Mr. Burnett: Is the limitation period for the recovery of tax on the withdrawal of group relief six years from the original transaction?
Ruth Kelly: The hon. Gentleman knows that clause 109 is an interim measure, to counter widespread avoidance before the introduction of a modernised stamp duty regime. The clawback charge is triggered when a transferring company leaves the group within two years of an intra-group transfer. That two-year provision is also translated to the limitation to which the hon. Gentleman refers, so it is two years from the original transaction, rather than the six years that he assumed. I hope that the hon. Gentleman is satisfied and I urge the hon. Member for Arundel and South Downs to withdraw his amendment.
Mr. Flight: I am delighted that, in a slightly hidden way, the Minister has confirmed that the Government amendments have addressed the points at which both our amendments are directed. They are reasonable points, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 240, in page 464, line 12, leave out paragraph (a) and insert—
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No. 241, in page 464, line 17, leave out 'this 'purpose' and insert
'the purposes of this paragraph—
No. 242, in page 464, line 19, at end insert—
Schedule 34, as amended, ordered to stand part of the Bill.
Clause 110 ordered to stand part of the Bill.
Withdrawal of relief for company acquisitions
Question proposed, That the clause stand part of the Bill.
Mr. Flight: Without repeating the points, we have the same territories of concern that I articulated in relation to clause 109. We shall not vote against the clause, but we ask the Government to take note of the points that we raised on that clause in this context also.
Ruth Kelly: Of course we take note of debate in Committee. Clause 111 is another element of the anti-avoidance package. It aims to prevent companies from using corporate vehicles to avoid proper rates of stamp duty. I shall not rerun the debate that we had on the previous clause, but I ask the Committee to support it.
Mr. Flight: The arguments will wait until starred new clause 19 comes up. However, we have put down a marker—it is relevant to this clause as there is a logic in the Government's capital gains tax exemption measures for the disposal of substantial shareholdings—to argue that there should be a parallel stamp duty exemption meeting the same point. That is what the clause is about.
Question put and agreed to.
Clause 111 ordered to stand part of the Bill.
Stamp duty: withdrawal of relief for company acquisitions: supplementary provisions
Ruth Kelly: I beg to move Government amendment No. 243, in page 467, line 20, at end insert—
'Change of control due to interest of loan creditor
4A (1) Section 111 does not apply by reason of control of the acquiring company changing as a result of a loan creditor becoming, or ceasing to be, treated as having control of the company if the other persons who were previously treated as controlling the company continue to be so treated
(2) In sub-paragraph (1) ''loan creditor'' has the meaning given by section 417(7) to (9) of the Taxes Act 1988.'.
Schedule 35 contains a number of sets of circumstances under which the clawback of section 76 relief is not allowed when there is a change of control. However, we have received representation
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concerning the change of control due to the interest of a lone creditor. It was not the intention to trigger the clawback charge in circumstances in which control of the acquiring company changes because a lone creditor comes to be or ceases to be treated as having control, provided the original shareholders still control the acquiring company. The amendment therefore ensures that section 76 relief is not withdrawn in such circumstances. It addresses points that have been made to us by representative bodies, so I commend it to the Committee.
Amendment agreed to.
Amendments made: No. 244, in page 467, line 22, leave out sub-paragraph (1) and insert—
'(1) If any duty payable under section 111 or this Schedule is not paid within the period of 30 days within which payment is to be made, interest is payable on the amount remaining unpaid.'.
No. 245, in page 468, line 22, after 'company' insert
'and was above it in the group structure'.
No. 246, in page 468, line 32, at end insert—
Schedule 35, as amended, agreed to.
Penalties for late stamping
Mr. Flight: I beg to move amendment No. 171, in page 90, line 12, leave out subsection (3).
As members of the Committee will be aware, at present it is possible to avoid stamp duty if the documents involved are executed outside the United Kingdom. Until the Budget, the deadline for stamping such a document if it was brought into the UK was 30 days after it was brought in for the purposes of penalties. That was changed in the Budget, with effect from Royal Assent, so that penalties will be levied 30 days after the date of execution, irrelevant of where the document has been executed.
As we are talking about an anti-avoidance measure, there is little critical that can be said. However, tax experts are looking for some clarification about the fact that subsection (2) uses the words ''relate'' and ''relates'' but subsection (3) uses the word ''involves''. We would welcome clarification as to whether a distinction is intended.
The amendment is from the Law Society, and seeks to ensure that contracts only incidentally related to land for the sale of worldwide businesses, for example, are not accidentally caught by the new provisions of the clause.
Ruth Kelly: The clause is another element of the anti-avoidance package. It aims to discourage the avoidance of stamp duty by the offshore execution of documents relating to UK land and buildings. The current practice of executing documents offshore ensures that, if the document is ever needed in the UK, a penalty for late stamping only runs from 30 days after the date when the document entered the
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UK. That is not in line with the penalty regime for documents executed in the UK, where a penalty for late stamping runs from 30 days after the date of execution.
To tackle that variance, the clause extends the onshore penalty regime to the offshore execution of documents relating to UK land and buildings. From Royal Assent, the time limit for stamping those documents will be the same regardless of the place of execution. Subsection (3) ensures that every document that relates to a transaction that to any extent involves land in the UK is included in the extended penalty regime.
The amendment would limit the extended penalty regime to documents that related only to land in the UK. That would mean that another type of property could be included in the document, merely to ensure that the document would not be caught by the new rules. That would undermine the whole effect of the measure, as it would allow the make-up of instruments to be manipulated in order to remain outside the extended penalty regime.
The clause, including subsection (3), removes the protection of offshore execution for documents that transfer UK land and buildings. It is consistent with the Government's overall approach to tackling anti-avoidance. Therefore, I urge the hon. Gentleman to withdraw the amendment, or the Committee to reject it.
Mr. Flight: I shall go into greater detail. The Law Society pointed out that the Budget day press release advised that the new provisions relating to penalties for late stamping applied to agreements for the transfer of land, but the proposed legislation goes further than that. New section 15 B of the Stamp Act 1891 applies the new rules to every instrument that relates to a transaction that to any extent involves land in the United Kingdom. The effect may be that, when an agreement is entered into for the sale of a business that does not relate to land and there is a separate agreement for the sale of the land, the new penalty rules will apply to an agreement for the sale of the business because it relates to a transaction that to some extent involves land. Is that what is intended by the Bill? If so, it is not in accordance with the Budget announcement.
The Law Society's view is that new subsection (1)(a) is unnecessary and should be deleted, which would mean that the new penalty rules would apply to any instrument that relates to land in the United Kingdom. The Law Society's view is that the meaning of the words would then be clear and would not cause the new rules to apply to an agreement which, while relating to a transaction in connection with land, did not relate to the land itself. We are merely seeking the confirmation, which I thought I saw the Minister giving, that the clause does not do what the Law Society fears that it does.
Ruth Kelly: I am aware of the criticisms and worries that have arisen in relation to the clause. Applying the revised penalty regime only to instruments relating to
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land in the United Kingdom would have allowed those companies and individuals who wanted to execute avoidances offshore to do so without facing a stamp duty penalty. The clause is phrased so as not to catch free-standing transfers of assets that do not involve United Kingdom land. It protects transfers of debts, for example, from falling under the new penalty regime, while ensuring that those transfers that involve land come under the new rules.