HC Deb 25 May 1989 vol 153 cc629-30W
Mr. David Davis

To ask the Chancellor of the Exchequer what representations he has received about the provisions in the Finance Bill concerning close investment-holding companies.

Mr. Norman Lamont

We have received a number of representations.

The purpose of the provisions concerning close investment-holding companies is to enable the highly complex and lengthy legislation about close company apportionment to be abolished while preventing the avoidance of tax on investment income and capital gains by an individual placing personal investments in a closely controlled investment company. There is general agreement on these objectives.

The approach of the provisions in the Finance Bill is to tax CICs like individuals, so far as possible. However, although there have been some misunderstandings of the effect of the provisions, we are persuaded that this approach has its own difficulties and could place some close companies at a competitive disadvantage in comparison with non-close competitors. This was not the intention. We therefore propose to bring forward amendments.

We have no doubt that the right approach remains to abolish apportionment and replace it by an appropriate tax charge on the company. We now propose that CICs will continue to be taxed like other companies, with the normal reliefs for interest and expenses. But, whatever the level of their profits, they will no longer receive the benefit of the small companies rate and so will be taxed at 35 per cent. This approach will result in rules that are simpler than both the old apportionment provisions and the provisions in the Bill. And it will protect the Exchequer since under existing law there is a further tax charge if an investor withdraws accumulated profits from a company or sells his or her shares.

We also propose to amend the definition of a CIC. No trading company (including a dealing company) will be a CIC. The existing apportionment provisions recognise that property investment companies may need to retain income for the purposes of the business and in practice these companies are little affected by apportionment—so these too will not be CICs. These changes will give a more simpler regime for taxing CICs, while guarding against tax avoidance.

An Inland Revenue press release is being issued today giving further details of the proposals. The necessary amendments for the Committee stage of the Finance 13i11 will be put down as soon as possible.