth.

In essence, the Finance Bill restores the position on capital taxes relief on transfers which existed in the last year of the last Labour Government. A Conservative Finance Act should move away from Socialist measures, not return to them.

Dr. Marek

If the Act restores the position which existed in 1979, the Opposition would say that it was probably a far fairer and more sensible measure. However, we do not want to argue at this stage. Will the Financial Secretary give an estimate of the cost to the Treasury that would be incurred if the amendment was accepted?

Mr. Norman Lamont

I cannot give an estimate of the cost because I am not precisely clear what the amendment is meant to do. It does not have the effect that my hon. Friend the Member for Romsey and Waterside (Mr. Colvin) described.

We have abolished holdover relief because there is no longer a danger of the double charge. As my hon. Friend said, some types of assets still receive holdover relief. I think that he was arguing that that category should be widened. I am prepared, without commitment, to listen to any representations made on that subject.

Mr. Colvin

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 58, in page 239, line 31, after 'sub-paragraph (2),' insert `the words "at the rate of 50 per cent." shall be omitted, and'. No. 59, in page 240, line 24, after 'sub-paragraph (2),' insert `the words "at the rate of 50 per cent." shall be omitted, and'. No. 60, in page 241, line 2, leave out `at the rate of 50 per cent.'.

No. 61, in page 241, line 13, leave out `(a)'.

No. 62, in page 241, line 17, leave out '(b)' and insert `either— (a)'.

No. 63, in page 241, line 18, leave out '5' and insert '25'.

No. 64, in page 241, line 20, at end insert 'or (b) the transferor is an individual and, at any time within that period, the company is his family company.'.

No. 65, in page 241, line 36, leave out 'a chargeable gain would accrue' and insert a 'gain accruing'.

No. 66, in page 241, line 38, at end add `would be a chargeable gain'.

No. 67, in page 242, line 38, at end insert— '(cc) by virtue of subsection (4) of section 71 of that Act (accumulation and maintenance trusts) does not constitute an occasion on which inheritance tax is chargeable under that section,'.

No. 68, in page 245, line 15, leave out from beginning to end of line 20.—[Mr. Lilley.]

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