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Lord Goodhart: My Lords, I rise to say that I am a member of the Tax Law Review Committee. It is currently undertaking the tax law rewrite project, putting tax law into reasonably understandable English. All I can say is that the Minister has made our task considerably more difficult!

Baroness Buscombe: My Lords, I rise to speak briefly and simply to the amendment. I want to raise three concerns on which we would appreciate the Minister's response. First, if a member borrows to provide funds to an LLP, we see no reason why interest on the loans should not be available for off-set against income from sources other than the LLP as that interest will have been funded from sources other than the LLP.

Secondly, we agree with the principle that tax relief for losses incurred by the LLP should be restricted to cash lost by the member, but presently there is concern that the provision fails to achieve this because of the treatment of profits undrawn at the date of the loss and the treatment of subsequent profits retained to replace lost capital.

Thirdly, it is proposed that transparency for capital gains tax purposes is lost if the LLP ceases to carry on a trade or business, with potentially serious consequences if, for example, the LLP ceases one trade and commences another. Does not the Minister agree that it would make sense for the transparency to

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remain for assets held on the date of cessation at least for a sufficient period to allow for their orderly disposal?

Lord McIntosh of Haringey: My Lords, I apologise for challenging the Tax Law Review Committee. I fear that there will be more challenges before it has completed its work.

The noble Baroness, Lady Buscombe, raised three technical questions. I hope that she will be satisfied if I write to her on those issues. I commend the amendment to the House.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendment No. 11:


    Page 5, line 42, at end insert ("with a view to profit").

The noble Lord said: My Lords, in moving Amendment No. 11, I shall speak also to Amendment No. 12. These amendments would achieve two objects. Amendment No. 11 links the partnership tax treatment allowed by new Section 59A of the Taxation of Chargeable Gains Act 1992 to Section 59 of that Act. The words,


    "with a view to profit",

refer back to the Partnership Act 1890 definition of "partnership" used in Section 59 of the Taxation of Chargeable Gains Act. Only business carried out with a view to profit should be treated as partnerships for tax purposes. That is consistent with our debate in Committee.

Amendment No. 12 makes it clear that the tax referred to in new Section 59A of the Taxation of Chargeable Gains Act 1992 is tax in respect of chargeable gains. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendment No. 12:


    Page 5, line 44, after ("tax") insert ("in respect of chargeable gains").

On Question, amendment agreed to.

7.15 p.m.

Lord McIntosh of Haringey moved Amendment No. 13:


    Page 6, line 8, at end insert--


("(2) Where subsection (1) ceases to apply in relation to a limited liability partnership with the effect that tax is assessed and charged--
(a) on the limited liability partnership (as a company) in respect of chargeable gains accruing on the disposal of any of its assets, and
(b) on the members in respect of chargeable gains accruing on the disposal of any of their capital interests in the limited liability partnership,
it shall be assessed and charged on the limited liability partnership as if subsection (1) had never applied in relation to it.

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(3) Neither the commencement of the application of subsection (1) nor the cessation of its application in relation to a limited liability partnership is to be taken as giving rise to the disposal of any assets by it or any of its members."
( ) After section 156 of that Act insert--
"Cessation of trade by limited liability partnership.
156A.--(1) Where, immediately before the time of cessation of trade, a member of a limited liability partnership holds an asset, or an interest in an asset, acquired by him for a consideration treated as reduced under section 152 or 153, he shall be treated as if a chargeable gain equal to the amount of the reduction accrued to him immediately before that time.
(2) Where, as a result of section 154(2), a chargeable gain on the disposal of an asset, or an interest in an asset, by a member of a limited liability partnership has not accrued before the time of cessation of trade, the member shall be treated as if the chargeable gain accrued immediately before that time.
(3) In this section "the time of cessation of trade", in relation to a limited liability partnership, means the time when section 59A(1) ceases to apply in relation to the limited liability partnership."").

The noble Lord said: My Lords, Amendment No. 13 has two closely related purposes. First, it clarifies the tax treatment both of LLPs and of LLP members where the LLP is in liquidation. Neither the coming into operation of Section 59A at the start of a business of an LLP, nor its ending at liquidation, causes a charge to arise on the members. In liquidation, the "transparent" treatment of the LLP members as partners can no longer apply as the assets of the LLP vest in the liquidator who disposes of them to meet the claims of creditors. It would be unrealistic for the Inland Revenue to attempt to tax the LLP members on disposals of assets by the liquidator. Instead, any tax due on such disposals will be met by the liquidator under the normal corporate regime for liquidations. The LLP members will continue to be taxed under the rules for individuals, but their asset will be an interest in the LLP which may give rise either to a chargeable gain or an allowable loss on a disposal following liquidation.

The second purpose of the amendment is to ensure that any gains which LLP members have deferred while the partnership tax treatment was in force are brought back into charge when the LLP goes into liquidation. Under Sections 152 to 154 of the Taxation of Chargeable Gains Act, LLP members will be able to defer gains realised on the disposal of business assets where the proceeds from the disposal have been used to acquire assets used in the trade carried on by the LLP. New Section 156A of the Taxation of Chargeable Gains Act 1992 inserted by this amendment ensures that immediately before the LLP goes into liquidation a member who has deferred gains in this way becomes liable to pay the tax due on the deferred gain. Although the assets concerned are then under the control of the liquidator, it would not be appropriate for the charge to fall on them. This is because claims for this relief would have been made by the LLP members on an individual basis and the gains concerned may have arisen on assets outside the LLP. This measure is necessary to ensure that tax that has been deferred is brought back into charge on the members who would have originally been liable to that tax. I beg to move.

On Question, amendment agreed to.

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Clause 12 [Stamp duty]:

Lord McIntosh of Haringey moved Amendment No. 14:


    Page 6, line 32, leave out ("immediately before its incorporation") and insert ("at the relevant time").

The noble Lord said: My Lords, in moving Amendment No. 14, I shall speak also to Amendments Nos. 15 to 17. It may be that some property of the former partnership is transferred to the LLP after incorporation, but before it acquires the former partnership's business. During this interim period, the previous partnership may continue trading and hence acquire new assets, such as debts due from its customers or clients. The technical changes made by these amendments put beyond doubt that, as intended, such assets will come within the scope of the relief, provided that the conditions are met. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendments Nos. 15 to 17:


    Page 6, line 35, leave out ("subscribe their names to the incorporation document") and insert ("are or are to be members of the limited liability partnership").


    Page 6, line 43, leave out ("immediately before its incorporation") and insert ("at the relevant time").


    Page 7, line 5, at end insert--


("( ) In this section "the relevant time" means--
(a) if the person who conveyed or transferred the property to the limited liability partnership acquired the property after its incorporation, immediately after he acquired the property, and
(b) in any other case, immediately before its incorporation.").

On Question, amendments agreed to.

Lord McIntosh of Haringey moved Amendment No. 18:


    After Clause 12, insert the following new clause--

CLASS 4 NATIONAL INSURANCE CONTRIBUTIONS

(". In section 15 of the Social Security Contributions and Benefits Act 1992 and section 15 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (Class 4 contributions), after subsection (3) insert--
"(3A) Where income tax is (or would be) charged on a member of a limited liability partnership in respect of profits or gains arising from the carrying on of a trade or profession by the limited liability partnership, Class 4 contributions shall be payable by him if they would be payable were the trade or profession carried on in partnership by the members."").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendment No. 19. These are both technical amendments. Between them, they ensure that members of LLPs who are taxed on their share of the LLP profits as though they were partners in a conventional partnership will also be charged Class IV national insurance contributions on that profit share. That reflects the position for self- employed people and partners generally. The new clause has been welcomed by consultees. I beg to move.

On Question, amendment agreed to.

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Clause 18 [Commencement, extent and short title]:


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