§ Mr. McCrindleasked the Chancellor of the Exchequer if he will make a statement about the taxation of realisations of development value following the abolition of betterment levy.
§ Mr. Patrick JenkinAs my right hon. Friend the Secretary of State for the Environment indicated in his statement to the House on 22nd July, realisations of development value following the abolition of the betterment levy will be dealt with through the normal system of taxation of profits and capital gains. In general, I propose to revert to the tax rules as they were in force immediately before the introduction of betterment levy, subject to any modifications which have been made subsequently in those rules (other than modifications dealing with betterment levy). I propose to include the necessary amendments to the existing tax legislation in next year's Finance Bill.
Income profits
For taxpayers whose profits from transactions in land count as income—e.g., builders and developers—there will be no change in the method of computing profits. Betterment levy charges on land held as trading stock have been allowable as a deduction in computing their profits; these charges will now, of course, disappear.
Capital gains
In general, disposals of land with development value during the levy period (6th April, 1967, to 22nd July, 1970, inclusive) were treated for capital gains tax as though the land had been disposed of for its current use value at the date of disposal, and acquired for its current use at the date of acquisition (or at 6th April, 1965, if it was acquired before that date). This special basis will not apply to disposals after 22nd July, 1970. Instead, the ordinary capital gains tax rules for calculating a gain will apply. For, example, 422W the capital gain on land bought on 1st January, 1966, (or 1st January, 1968) for a total expenditure of £5,000, and sold for development on 1st October, 1970, for a net amount (after allowable sale expense) of £8,000 will be £3,000.
Where land acquired before 6th April, 1965, is sold with development value the provision (Finance Act, 1965, Schedule 6, paragraph 23) which was in force before the introduction of betterment levy will apply; the land will be treated as having been acquired on 6th April, 1965, at its then market value. Where this would produce a gain (or loss) larger than the overall gain (or loss), the chargeable gain (or allowable loss) will be limited to the smaller amount; and if it would produce a gain where there is an actual loss, or a loss where there is an actual gain, there will be no chargeable gain or allowable loss.
Capital gains tax is chargeable when an asset is disposed of. The ordinary capital gains tax rules for determining what is a disposal will continue to apply. For example it is not proposed to introduce a new provision to treat the commencement of a project of material development (Case C of betterment levy) as an occasion of charge to capital gains tax. Where a person has paid levy on a chargeable event occurring during his period of ownership (and not counting as a disposal for capital gains tax), his chargeable gain will be reduced to take account of the amount on which he has paid levy; for example where he bought land, erected a building on it during the levy period (so incurring liability to levy under Case C) and later sells it.
On a sale of land, the chargeable event for levy was normally the completion; for capital gains tax it is the contract. Where completion takes place after 22nd July, 1970, and is therefore exempt from levy, but the contract date was on or before 22nd July the capital gains will be calculated on the new basis, and not on the current use value basis.
The normal rates of tax on capital gains (corporation tax in the case of companies) will apply; this includes the alternative charge to tax for individuals. The normal capital gains tax exemptions—including the exemption for owneroccupiers—will also apply.