HC Deb 06 July 2004 vol 423 cc742-54

'(1) Part 4 of the Finance Act 2003 (c. 14) (stamp duty land tax) is amended as follows.

(2) In subsection (3) of section 43 (land transactions), in paragraph (d) (inserted by paragraph 2(b) of Schedule 37 to this Act), after "where" insert "(i)" and at the end insert ", or

(ii) paragraph 15A of Schedule 17A (reduction of rent or term) applies.".

(3) In section 48 (chargeable interests), at the end of subsection (7) (inserted by paragraph 4(2) of that Schedule) insert "and to paragraph 15A of Schedule 17A (reduction of rent or term of lease)".

(4) In section 53 (deemed market value where transaction involves connected company), for subsection (1) substitute—

"(1) This section applies where the purchaser is a company and—

  1. (a) the vendor is connected with the purchaser, or
  2. (b) some or all of the consideration for the transaction consists of the issue or transfer of shares in a company with which the vendor is connected.

(1A) The chargeable consideration for the transaction shall be taken to be not less than—

  1. (a) the market value of the subject-matter of the transaction as at the effective date of the transaction, and
  2. (b) if the acquisition is the grant of a lease at a rent, that rent. ".

(5) In section 79 (registration of land transactions etc), in subsection (2) (transactions to which section does not apply) (as amended by paragraph 7 of Schedule 37 to this Act)—

  1. (a) in paragraph (a) for the words from "by virtue of" to the end substitute "by virtue of—
    1. (iii) section 45 (contract and conveyance: effect of transfer of rights), or
    2. (iv) paragraph 12B of Schedule 17A (assignment of agreement for lease),";
  2. (b) at the end insert—
  3. "(c) under paragraph 12A(2) or 19(3) of Schedule 17A (agreement for lease), or
  4. (d) under paragraph 13 (increase of rent) or 15A (reduction of rent or term) of that Schedule.".

(6) After that subsection insert—

"(2A) Subsection (1), so far as relating to the entry of a notice under section 34 of the Land Registration Act 2002 or section 38 of the Land Registration Act (Northern Ireland) 1970 (notice in respect of interest affecting registered land), does not apply where the land transaction in question is the variation of a lease.".

(7) In subsection (3) of that section, after "The certificate" insert "referred to in subsection (1)".

(8) In Schedule 4 (chargeable consideration), in paragraph 10 (carrying out of works), in sub-paragraph (2A) (inserted by paragraph 9(2) of Schedule 37 to this Act), for the words from the beginning to "completion)," substitute—

"Where by virtue of—

  1. (a) subsection (8) of section 44 (contract and conveyance),
  2. (b) paragraph 12A of Schedule 17A (agreement for lease), or
  3. (c) paragraph 19(3) to (6) of Schedule 17A (missives of let etc in Scotland),
there are two notifiable transactions (the first being the contract or agreement and the second being the transaction effected on completion or, as the case may be, the grant or execution of the lease),".

(9) Subsections (2) to (4) and (8) apply in relation to any transaction of which the effective date is on or after the day on which this Act is passed.

(10) Subsections (5) to (7) apply in relation to any transaction or deemed transaction of which the effective date is on or after 17th March 2004.

(11) In this section "effective date" has the same meaning as in Part 4 of the Finance Act 2003 '.—[Ruth Kelly.]

Brought up, and read the First time.

Ruth Kelly

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

Mr. Deputy Speaker

With this it will be convenient to discuss the following: Government new clause 16—Chargeable consideration.

Government amendments Nos. 160 to 165.

Amendment No. 12, in page 562, line 25 [Schedule 37], at end insert—

'Application of paragraph 14

15A (1) Paragraph 14 does not apply to a lease if the following two conditions are met.

(2) The first condition is that—

  1. (a) no chargeable consideration other than rent has been given by the Purchaser in respect of the grant of the lease; and
  2. (b) no arrangements are in place at the time of the grant of the lease for any chargeable consideration other than rent to be given by the Purchaser in respect of the grant of the lease.

(3) The second condition is that the rent payable under the lease as granted was a market rent at the time of grant disregarding any provisions in the lease that operate to increase the rent payable after the fifth year of the term of the lease to an amount that exceeds the market rent at the review date.

(4) The market rent of a lease at any time is the rent that the lease might reasonably be expected to fetch at that time in the open market.

(5) The review date is a date from which the rent determined as a result of a rent review is payable:'.

Government amendments Nos. 150 to 159.

Government amendments Nos. 166 to 221.

Ruth Kelly

New clause; 15 is the first in a series of Government amendments to the legislation governing stamp duty land tax. Some of the amendments arise from the need to counter known avoidance opportunities, but most are in response to representations made to us since the publication of the Bill.

Mr. Mark Prisk (Hertford and Stortford) (Con)

Do I take it that the Financial Secretary is suggesting that these avoidance schemes were known prior to the publication of the Bill? If that is the case, why were they not included in the original text?

Ruth Kelly

As the hon. Gentleman is well aware, it takes some time to draft legislation. These avoidance opportunities have only recently been made known to us. As I say, most of the amendments are in direct response to representations made to us. Most are relieving measures that I hope the hon. Gentleman will welcome.

I shall deal first with the new clauses, then with the Government amendments in the order of the relevant provisions in the Bill. Finally, I shall deal with Opposition amendment No. 12. As full explanatory notes have been published, I propose to discuss only the more significant provisions.

New clause 15 deals with a number of matters concerning leases. The only change of substance is subsection (4), which concerns leases where the tenant is a company connected with the landlord. Section 53 of the Finance Act 2003 provides that the consideration for such transactions is deemed to be market value rather than the consideration actually given. However, many leases will have only a negligible market value, but there will still be a rent payable. Subsection (4) ensures that the rent is taken into account. That is similar to other "market value" provisions such as those governing exchanges.

New clause 16 concerns the termination of chargeable consideration in two sorts of transaction: first, the transfer of property subject to existing debt; and secondly, the variation of the testamentary disposition, which is not wholly exempt from charge. The more substantive issue concerns transfers subject to a debt.

Our intention in the 2003 Act was that transfers subject to a debt should be treated in the same way under stamp duty land tax as they were under stamp duty. However, inquiries from customers have suggested that the current provisions could benefit from clarification. No change of practice is intended. The examples in the explanatory notes show how the charge will work—the same way in which it worked under stamp duty.

I turn to the Government amendments, of which I shall mention only the most significant. Amendments Nos. 155 to 159 concern relief for charities and amend clause 294. They make it possible for charities to claim partial relief from stamp duty land tax. That issue was raised in Committee of the whole House by the hon. Member for Yeovil (Mr. Laws), and I undertook to consider it. If a charity makes an acquisition but does not intend to hold the entirety of the acquisition for qualifying charitable purposes, the charity will now be eligible for partial relief provided that it intends to hold the majority of the acquisition for qualifying charitable purposes. In such cases, a clawback of a relevant portion of the relief will occur when the charity disposes of that part of the acquisition. This will ensure that the relief granted is in proportion to the share of the acquisition held by the charity in furtherance of its charitable aims.

3.30 pm

I turn now to some of the amendments to schedule 37 of the Bill. Amendment No. 161, introduced in response to representations, extends the circumstances in which overlap relief is available when one lease comes to an end and a new one is granted. Amendments Nos. 162 and 163 extend the circumstances in which the assignment of a lease is treated as the grant of a new lease to the case where the original grant was to a nominee or bare trustee for the lessor. Amendment No. 165 provides for a charge to stamp duty land tax when the lease is varied so as to reduce the rent or the term.

I turn now to the amendments to the partnership provisions in schedule 39. These amendments fulfil commitments that I made in the Committee of the whole House, in which we had an extensive debate on this point. Eighteen of them are required to restrict the charge to land in the United Kingdom. They change the phrase "interest in land", or something similar, to "chargeable interest", or something similar. This is in response to the concerns raised by the hon. Member for Hertford and Stortford (Mr. Prisk) in Committee, and I hope that he will be satisfied with our conclusions.

Amendments Nos. 175 to 182 inclusive amend the charge on transfer of land into a partnership by a partner, an incoming partner, or someone connected with such a person. Our intention is to deal with those situations in which joint owners outside a partnership transfer land into a partnership in which they, or persons connected with them, are partners. An example is when a husband and wife start up a business in partnership, and the business is run from their jointly owned property. The calculation now identifies the smallest proportion of the land transferred that remains owned by a person who both owns the land outside the partnership and is a partner. For example, when parents gift land to a partnership in which the partners are their children, there would be no charge as the children would be connected to their parents. Their ownership outside the partnership would therefore be treated as 100 per cent. There might be occasions on which land is transferred by way of sale rather than by gift. In such cases, any payment will be charged. The charge on the payment is restricted to reflect the proportion of the land that is exempt from the market value charge.

Amendments Nos. 192 to 201 inclusive make a similar restriction to the market value charge on the transfer of land out of a partnership to a partner, former partner, or someone connected with such a person. They also introduce a proportional charge on any payment made to the partnership. As part of this process, amendment No. 200 introduces a further restriction on the charge when land is transferred between partnerships that have at least one partnership in common, or the partnerships are connected through connected persons. There would normally be two charges as one partnership is transferring land to a partner or connected person, and the other partnership is having land transferred to it by a partner or connected person. The amendments restrict those two charges to the single highest charge. However, partnerships of bodies corporate cannot benefit from this treatment unless the connection between the transferor and the transferee is less than 75 per cent. Our intention is that when the connection is 75 per cent. or more, the transferee should claim group relief, as with other transfers between companies in the same group.

Amendment No. 219 provides that partners in a partnership are not to be treated as connected persons solely because of their being partners. Without this amendment, each partner in a partnership would be treated as owning 100 per cent. of the land in the partnership, and the charge on transferring land into and from a partnership would not be effective.

Amendments Nos. 185 to 188 align the requirements of a lease to be treated as a market rent lease more closely with commercial leases, in response to representations made after the publication of the Finance Bill. Market rent leases do not count as partnership property for the purpose of determining market value of land interests. Leases for less than five years only have to be granted at an initial market rent. Longer leases have to have rent reviews to market rent at least once every five years. In either case, there must be no chargeable considerate on other than rent.

Amendments Nos. 202 and 203 address concerns that disadvantaged area relief might not apply to transfers of an interest in a partnership. They also ensure that groups and charities reliefs are available for these transactions. Amendments Nos. 201 and 215 introduce changes to the charge to stamp duty on transfer of an interest in a partnership, in response to concerns expressed by the hon. Member for Hertford and Stortford in Committee. These amendments have the effect of restricting the stamp duty to that which would be payable on the net value of any shares and securities held by the partnership when an interest in a partnership is transferred. Again, this accords with the principles of transparency.

Opposition amendment No. 12 returns to the subject of abnormal rent increases, which we discussed in Committee. At that stage, the hon. Member for Hertford and Stortford sought to remove the provisions in their entirety. In contrast, this amendment would limit their application, but it would do so in a way that would in practice prevent them from ever applying. Although we discussed the need for paragraphs 14 and 15 of schedule 37 at length in Committee, I shall briefly remind the House why the provisions on abnormal rent increases are needed. They are part of the scheme for charging stamp duty land tax on leases with variable rents. The general rule is that changes in rent after the end of year five are ignored. However, an abnormal rent increase—that is, one exceeding an annualised increase of RPI plus 5 per cent.—is treated as the grant of a new lease in consideration of the increased rent.

The rule for leases is intended to minimise the need for additional returns, and means that, in almost all cases, no returns will have to be made after the end of the five-year period. It will also make it difficult for tax avoiders to reduce their liability to tax by arranging for large increases in rent in the future by setting an artificially low rent in the first five years. The amendment would render those provisions ineffective. The result would be that, as long as the parties could arrange for the initial rent to be a market rent, there would be no liability to pay any more stamp duty land tax, regardless of the level of future rent increases. I suggest to the hon. Gentleman that it is easy enough for parties to arrange for a very low rent to be a market rent, by including, for example, onerous covenants in the lease. Subsequently, the lease could be varied for no consideration, so as to remove those covenants. Therefore, the market rent would rise.

In addition, the amendment would impose a heavy compliance burden on taxpayers, who, to bring themselves within its scope, would need to demonstrate at the outset that the rent was a market rent. That might involve paying for valuation advice, and paying advisers to negotiate with the Revenue. By contrast, the current provisions ensure that the initial compliance burden is minimal. Only when, if ever, the rent increases after the end of year five do the provisions need to be considered. The Government believe that the rules in paragraph 14, which provide for further returns only if rent increases are more than 5 per cent. per year plus RPI, will exclude ordinary business rents without the need for the proposed paragraph. As I said in Committee, the provision will not impose any charge until December 2008. Between now and then, I assure the hon. Gentleman that we will keep the provision under review, to make sure that it meets its purpose.

Mr. Prisk

I shall no doubt come back to the broader points, but can the Financial Secretary explain, given the rigidity of a rule of RPI plus 5 per cent. or an increase of 5 per cent., what will happen in an area that is seeking to regenerate, where local market rent is at a certain level, and two or three years later, after successful regeneration, it is a much better area and the increase has been 15 or 20 per cent? Will additional tax have to be paid for that benefit?

Ruth Kelly

As I am sure the hon. Gentleman knows, we have debated that point in a Committee of the whole House. I argued to him that that situation was most unlikely to occur. I assure him, however, that we will keep the proposal under review before it is introduced in 2008, to make sure that it is appropriate at the time.

The proposals that we have put forward carry a minimal compliance burden. They are designed to try to make sure that as few leases as possible are covered. I commend the new clauses and amendments to the House.

Mr. Prisk

I thank the Financial Secretary for her opening remarks. First, I want to refer to amendment No. 12, before considering the Government's new clauses and 71 amendments to this part of the Bill.

The purpose of amendment No. 12 is to reduce the compliance costs for businesses of stamp duty land tax. It would do so by disapplying paragraph 14 of schedule 37 when a lease has been granted at a market rent from the outset. As such, many people feel that amendment No. 12 directly fulfils the Government's original aims for stamp duty land tax: to modernise stamp duty, without unduly creating a bureaucratic burden on business.

I wish that I could say the same about the Government's attempts to legislate for this tax. After a botched consultation, the legislation has proved ill considered and ill prepared, and there is a raft of areas in which it has significantly increased the regulatory burden for business. Where there was once a one-page tax form we now have 12 pages, plus more than 40 pages of explanatory notes—and that is even before the Bill becomes law.

The provisions concerning abnormal rents exemplify the problem. Believing that tenants and landlords are, as we speak, actively colluding to create tenancies with below-market initial rents, the Government have brought forward a ridiculous six-step, three-formula test. Tenants would be required to carry out this test at every rent review after five years. Of course, the premise that most landlords will give up a full rent now in the hope of higher rents at some point in the near or distant future is completely false. I fully accept that some peculiar and unusual agreements may arise, but given that in the vast majority of cases such an arrangement would clearly be against the interests of the landlord, they will be extremely rare.

The Financial Secretary has argued in the past, and again this afternoon, that having undertaken the six-step test few businesses are likely to find themselves liable. That may well be true, but they will still have to undertake the test to find out, which means that the burden of compliance affects most businesses. The purpose of amendment No. 12 is to relieve most businesses of the bureaucratic burden by disapplying the test when the lease is granted at a market rent. I am grateful to the British Property Federation for helping to identify the change.

As the Financial Secretary suggested. if I had my way it would be lovely to see the back of this nonsense. Sadly, however, we are not in that position, so we must try to amend the Bill in the current climate.

The amendment draws partly on paragraph 13 of schedule 39, which excludes leases granted at a market rent from being partnership properties for the purpose of this tax. To that extent, it is based on a principle initiated by the Government. It may not have been drafted perfectly, but I hope the Financial Secretary will acknowledge that it is a positive proposal, and will monitor it and act accordingly. She nods; I will hold her to that.

New clauses 15 and 16 change the provisions for agreements to lease, for granting and varying leases, and for the exemption of certain forms of chargeable consideration. The Financial Secretary tells us that the new clauses matter, and they may well matter; but why did they not matter in April, when the Bill was published, in December, when the regulations were debated, or at the time of last year's Finance Bill, when the Government first promoted this tax—or even during the consultation before the Bill, which the Government abruptly curtailed? Why are there suddenly 73 amendments and new clauses relating to a tax that is less than a year old? Last year the Chief Secretary waxed lyrical in his usual style, telling us that the tax would work perfectly well. Yet here we are, less than 12 months later, rewriting the rules before the ink has dried.

I also want to comment on the way in which the changes have been presented. Here I strike a note of disappointment as much as anything else. Why did the Government table all 73 amendments and new clauses on Friday afternoon, when the House was not sitting? What possible opportunity did that give Members, or those whom they represent, to consider the effects of the changes? I draw no comfort from this, but I think that the way in which the legislation has been presented suggests either incompetence or a wanton disregard for the House. I hope that the Minister will be able to explain. I hope that she will also he able to explain what led to the change of heart on the carrying out of works. Who will benefit from the change in new clause 15, and who will not?

What independent evidence can the Financial Secretary offer us to show that the granting of leases constitutes a significant tax avoidance scheme, as is alleged? What change in tax yield does she expect? Can she tell us whether it will rise or fall?

What assessment of the compliance costs has the Inland Revenue undertaken? This is, after all, the fourth version of the tax in 12 months. Can tenants expect renewed guidance, and if so, in what form and when?

New subsection (1A) in new clause 15(4) refers to market value. I assume that that is open market value. If so, can the Financial Secretary tell us on what basis the valuation is undertaken? Does new subsection (1A)(b) widen the scope of the term "chargeable consideration", or does it merely confirm its existing application?

3.45 pm

On a wider point, does not the Minister recognise that the ability of landlords and tenants to vary leases to reflect changing commercial and trading circumstances is a vital part of a dynamic and successful economy? Does she not therefore accept that heavy-handed tax rules could hamper an open, flexible rental market in commercial property and thus create a drag on our competitiveness? To that end, I hope that she will be able to tell us what discussions she has had with ministerial colleagues in the Department of Trade and Industry and in the Office of the Deputy Prime Minister on Government policy to improve flexibility in leases. That is an established Government policy. Can she tell us when she has met them and what discussions she has had with them?

On subsection (3) of new clause 16, can the Minister describe the circumstances in which the change of rules applies? How will the changes in the rules concerning property with secured debt affect mortgaged property—residential or commercial? Can she clarify whether the new clause allows for properties with a second, or further charge? I appreciate that she may not be able to provide us with an immediate answer. I am sure that hon. Members on both sides of the House would, if it is appropriate for the Minister, be willing to receive a written answer.

I am also concerned about subsection (7) of new clause 16, which states: The other amendments made by this section are deemed always to have had effect. Is that not a retrospective measure? If so, why is it being introduced in this way to this Bill?

I turn to some of the 71 amendments. I welcome the amendment to clause 294, which will allow charities, as the Minister suggested, to claim partial relief from stamp duty land tax on certain acquisitions. The Minister will know that we on the Conservative Benches retain concerns about the scope of the definition "qualifying charitable purposes" but, in the absence of a rethink on that particular point, it is only fair to say that the measure is helpful and I welcome it.

I also welcome several of the changes to schedule 37. I understand that they reflect some of the points that were raised not simply by those outside the House but by many members of the Standing Committee last year. It would have been nice to have resolved them last year but, again, I recognise that the Government are now acting to correct their past errors—it would be remiss of me not to recognise that. However, the Government are treating a variation as an acquisition of a chargeable interest. How, in law, does the Minister distinguish between a rent review and a variation of rent?

In amendment No. 161, there is a reference to the same or substantially the same premises". Can the Minister clearly tell us what "substantially the same" means? There is uncertainty there.

The reference in other amendments to market value concerns me. The Minister and I have discussed market rents and discounted cash-flow valuation. Is this a discounted cash-flow valuation, or is it what someone will pay? It is an important distinction.

The Minister needs to realise that there may well be times when people will pay more than the market value because of other circumstances related to their business, or perhaps for a personal reason. That cannot be reflected in a DCF valuation, yet it is what the market is willing to pay. In those circumstances, if someone pays more than the DCF valuation of "market value", what happens to the difference in tax terms? How is it treated?

The changes to schedule 39 are quite extensive and they seek to legislate for almost every eventuality concerning partnerships. It would be remiss of me not to recognise that some matters that were discussed in the Standing Committee and raised by me and others have been responded to. I welcome that. However, I think that, given that we are given five-step and three-step formulae in addition to the existing six-step test on abnormal rents, there is still confusion and crudity in the legislation. Indeed, if a partnership of five or more people were to try to transfer an office to a similar partnership under this legislation, more than 25 pages of primary tax law would be involved on that narrow point alone. Given the Financial Secretary's original aim of a simpler and more modern tax, how on earth can she possibly justify this provision?

Although some of these amendments do indeed deserve our support, the truth is that their number and late introduction is a very accurate example of how poorly this Government sometimes behave towards this House. Where we get promises of simplicity, we end up with bureaucracy; where we are offered fairness, we end up with iniquity; and where we are promised certainty, we simply have ceaseless change. By way of contrast, our amendment has the potential to help thousands of businesses. I fully accept that it is not perfect, but it does merit serious consideration. For those reasons, I ask the Financial Secretary to reconsider her earlier remarks. Or will she now reject this amendment and, as I suspect she will, come back to the House in a year's time—be it on Report, in Committee or even at the beginning of next year's Finance Bill—and introduce something very similar in the end? I hope not. Rather, I hope that she will for once think beyond her briefing and listen, and thereby show that debates in this House can just occasionally be reflected in the actions of this Government.

Ruth Kelly

We have had yet another full contribution to the debate from the hon. Member for Hertford and Stortford (Mr. Prisk), who takes a personal interest in these issues, given his previous experience in the field. Yet again, his contribution has ranged from questioning the concepts behind particular clauses to questioning the detailed drafting of individual amendments. However, he will agree that I covered some of the issues raised in my opening statement, and I shall now attempt to deal with the more general points. If specific drafting issues and matters of legal terminology remain unanswered, I promise that I shall write to him and fill him in on some of the detail.

I want to begin by welcoming the hon. Gentleman's welcome for some of the measures that we have implemented, such as granting greater relief to charities. That measure was called for by the hon. Member for Yeovil (Mr. Laws) and we have been able to respond, so he, too, will welcome it. I should also apologise to the House for the fact that it was not possible to make these amendments earlier. This is an entirely new tax, as the hon. Member for Hertford and Stortford knows, and it is impossible to know how such a tax will work in every particular before introducing it. Issues will always arise as the operational impact of a new tax becomes clear, and representations will always be made to the Government as it comes into effect. I should tell the House that some of those representations were made extremely late in the day—after the Finance Bill had been published and considered in Committee—so it was not possible to introduce these amendments sooner.

The hon. Member for Hertford and Stortford will accept that 18 of the 73 amendments are needed purely to restrict the charge to land in the UK—an issue that we discussed in Committee. Parliamentary counsel suggested that this was the appropriate way to bring that provision into operation.

Mr. Prisk

The Financial Secretary is right to say that those 18 amendments were necessary, but I come back to the fundamental point over which we argued last year, and which I still regard as an important principle of tax legislation. It was clear last year, and it is clear from the Bill and the 71 amendments and two new clauses that, in keeping with the considered view of all outside tax and property experts, this was a Bill in a hurry. As a result, more mistakes were made than were necessary, and the compliance costs were greater. Does the Financial Secretary not accept that, as we and a long list of outside organisations, including the Chartered Institute of Taxation, have argued—they are more expert on these matters than I am—it would have been far better to get things right the first time, rather than adopting this "make do and mend" approach? That is our central concern, and I hope the Financial Secretary will respond to it positively.

Ruth Kelly

The hon. Gentleman will know that, in an ideal world, we would get legislation absolutely correct first time. I am afraid that that is impossible when we bring in a completely new tax.

Most of the amendments that we are discussing today are deregulatory in impact and have come about because of a greater understanding of operational impacts; for example, how stamp duty operates in Scotland compared with England and so forth. Issues have been raised with the Inland Revenue and the Treasury; some of them very late in the day, and after the usual consultation period had finished in some cases.

In order to achieve the objectives and published aims of stamp duty land tax, it has been necessary on occasion to table a substantial number of amendments. Of course we endeavour to avoid late amendments wherever possible and, as I said, most of the amendments we are discussing today are deregulatory in impact.

The hon. Gentleman asked about the effect on yield. There is not a substantial effect on yield, either upwards or downwards, from the measures that we are discussing today, very many of which are highly technical. However, some—such as the hon. Gentleman's new clause—have a more significant impact in terms of how the market operates in practice.

Amendment No. 12 is the main point of interest to the hon. Gentleman, who suggests that somehow lower rents now as an artificial means of avoiding lease duty will not be used widely because the landlord does not have the incentive. However, the professional press has recognised that a low rent payable for the first five years of a lease is a method to be considered for reducing stamp duty land tax. I cannot accept that an abnormal rent provision is unnecessary. However, I will look at his proposal in a positive spirit. We are always keen to reduce compliance burdens. In fact, I argued earlier that his proposal would increase the compliance burden compared with what we have put forward. We had an extensive debate on the compliance burden in the Committee of the whole House.

Mr. Prisk

I am unclear as to why an additional independent valuation would be required, given that in any negotiation between a landlord and tenant there would be an independent valuation for the two parties to agree. I do not accept the Minister's point there, and she may wish to challenge her officials on that.

If someone takes on a new premises on a lease at market rent—agreed jointly between the two parties—that should remove them from the need to go through the hoop of the infamous six-step test. That is the essence of what we are trying to do here. I am not entirely confident that the exact wording of the amendment is perfect, but I hope the Minister will look at it. I ask her one thing: does she have evidence for the scope of the proposal? If not, may I ask her to commission a study before implementing the proposal any further? One danger is that I am speculating and she is speculating, but the tax is being introduced on the basis of no evidence. Will she agree to commission a study, which might answer some of the questions I am raising in the amendment?

Ruth Kelly

The hon. Gentleman is well aware that the proposals will not come into effect until 2008 at the earliest. We will keep the matter under review and we are constantly trying to improve legislation. He may not like us tabling new amendments, but where we see opportunities for improvement, we will do so. Given the attention on the issue, we will see if this is the most appropriate way to act. I do not accept the principle of his amendment, which is that where there is agreement between the landlord and the lessee, somehow the rent should not be tested after a five-year period. It is easy to avoid payment of duty in such cases. It is not a difficult process, and it is, of course, in the interest of both parties to come to a mutual arrangement under which less duty is payable. We have to be wise to that. If I remember correctly, the original five-year review was a concession to make the process much easier and to minimise the compliance burden in respect of variable leases.

4 pm

The hon. Gentleman reverts to the argument about the six-step test, which he has made on previous occasions. I can tell him that a calculator for leases is already available on the Inland Revenue website. A calculator for rent increases after 2008 is not yet available, but I can assure the hon. Gentleman that it will be introduced closer to the time. It might confuse people to have it available at the moment. There is no easy way round the issue, but our provisions strike us as representing a sensible balance between minimising the compliance burden and capturing the avoidance.

Mr. Prisk

I am grateful to the Financial Secretary for her positive words, but I should like to edge her one step further, if I can be that persuasive. If nothing is going to happen until 2008, it strikes me that we have a real opportunity to assess the scope of the avoidance. That is, after all, something that Treasury Ministers do in a raft of other areas and there is a logical argument for doing so. I have not yet seen evidence that it has happened in this particular respect. Given that avoidance issues have been presented to us as being easy to deal with and something about which the Government are concerned, may I ask the Financial Secretary whether she would be willing to consider such a study? Let us see the evidence, which would happily allow us to improve the legislation. Will she agree to an independent study to assess the scope of the avoidance in order to ensure that the legislation hits the people at whom she is aiming?

Ruth Kelly

I fail to understand how it would be possible to commission an independent scoping study to establish how much potential avoidance could take place if a loophole were to exist in the future. It has not, as far as I am aware, been tried in any other area of tax law, because it is impossible independently to assess how many people would take advantage of a loophole in the legislation. I believe that we have produced a reasonably balanced compromise, reducing compliance burdens while allowing maximum flexibility. I have already given the hon. Gentleman an assurance that we will keep this under review until it is introduced in 2008. We will reflect on other proposals as and when they emerge in a constant attempt to improve the legislation. No doubt the hon. Gentleman will make his own representations to me before 2008 and I look forward to hearing them.

On a more minor point, the hon. Gentleman asked similar questions about Government amendment No. 161. It deals with the circumstances in which one lease comes to an end and a new one is granted. Substantially the same broad interpretation will apply to ensure that rent is not taken into account twice, so there is a relieving intention behind the amendment. As to other technical points, if the hon. Gentleman will allow me, I will respond to him in writing.

Mr. Prisk

I am grateful to the Financial Secretary, but I hope that she can clarify one further point now. I asked about new clause 16(7), which states: The other amendments made by this section are deemed always to have had effect. That sounds retrospective to me, so will the Financial Secretary confirm whether it is?

Ruth Kelly

I can confirm that it is compatible with the Human Rights Act 1998 because it is a relieving measure. It has retrospective application, but, as it is a relieving measure, I do not think that anyone could possibly object to it. It is fully compatible with human rights legislation.

Mr. Prisk

Given that it is retrospective, I want to register a small protest about legislation being introduced in this way. We all know that retrospective legislation often has unintended consequences. Will the Financial Secretary set out for us in writing—we have no explanatory notes—exactly how it will work and whom it will affect? I am concerned to ensure that people do not get caught out. In that process, we could minimise the number of people ending up not paying the tax that the Government feel is due.

Ruth Kelly

I would be happy to set out for the hon. Gentleman exactly how it would apply in practice. I am sure that the provision will be widely welcomed in the industry. On that basis, I commend the Government new clauses to the House and I hope that the hon. Gentleman will not press his amendment.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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