Clause 15 makes changes to protect the Exchequer from a loss of tax resulting from avoidance arrangements exploiting the income tax relief of patent royalty payments. It is one of a number of measures in the Bill to ensure that individuals and businesses cannot exploit loopholes in the tax legislation to gain unintended and unfair tax advantages.

In October 2012, HMRC became aware of a new income tax avoidance scheme that was being marketed to wealthy individuals. It made use of this little-known relief for patent royalty payments. The relief in question was unlimited and given as a reduction to individuals’ net taxable income. The avoidance scheme that exploited it was structured so that the amount of tax relief that could be claimed was greater than the net outlay by the claimant. The relief applied only to those patent royalty payments that were not relieved from tax in any other way, for example as business expenses.

Individuals will therefore continue to receive income tax relief for the vast majority of patent royalty payments in the usual way. The changes made by clause 15 will abolish the relief for non-business patent royalty payments made by individuals and other persons who are within the charge to income tax, such as trustees. Some wealthy individuals have in the past had an appetite for similar  schemes. Using the data from those other schemes, the potential tax loss from the scheme was estimated at £100 million per annum. The potential tax loss for the period from the date of the autumn statement to the end of the 2012-13 tax year was estimated at £50 million.

The abolition of the relief, with immediate effect, was therefore announced in the most recent autumn statement. The relief was little known and it was not thought to have been used that much, in any case in recent years. In fact, when it was announced—[Interruption.] Was it something I said? I am surprised that hon. Members find dealing with tax avoidance such a joyous matter.