Clause 91 - Charge to tax

Finance Bill – in a Public Bill Committee am ar 13 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I beg to move amendment 15, in clause 91, page 54, line 2, at end add—

‘(10) The Treasury shall within three months of Royal Assent of this Act publish an assessment of the impact of the charge to tax in this section if subsection (2)(b) did not apply.’.

Photo of Sir David Amess Sir David Amess Ceidwadwyr, Southend West

With this it will be convenient to discuss the following:

Clauses 91 to 106 stand part.

Government amendments 70 and 71.

Clauses 107 and 108 stand part.

Government amendment 73.

Clauses 109 to 113 stand part.

Government amendments 74 to 76.

Clause 114 stand part.

Government amendments 77 to 79.

Clauses 115 to 129 stand part.

Government amendment 80.

Clauses 130 to 133 stand part.

Government amendment 81.

Clauses 134 to 147 stand part.

Government amendments 82 to 85.

Clause 148 stand part.

Government amendments 86 to 91.

Clauses 149 and 150 stand part.

Motion to transfer clause 150.

Clauses 151 to 160 stand part.

Government amendments 95 to 100.

That schedule 31 be the Thirty-first schedule to the Bill.

Government amendment 92.

Clauses 161 and 162 stand part.

Government amendments 101 and 102.

That schedule 32 be the Thirty-second schedule to the Bill.

Clauses 163 to 166 stand part.

That schedule 33 be the Thirty-third schedule to the Bill.

Government amendments 93 and 94.

Clauses 167 to 172 stand part.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is a pleasure to serve under your chairmanship again, Mr Amess. I thank you for your kind, thorough and courteous steering of this morning’s proceedings, which have been altered slightly at short notice. I appreciate the guidance that you have given.

Clause 91 and amendment 15 relate to the annual tax on enveloped dwellings, which is a new tax on UK residential property valued at £2 million, payable annually by companies, partnerships and corporate partner and collective investment vehicles, including unit trusts. I would like to put into context some of the comments, concerns and queries about this tax that the Opposition wish to raise.

It will be useful briefly to set out how the new annual tax on enveloped dwellings will work. Where it relates to properties worth £2 million to £5 million, the charge will be £15,000; for properties worth £5 million to £10 million, the charge will be £35,000; for properties worth £10 million to £20 million, the charge will be £70,000; and for properties worth £20 million-plus, the annual charge will be £140,000. The tax is part of a range of measures that were announced in the Budget 2012, the stated purpose of which was to discourage the purchase and holding of high-value UK residential properties within companies and corporate envelopes.

Other measures that relate to the annual tax on enveloped dwellings, which I will refer to as ATED, if the Minister is happy with that pronunciation, are a higher rate of stamp duty land tax, or SDLT; a 15% payment on purchases of properties worth more than £2 million by companies and other non-natural persons, which came into effect on 22 March 2012; and the extended reliefs from the 15% charge being introduced by this Bill, which include extending the capital gains tax regime to the sale of UK properties worth more than £2 million by companies and other non-natural persons. That measure came into effect on 6 April 2013. Reliefs in respect of the ATED aimed at genuine businesses carrying on a genuine commercial activity have also been included.

The aim of the annual charge is to encourage individuals to remove high-value properties from corporate vehicles. The Treasury consultation document says:

“The charge will encourage individuals who have put such high value property into envelopes for reasons including tax avoidance to take them out, thereby ensuring that the onward sale of the property is subject to SDLT and a fair share of tax is paid.”

In my review of how the clause will work in practice, I will put a number of questions to the Minister because, fundamentally, there is a question about whether this measure will achieve its aim. I will set out my reasons for questioning that premise.

Often, property-holding structures for non-doms involve offshore companies and trusts to enable them to avoid SDLT. A non-UK domiciled individual who wishes to purchase a high-value UK property may establish a non-UK resident trust to turn into an incorporated non-UK residential company, which can then buy the UK property. The offshore company, which owns the property, can then be sold, which enables that individual to avoid the SDLT charge by not selling the property itself.

Savills’ report said that prior to the introduction of these measures share transfers accounted for 8.7% of second-hand sales of London property worth more than £2 million in 2011, with that figure being 12.4% in prime central London locations. The charge came into effect from 1 April 2013 and the chargeable period will run from 1 April to 30 March. Properties held under that type of corporate structure will be subject to that charge annually. A separate tax return in respect of the annual tax on enveloped dwellings will be required and the return payment must be made to HMRC by 30 April each year.

We understand that this measure is not a mansion tax—it is unfortunate that there are no Liberal Democrat members present for this part of the debate on one of their key policy areas. They came in and went away again; hopefully they will come back before I reach the end of my comments.

We have backed a mansion tax as a measure that could be taken now to change the economic situation, which was a policy strongly supported by the Liberal Democrats. That was a flagship policy on which they campaigned publically until, seemingly, they changing their mind, or their policy priority became confused either in their mind or the public’s mind—I am confused about that.

It would appear, however, that the Chancellor has paved the way for a mansion tax with this measure and the introduction of the ATED and the SDLT, because this is a tax set on high-value properties and not only on those owned by companies or non-natural entities. It is an annual levy, ranging from £15,000 on properties valued between £2 million and £5 million, all the way up to £140,000 on properties worth £20 million. For the first time, owners will be liable for capital gains tax as well as the 15% stamp duty at the point of purchase.

I am pleased to see the hon. Member for Southport return to his place. He missed my disappointment about there being no Liberal Democrats present in the Committee as we are talking about the mansion tax, which is an important policy not just for the Liberal Democrats, but for Labour too.

To use a technical definition, the ATED will be levied on homes controlled through corporate envelopes, rather than those owned by individuals or property developers. Therefore, in March, HMRC sent out 5,000 letters asking owners of some of the most expensive homes in the country to carry out professional valuations of their properties ahead of the looming annual residential property charge. It is estimated that half of those properties are owned by companies based offshore.

It is worth reflecting that the Liberal Democrats have campaigned heavily and repeatedly called for a mansion tax. In their 2010 manifesto, they made a commitment to introduce one at the rate of 1% on properties worth more than £2 million, paid on the property’s value above that level. They estimated that that might raise about £2 billion annually. Labour’s view is that that money could be used to fund the reintroduction of the 10p rate of income tax, which would benefit up to 25 million basic rate taxpayers by up to £100 if used on the first £1,000 above the personal allowance threshold.

When the Lib Dem president, the hon. Member for Westmorland and Lonsdale (Tim Farron), was asked which parts of Labour’s motion in the House he disagreed with, he replied clearly: “None of it.” In considering this clause, we must remember that the Liberal Democrats voted against that motion and for the Prime Minister’s amendment, which neither called for a mansion tax nor did anything to secure one. In fact, the Chancellor has advanced the prospects for a mansion tax far beyond what the Liberal Democrats pledged to do, or have done in practice when given the opportunity to support it in legislation.

One stark feature that I noticed in the summary of the impact to the Exchequer in the tax information note produced by Her Majesty’s Revenue and Customs is that the actual revenue expected from the measure is £75 million in 2013-14, £75 million in 2014-15, £80 million in 2015-16, £90 million in 2016-17 and £100 million in 2017-18, but taking out the cost of the exemptions reduces those figures substantially, giving an overall revenue figure by 2017-18 of £60 million, by my calculations, and obviously much less in 2013-14.

The cost of administering the charge is not clear from the tax information impact note. It seems that many companies that hold enveloped dwellings will be affected, but the cost of administering the charge is not clearly set out. Will the Minister clarify what those charges will be and what extra resources will be provided to HMRC to deal with the additional burden of administering the tax? In reality, the increase in revenue will be small, and one wonders whether the cost of administering the charge will outweigh the revenue received.

The Government’s stated intention when they brought in the charge was to

“encourage individuals who have put such high value property into envelopes for reasons including tax avoidance to take them out”.

There have been queries about whether the charge will have the effect of encouraging people to take properties out of envelopes. It will have a deterrent effect for those entering a new enveloped arrangement, but will those already holding properties in such vehicles have an incentive to remove them from the enveloped dwelling structure, given that various charges are associated with such a change? Obviously, there will be an annual charge on anyone holding them within the envelope  structure, but any charges that may be incurred by removing them from the envelope structure, and putting them into a new legal structure that would avoid the annual charge, could incur capital gains tax or other charges associated with that.

We support the concept of a mansion tax and the measures in the Budget to clamp down on that form of tax avoidance, but it is important that we are realistic about the extent to which they will achieve the aims that the Chancellor has set. For example, it is unclear whether they will simply result in alternative forms of tax avoidance and more ownership of properties and dwellings being moved offshore, which will simply shift the problem, or whether they will tackle what is to many people an injustice in the tax system that needs to be clamped down on.

That takes me to amendment 15. Clause 91 sets out the charge on properties worth more than £2 million held in corporate envelopes. Labour said clearly that we would now use such a tax to raise £2 billion to fund the reintroduction of the 10p tax rate, to ensure that those who have been hardest hit by the current economic stagnation would be given support through the tax system. We think that that is a fair way to raise money on properties worth more than £2 million.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee 11:45, 13 Mehefin 2013

Perhaps I have misunderstood the hon. Lady, but a few minutes ago, she was arguing that the measure would not raise enough money to pay for the administration; now she is explaining how the Opposition will spend £2 billion. Am I mixing up two numbers?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Yes, I think the hon. Gentleman is confusing slightly what I was saying. To clarify, I was querying whether the ATED and the SDLT together would raise more than the cost of administering the charge, because of the way that it is set up. I am simply putting those questions to the Minister to confirm what the position is. We are in a Committee and we need to probe with amendments. The Government have the ability to make calculations and to assess the level at which the tax has been set and whether it is at an appropriate level for the administration to bring in that revenue. In terms of the amendment, I am trying to explain the use that we would make of the revenue that could be brought in by a tax on properties, to fund a reduction in corporation tax for those on the lowest earnings.

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Lady is raising a number of probing questions, which I will respond to shortly in my remarks, but given that she has mentioned the ambition of her party to raise £2 billion from a mansion tax, can she identify what rates of mansion tax would be required to raise that sum of money?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Obviously, the mansion tax policy was debated in some detail on the Floor of the House, and the figures are the ones on which the  Liberal Democrats based their calculations. We said that we would support the policy now, in this Parliament, to alleviate some of the pressure on the lowest earners. We would transfer some of the gains of those who have benefited hugely from the rise in property values, and who could, many feel, contribute towards alleviating the situation at the bottom. That is the purpose of the clause, and the Minister has rightly identified that assessments need to be made of how we calculate the value of a mansion tax. We need to take into consideration factors such as administration costs, how easy a tax it is to collect and administer and what the net benefit to the Exchequer would be. The reason why I flagged up the reductions in terms of the overall headline figure for revenue collected from the ATED relates to the many exemptions that have been factored into the drafting of the tax. Once the various exemptions are taken into consideration, the net revenue figure is much smaller.

I will explain the point of our amendment and how we see it working. We want to see an assessment of the revenue. We feel that the Government have laid the foundations for that by introducing this tax on properties of £2 million and upwards. It will be possible to carry out the same assessment, but not limit it to enveloped dwellings, corporate structures and those that the Government are rightly targeting for current avoidance activity. We see no reason why that assessment could not be extended to properties owned by individuals, which is why we tabled the amendment.

Clause 91 sets out the four bands under which the annual tax on enveloped dwellings would operate. The Prime Minister and the Chancellor have roundly rejected the notion of a mansion tax, claiming it would require mass revaluations. The setting up of the banding system, which would already be in place with this legislation, could provide the template for how a mansion tax could work. That is where the support of the Liberal Democrats comes in. An extension of the banding could easily be achieved based on the Treasury consultation document, “Ensuring the fair taxation of residential property transactions”, published in May last year, in which there is a chapter about introducing an annual charge as part of a regime to tackle tax avoidance on high-value residential property. It is limited only to property owned in companies or partnerships. Noting that properties will be revalued every five years, the document says:

“To assist taxpayers in compiling their annual charge tax return HMRC and the VOA will offer a pre-return valuation checking service to property owners.”

In table 2.A, the document sets out the proposed annual charging structure, and lists the property values and the likely bands that the Government would use: £2 million to £5 million; £5 million to £10 million; £10 million to £20 million; and properties worth more than £20 million.

Therefore, the Government already acknowledge that that kind of assessment and banding is entirely feasible, which prompts the question why they have dismissed it out of hand in relation to properties owned by individuals. Assistance has already been factored in for companies and partnerships to provide the information and valuations necessary in order to charge the annual levy. It would be useful if the Minister could set out why there is such a difference between individual properties and those owned by companies and partnerships.

That brings me back to my original comments related to the concerns about how the potential ATED and SDLT might be avoided by alternative means. Levying the annual charge might not resolve the issue as the Government hope, because it might just result in alternative avoidance activity. That would account for the fairly low revenue sums that are factored into the tax information and impact note. The Opposition are talking about a mansion tax on all properties worth more than £2 million. We believe that while the Government are putting the structures in place to provide support with evaluations—the banding and the property value that the tax will be levied on—they should at least take the opportunity to make an assessment of how the measures could be extended more broadly across the property market. That is the purpose of the amendment: to give the Government the opportunity to undertake such an assessment.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

The hon. Lady is making a case for the need for assessment, but I ask her to look at the detail of the amendment, and in particular the reference to three months. The amendment would provide not for an assessment of the first three months, but that it would be published at three months. As good as Treasury civil servants are, that would mean they would have to start the assessment after six weeks and so probably would not even have the necessary data. Is not a slightly longer period more appropriate? Is there a drafting error in the amendment? Will the Opposition be looking for a slightly more sensible time scale?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I am heartened by the hon. Gentleman’s intervention. He is at least acknowledging that the Government should be considering the matter, and that in itself it is not unreasonable to ask that an assessment be made of how the annual levy on properties worth more than £2 million held in corporate partnership structures could be extended to a broader range of properties worth more than £2 million.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

The hon. Lady puts words into my mouth. I did not support the concept; I was simply saying that the amendment is fatally flawed, in that if there was a case for assessment—she is starting to build that case but I do not think she has made it completely—it would be inappropriate for the Government to enact the amendment.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I appreciate what the hon. Gentleman is saying, but it belies my concerns about the Government’s complacency about the economic realities faced by many households up and down the country. HMRC and the Treasury have at their fingertips the resources to undertake consultations on complex matters of taxation and to implement legislation in very short periods of time. I therefore do not think it is beyond their wit to undertake an assessment that—should an extension of the measures be used to reintroduce the 10p tax rate, as we think it should be—could bring about much-needed added income for some of the hardest pressed households up and down the country.

Photo of Ian Mearns Ian Mearns Llafur, Gateshead

We need to reiterate from time to time that the downturn and the ongoing crisis in our economy are having very different effects in  different places. Although we were told this week that, thankfully, unemployment went down for the whole country by 5,000, in the north-east, unemployment actually rose by 4,000, to 131,000 or 10.1% of the working population; added to that we have youth unemployment among 16 to 25-year-olds of 24.9%. That shows that we need to look at how the crisis is affecting different parts of our country.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend makes an impassioned case for the impact that the current economic situation is having on different parts of the country. Looking at the levels of taxation and of property values that will be affected serves to highlight further the disparities up and down the country. The Government must take seriously the opportunity to deal with that imbalance by ensuring that those in the most expensive and valuable properties in the country pay their share in bringing down the deficit, and that those on the lowest incomes receive additional support. We know that households are struggling to make ends meet as wages stagnate or fall, and the cost of living continues to rise. That position is borne out in the current devastating unemployment figures; every job lost is a personal tragedy for every person affected. We must always bear in mind in our discussions that, without doubt, some parts of the country are much more affected than others.

I put it to the Minister that if the Government are serious about reforming the taxation system to make it fairer, why do they insist on limiting the annual charge to properties that are held in some legal structures, but not others? Members of the public would probably question why the Government are limiting it in that way, because they would wonder why the same charge was not levied on all high-value properties, no matter how they were held. It is unfair that millions of people on middle or low incomes cannot even get on the housing ladder, while millionaire investors are holding properties personally, directly or through trusts to escape the annual charge.

It is useful to examine the details of the tax. Our proposal is entirely feasible, and it is for the Government to make the case for why they are not including all properties of more than £2 million. I hope that Liberal Democrat Members, in particular, will support our reasonable proposal that at least an assessment is made of how the structure could be applied to all properties worth more than £2 million.

Photo of Andy McDonald Andy McDonald Llafur, Middlesbrough 12:00, 13 Mehefin 2013

Does my hon. Friend agree that there is simplicity in looking at property and saying that tax can be applied to it, rather than going down the convoluted route of company structures that can hide and obfuscate the true reality of ownership? Does not property present us with a better opportunity to deal with things more efficiently and straightforwardly?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend makes an important point. It is right that the Government are taking action to pierce the corporate veil and to levy an annual charge on properties that are held in certain corporate structures. They cite the purpose for such  action as trying to encourage the release of properties from corporate structures. I doubt whether owners of such properties would be so incentivised. They would probably be more incentivised to stay well and truly locked in corporate structures because they would not incur the charge. New properties will be subject to SDLT and if other properties come out of the corporate structures, they will be subject to the high level of SDLT so such action may have the opposite effect.

My hon. Friend asked why the provisions could not be applied to more properties. It is a fairly simple tax. People would clearly see its fairness, because it would ensure that those at the top of the property ladder passed down some of the benefit to help those who cannot even get on the property ladder. We all know people in that situation, and we want to find a way to help them.

Clearly, there have been disagreements within the Treasury—certainly within the Government. That is nothing new, but the measure is a welcome baby step towards a mansion tax. Obviously, it is our responsibility as the Opposition to challenge and scrutinise the detailed operational and technical approach that the Treasury is taking towards the tax. I have drawn attention to a few worries and have asked for more detail of how the tax will work in practice, and what revenue it will bring in. However, I have some additional questions for the Minister.

Regarding partnerships owning residential properties, the Chartered Institute of Taxation has commented on the enforceability of the annual tax on enveloped dwellings against a corporate member of a partnership. In January 2013, it commented:

“Although partners may be collectively entitled to all the assets of the partnership it is not entirely clear that…is effective in charging a corporate member of a partnership holding a high value dwelling”.

It referred to case law indicating that partners do not necessarily have an interest in that particular asset.

The institute also commented on the definition of partnerships in clause 165, which is,

“where the partnership is entitled to a single-dwelling interest, this Part has effect as if the partners were jointly entitled to the interest (and the partnership had no entitlement to it).”

The institute said that that appears to override the case law position regarding partnerships with separate legal personalities that can hold assets in their own names, such as limited liability partnerships. It does not appear to address partnerships that do not have a separate legal personality.

The institute requested clarification of the policy intent of the charge on a corporate member of a partnership and whether the charge would be with reference to the corporate partner’s capital profit share or on the full value of the interest. Will the Minister clarify that all those concerns have been addressed?

There are a few other general points regarding the clause. How many £2 million-plus properties will be subject to the annual charge? What are the numbers of properties involved? Will the Minister provide a breakdown of the numbers of properties subject to each band? It is important for members of the Committee to see exactly which types of property are involved and where they fall in the various bands.

Photo of Ian Mearns Ian Mearns Llafur, Gateshead

Given my local government experience, I have been interested in the topic for a long time. Due to the way council tax was introduced after the abandonment of the community charge, or poll tax as it was known, the banding system has had different impacts in different parts of the country. In places such as Gateshead, where 67% of properties were in band A, the band D median became quite meaningless. That meant that many people living in cheaper properties with lower incomes had a greater burden of tax placed on them than in other parts of the country.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Once again, my hon. Friend raises important issues. It shows the value of having the full geographical spread of representation on the Opposition Benches, because we are able to identify problems in the Government’s legislation, which may not always consider the impact on different parts of the country. It would be reassuring if the Minister could confirm that the impact of the policy has been properly considered, not just for central London and high-value properties, but up and down the country, particularly rural areas.

Photo of Paul Uppal Paul Uppal Ceidwadwyr, Wolverhampton South West

I could not let that final statement just pass. I am grateful and fortunate to be a member of the Prime Minister’s policy board, and I highlight the fact that in that line into No. 10 Downing street, there is a geographical spread; I am a west midlands MP. Looking at the way in which the Committee is divided, I think there is more of a geographical spread on Government Benches than on Opposition Benches.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It depends on where one sets one’s geographical sights. If the hon. Gentleman is talking about the full length and breadth of Great Britain and Northern Ireland, I think we would probably win.

Photo of Sheryll Murray Sheryll Murray Ceidwadwyr, South East Cornwall

Can the hon. Lady explain why the Opposition do not appear to have anybody representing the south-west of England?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

You would probably become distinctly uncomfortable and rule us out of order if we entered into a geography and regional representation-off, Mr Amess. I was actually making a reasonable point. [ Interruption. ]

Photo of Sir David Amess Sir David Amess Ceidwadwyr, Southend West

Order. It is a little late in the day to start arguing about such matters.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

You will be reassured that the point I actually made was about the geographical impact of the measure, Mr Amess. I simply asked the Minister to reassure us that the impact of the measure on every part of the country and on the different types of economies has been considered. We have urbanised aspects and we have rural and coastal. Different areas are suffering in different ways in the current economic climate, and some parts of the country are not suffering at all as a result of the economic climate. That must be borne in  mind when introducing charges and levies of this nature, although we welcome the Government’s clamping down on avoidance.

Photo of Steven Baker Steven Baker Ceidwadwyr, Wycombe

I would be most grateful if the hon. Lady named the areas of the country that she says are not suffering.

Photo of Sir David Amess Sir David Amess Ceidwadwyr, Southend West

Order. I hope the hon. Lady will not. Let us return to amendment 15, please.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Thank you, Mr Amess, for calling us back to order. I shall go back to my questions for the Minister.

How many £2 million-plus properties will not be subject to the annual charge? How much is the annual tax on enveloped dwellings expected to raise on an annual basis? The figures are possibly a little convoluted in terms of how the overall revenue impact is calculated. How much will the administration of the annual tax on enveloped dwellings cost? That is a key factor to consider when looking at the overall benefit of this targeted measure.

We have a large number of clauses to consider in one grouping and it is important to touch on some of the other clauses in the group. Clause 95 sets out who is liable for the tax where a property is held by a collective investment scheme. Can the Minister indicate what the likely split of tax receipts is expected to be between the different categories of chargeable persons—namely, companies, partnerships with a corporate member and collective investment schemes? Has HMRC modelled that? If the Minister does not have that information available just now, will he write to the Committee to confirm whether that modelling has been undertaken?

Clause 96 sets out the amount chargeable, which depends on the value of the property. For a property valued at £2 million to £5 million, the annual charge will be £15,000; for a property worth £5 million to £10 million, the charge will be £35,000; a £10 million to £20 million property will be charged £70,000; and a £20 million property will be charged £140,000. The charge will be levied on a pro rata basis where the corporate vehicle is not within the charge for the whole period.

However, there are some oddities in the design. A property worth £20 million will incur a £140,000 charge, equal to 0.7% of the value, and a property worth more than £100 million will pay the same £140,000 charge. Concerns have been expressed about a cliff-edge effect. We need to understand how the bandings were arrived at and whether they are correct and fair. The clause is no doubt aimed at providing that reassurance of fairness, but I hope the Government have given full consideration to whether it will achieve that in reality.

The tax burden in percentage terms of the most valuable properties will be less than the tax burden on properties that are valued at just over £2 million. Is the Minister convinced that the scales involved and the marginal rates have been devised correctly? Why has a slightly more progressive approach to the tax not been taken, and why have those particular bandings been arrived at?

I have a couple more questions on clause 96. How will the charge be funded if the corporate vehicle does not generate any income? Would that charge then transfer on to individuals, or would the revenue simply be lost? Would the payment of the annual charge be exempt from any charge under the remittance basis rules? I appreciate that a lot of exemptions are drafted into the legislation, but it would be useful to have clarity on that point.

Clause 97 deals with “interim relief”, which, like the name “annual tax on enveloped dwellings”, does not illuminate the content very much. I will go straight to my questions on the clause, rather than going into the details of the clause itself. Reliefs from annual tax enveloped dwellings applied from April 2013, but the reliefs from SDLT will not apply until Royal Assent. Could that potentially create anomalies and lead to stalling in commercial activity, while businesses wait for SDLT reliefs to come into effect? How many businesses are expected to benefit from interim relief on an annual basis? It would help the Committee if the Minister would clarify those issues.

Clause 98 provides that the charge will increase in line with CPI measures of inflation each year, and that will be effective from the second year of the charge. The Government said that if CPI for September 2013 is 2% higher than for September 2012, the annual charge will increase by 2% with effect from 1 April 2014. The economy has flatlined, but property prices have not plunged, so what will be the impact of a rising property market on the number of properties caught by the annual charge over the next 10 years? I am interested in hearing clarification of why the Government chose CPI as a measure, rather than the property index, which some would argue would track the growth more accurately.

In relation to clause 99, on the taxable value, will the Minister confirm who will operate the banding check service, and how much it will receive as an annual budget? How many valuations do the Government anticipate will be required each year? Is the Valuation Office Agency adequately staffed for that work? Do additional resources need to be allocated to meet that challenge?

Has the Minister worked through the provisions on the adjustment of amount charged? To recap, there is an annual chargeable amount, as per clause 96. That can be reduced under clause 97, where relief is available for commercial activity, or following a sale. To get the amount of tax due, if a reduction is available, we have to read through to clauses 102 and 103. Clause 102 defines the adjusted chargeable amount, which would be pro rata, based on the number of days chargeable for the period. However, has the Minister considered the complexity of those roles? How many defined terms did the Minister encounter in the definition of “adjusted chargeable amount”? We counted five. I challenge Committee members to get their heads around the complexity of the clause. Adjusted chargeable amount means

“the total of the daily amounts”,

which is defined in clause 102(2) for a “single-dwelling interest”, which is defined in clause 105. Daily amounts are defined by reference to the term “actual day”, which is determined by a calculation for a chargeable period, defined in clause 96(8). Actual day refers to the relevant day, which is defined in clause 96(5). One questions whether the drafting actually came from the Office of  Tax Simplification, because it achieves precisely the opposite of simplifying the legislation, and makes it incredibly complicated and cumbersome for the individuals and tax professionals who need to stay on the right side of it.

The Minister has power to introduce new exempt interests in clause 104(7). If he could give some examples, it would be helpful. Clauses 110 to 117, relating to the meaning of “dwelling”, are, again, highly complex. The legislation defines a building or part of a building as a dwelling

“at any time when…it is used or suitable for use as a single dwelling, or…it is in the process of being constructed or adapted for such use.”

I would be interested to understand why there is a lack of definitions in this part of the Bill. There does not seem to be any definition of “suitable for use”. For example, if I run a clinic from a residential building in Harley street, will that building be suitable for use as a single dwelling, although it is also used for commercial purposes? If someone plans to convert a shed at the bottom of the garden, how will that be treated? The Treasury has the power to modify the meaning of use of dwelling, but if the Minister could clarify what such modifications in the legislation might include, it would be helpful to the Committee and to those using the legislation if it passes through the Committee and receives sufficient votes.

How many new dwellings does the Minister expect to enter the charge in the next 10 years? It would be useful for the Committee to understand the impact of the measure. On new dwellings, conversions, demolitions and so on, it is unclear which body will decide whether a building is beyond use, and therefore whether the exemption will apply. Given the impact of the various exemptions in the Bill on the overall revenue expected from the measure, it would be useful to consider the exemptions in detail to ensure that they do not simply become another vehicle for avoiding tax unnecessarily, and that they have been fully thought through.

On clauses 130 to 150 and the section on reliefs, I mentioned in my earlier comments that clause 97 provides for interim relief and a reduction in tax where a commercial activity takes place, and the next set of clauses sets out what commercial activity qualifies for the relief. There are a large number of reliefs from the annual charge for genuine commercial activities that meet the legislative conditions. Relief is available for property development businesses, property rental businesses and property trading businesses, and there are also anti-avoidance provisions to ensure in many cases that relief is not available where the dwelling is occupied by persons connected to the corporate owner.

It is worth noting that properties run as businesses can benefit from relief. That includes venues run as wedding venues or which provide accommodation or other services. The relief may also be used for historic homes that are run as a qualifying trade. Properties qualify for relief under the Bill if they are open to the public with access to the interior for at least 28 days a year on a commercial basis, provided that the public are offered the opportunity to make use of, stay in or otherwise enjoy the dwelling. The public must have access to a significant part of the interior, but there is no requirement that the property must actually be visited by members of the public for the 28 days, nor is the  relief restricted where there is owner-occupation. I understand that there should be further guidance about how that relief will operate, but there are sincere concerns that it could be open to avoidance if an artificially high market rate is advertised for staying in the property, which would deter visitors from coming. If someone charges them enough, they will not come, yet the person has made it available. How will that be judged and measured?

Properties held to provide employee accommodation may be relieved. There is also relief for farmhouses. Various details are given about how that relief would apply.

The key questions about the measure are as follows. How many businesses are expected to benefit from the reliefs? I return again to the impact note, which states the amount of reduction, in terms of revenue, that will come from the operation of the reliefs. We must ensure that they have been well thought through and will be correctly applied and not simply used to avoid the charge. That would undermine the Government’s stated intention as to how the tax will apply. What systems and checks have been put in place to ensure that the reliefs are being properly used and not abused? There is a requirement to file one return for each property. Can the Minister confirm that that means that if one group owns a residential property portfolio in which multiple properties can claim relief, there will be a requirement to file a return for each property claiming relief? Again, the administrative burden needs to be factored in with regard to the cost and loss of revenue from the measure.

I made comments previously about the provision on

“a significant part of the interior” and access to it. If the Minister could clarify how that will work in practice, it would be helpful to the Committee.

I am moving towards the end of my comments on these clauses. I want to focus now on the administration of the tax. I have raised on a number of occasions some of the concerns relating to that. How far advanced are HMRC’s preparations for collecting the ATED tax? Obviously, HMRC needs to be ready to receive the first tax payments on 31 October. It would be useful to understand whether HMRC is fully prepared and geared up for that, because obviously there is no point in voting through the changes if the administration is not there to ensure that the tax is received.

Let us say that a company incorporated outside the UK was subject to double taxation in relation to the annual charge. There seems to be no clarity in the legislation at the moment as to how that would be relieved, so if the Minister could confirm the position, that would be helpful.

This is obviously very complicated legislation. We have dealt with some of the main concerns and queries in the brief time we have had this morning. I am sure that for those who will be subject to the charge and those who will be administering it or providing advice about it to potential clients, support will need to be provided by HMRC in the form of clarification, particularly in the early stages of the charge’s implementation. Therefore, it would be helpful if the Minister could confirm how much money will be put into the ATED helpline—what cost will be associated with that—and whether additional staff will be in place at the opening of the helpline to  assist taxpayers, or HMRC customers, with their initial returns, which will inevitably result in queries and concerns being raised.

That concludes my comments on the part 3 group of clauses. I shall take your guidance, Mr Amess, on whether clause 64 will be dealt with at this stage or in the next group.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Thank you, Mr Amess. In that case, I conclude my comments.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East 12:30, 13 Mehefin 2013

I am pleased to have the opportunity to speak on this issue. It is worth remembering how we got to these provisions, because, in many ways, they seem to be an example of what Government Members often counsel against: complexity in the taxation system.

The provisions arose from the decision of the Chancellor, and the Government generally, to reduce the additional rate of tax from 50p to 45p. On Budget day, as I am sure we all remember, we were told, with lots of hand gestures, that five times the amount of money was going to come into the Treasury, compared with what the 50p tax rate would have achieved. One of the reasons for that was the change to stamp duty land tax to create a higher rate for properties valued over £2 million at the time of sale, rather than a generalised tax on properties of that value. If we do that now or in the future for transactions, what about people who have done some very clever things in the past to try to avoid stamp duty? Obviously, that was a considerable issue in the debate, hence these provisions.

One of the things that was highlighted was people saying that they were carrying out a commercial transaction, rather than purchasing a residential home, even though it was blatantly clear that they were purchasing a residential home to live in; the transaction was merely the form in which the purchase took place, hence these complex provisions. That prompts the question why we have to go through such a convoluted process. Either the Government think it is a good thing to achieve a higher tax take from higher value properties or they do not. Their justification was that such a measure would be a better form of being all in it together than the 50p tax rate, but that is not the form of the argument.

We are told that the 50p tax rate does not yield enough, but we are also told that we could achieve a similar effect—indeed, we are told that more money would come in—if we taxed higher-value properties in some way. There is a lot of merit in that debate, because the big advantage of property taxation, as we have seen over the years in local taxation—the rates had a big advantage over the poll tax, and then there is the return to council tax, which, again, is based on property—is that property tends to be there; it does not move around like people, which makes evasion harder.

One of the major criticisms of the poll tax as it unfolded, and I still think this is one of the main reasons why it was abandoned so rapidly by the then Government, was that it was a very difficult tax to collect. Anyone who was in local government at the time knows that the tax take plummeted and that the  individuals who were chased turned out to be extremely mobile. Although it sounded good to say, “If there are four adults in a household, we are getting four times the amount of money,” the trouble was chasing those four adults, especially young adults, as they moved in and out of the household.

Property taxation has certain advantages. The properties are there and they are not going to move very easily. People move houses around on wheels in some American states, but I do not think that has ever become a great practice in Britain. As the Government have decided that there is merit in some sort of property tax, and in focusing on higher-value properties through SDLT, people have asked, as my hon. Friend has said, whether we should look more widely at taxing high-value properties. If the Government had introduced a straightforward tax on high-value properties, through stamp duty or some other mechanism, an awful lot of the complexity would have been removed, because it would be straightforwardly about the existence of the property. The problem with stamp duty was that people were able to avoid even the lower level of stamp duty—the avoidance tactics were not about the enhanced level but about the previous level—by saying they were engaged in a commercial transaction.

Photo of Fiona O'Donnell Fiona O'Donnell Llafur, East Lothian

My hon. Friend is, as ever, making a thoughtful and informed contribution to the debate. Does she agree that the complexity of dealing with stamp duty is greater now that the power has been devolved to the Scottish Parliament?

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East

It will certainly create issues for Scotland. It will be interesting to see how that progresses. The Scottish Government like to consider themselves to be practising a radical, even left-wing, form of politics. It will be interesting to see what they do with the powers they get. They are trying to be all things to all people. At the same time that they say they are going to be an extremely left-wing Government, they say they are going to be a tax-cutting Government. It will be interesting to know how they will square that circle. We will find out soon, given their attitude to stamp duty.

Our position is that there is a merit in property taxation, and there is a merit in looking at high-value properties. The Government have conceded that the taxation system should be fair; that was the thrust of the steps they took in Budget 2012. They reassured voters when they changed the income tax rate that more money would be secured from the better off through this other mechanism than would be secured through income taxation. They accepted that there was a good argument for having a progressive, fair tax system. On that basis, they set out a clear argument for a tax on high-value properties, whether we call it a mansion tax or something else.

The incredible level of house prices—high-value properties have been snapped up all over London—has an impact further down the food chain. Most of the population would never in their dreams—short of a major lottery win—be in the market for that kind of property. But property pages in the past few months have been full of stories about how much property prices are increasing again, particularly in the capital and at the high-value end. That suggests that there is a lot of wealth around; people have not been leaving the  country because of the 50p tax rate, but have been flowing into the country for all sorts of other reasons. One reason might be that they think it is attractive to buy property in this country because we do not tax it heavily.

Photo of Rory Stewart Rory Stewart Ceidwadwyr, Penrith and The Border

Is the hon. Lady implying that the fact that people are coming back into the country because of the attractiveness of property here is a problem? In the same way as raising the top income tax rate to 50p may have driven people out, changing the mansion tax regulations may also deter people from coming back into the country.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East

What concerns me is that we are regularly told about the necessity for this and that to be cut. For example, tax credits, on which many low-income families rely on considerably, have been extensively reduced in the past few years. The Child Poverty Action Group has published its assessment of what is happening with child poverty, and it shows just how big the cuts in the tax credit system have been at all levels. As a result of those cuts, 300,000 more children are now living in absolute poverty than were before. Many people have been asked, in a variety of ways, to help the country get out of its economic problems. We do not necessarily share the view that endlessly saying, “Cut, cut, cut” will get us out of our economic problems, but that is the Government’s view. We cannot ask low-income families to take this substantial hit.

We had a fairly extensive debate early on in our deliberations—it was probably months ago, because we seem to have been here that long—about the bedroom tax. My constituents are losing £12 out of a £71-a-week income. That is a lot of sharing the pain.

It is absolutely right to ensure that the pain is shared equally, and one way of trying to do that is through fair taxation. I share the Government’s view that sharing the pain through property taxation appears to be an effective way of taxing the very wealthy. It must be the very wealthy who are in this bracket, and property taxation will be easier.

I urge the Government, even at this late stage, to reconsider the convoluted way they have dealt with this matter, which presents us with all these concerns. After all, we do not know that another way will be found to get around this problem. The door has been closed on this mechanism, but will another door be opened by some other ingenious scheme? There clearly seem to be many of them. In many ways, straightforward simple taxation makes the matter easier. I urge the Government to reconsider their position.

Photo of Steven Baker Steven Baker Ceidwadwyr, Wycombe

I was going to let this issue go, but after listening to the hon. Member for Edinburgh East I cannot help myself. The clause is a tax on expensive dwellings within a tax wrapper, so we can ask ourselves two questions: why are they expensive, and why have people gone to the trouble of wrapping them in these companies? The hon. Lady mentioned the cost of these dwellings and how people have benefited from them, and I remind the Committee that over the 13 years of new Labour the broad measure of the money supply tripled. M4 went from £700 billion in 1997 to £2.2 trillion  in 2010. The reason why house prices have shot away so substantially is because too much money was loaned into existence and into property. That happened in particular because flawed regulations, such as Basel, directed the money there. This is the problem: we have ended up bringing forward a measure to scoop off some of that gain from the rise in property prices. Those properties were expensive because so much money had been loaned.

Photo of Fiona O'Donnell Fiona O'Donnell Llafur, East Lothian

The hon. Gentleman’s analysis is absolutely right: too much money was lent to people in an unsustainable way. Will he give me some examples of when his party in opposition called for action to change that situation?

Photo of Steven Baker Steven Baker Ceidwadwyr, Wycombe

Of course, I would have been delighted to have been elected to Parliament sooner and I assure the hon. Lady that I would have taken this stance then, too. If she looks at my record, she will see that I take these points of view irrespective of the party’s position. I will leave that matter there, if I may, for a moment.

Why are expensive properties wrapped in various devices to avoid tax? It is because taxes are too high. The hon. Member for Edinburgh East mentioned the ingenious schemes that people come up with. When looking at this matter, it can be seen that some of the old adages are true. If we end up with Government intervention upon Government intervention, tax upon tax and complexity everywhere, outcomes will be produced that were not intended. If we had sound money that held its value, low simple taxes and allowed people to get on with their lives in a free society, we would not need clauses 91 to 172, because houses would not be so expensive and it would not be necessary to hide their value from the tax man.

Photo of Chris Evans Chris Evans Llafur, Islwyn 12:45, 13 Mehefin 2013

It is a pleasure to speak under your chairmanship again, Mr Amess, even after so many weeks of listening to these riveting debates. I thank my lucky stars that I come here every Tuesday and Thursday, but the wonderful thing is that the Committee is chaired by you. It is always entertaining. [Interruption.] I am trying to move up the batting order every time I stand up. I will keep giving you compliments, Mr Amess, if you call me first.

I have said previously that, on the Finance Bill, we can only ask for reviews. I have some sympathy for the Minister who is batting off Labour party amendments about reviews every Tuesday and Thursday. I bet he is fed up of hearing about still more reviews. We cannot—I repeat myself again—add to a Finance Bill, because it is a money Bill, but we can consider a review.

I did not think that I would say this, but clauses 91 through 172 are quite interesting. The annual tax on enveloped dwellings strikes at the heart of the problem in this country. Half of the 700,000 houses valued at £2 million are not being occupied, whether or not they are being used as some facility to avoid tax. The clause introduces an important measure. It is not a mansion tax, but we are in a situation in which 1% of the highest earners are benefiting from an income tax cut. I am not denigrating success. I believe that everybody wants to be successful—I do—but cutting the 50% rate by 5p is  affecting only a small minority in society. If 5p could be found to cut income tax for the high earners, why was not it given to the middle earners instead—those who play by the rules, work hard and just want to get on? Why could we find the money then but not now?

Photo of Brooks Newmark Brooks Newmark Ceidwadwyr, Braintree

I am sure that the hon. Gentleman was at the Budget, like the rest of us. There were tax cuts for the lowest paid, which brought roughly £700 extra to about 24 million individuals and took more than 2 million of the lowest paid out of tax altogether.

Photo of Chris Evans Chris Evans Llafur, Islwyn

I am pleased that I took that intervention, because the hon. Gentleman is always informed and always has the facts, and he has added to the Bill and the Committee. However, it is like this. Talking to someone this morning, I said, “If you get people to think about politics for even 30 seconds a day, you have achieved something.” If you talk to someone about all the complicated tax changes, saying, “I’ve cut a penny off your income tax”, it is something they can see and understand. Wealth taxes in this country only bring in 5.9% of the revenue; most of it comes from council tax. Inheritance tax only brings in 0.5% and it is only paid by 3% of the population. At the moment, people are using houses and property to avoid taxes. The simple fact is that people cannot hide a mansion in Monaco, can they?

The provisions are, as my hon. Friend the Member for Newcastle upon Tyne North said, a baby step towards a mansion tax. We have heard all the arguments about a mansion tax hitting the richest pensioners—work must be done on the policy, as the Minister said—but a review would show specifically how tax revenue is affected in this country. We will be told that there is the Green Book and the Red Book, but the policy is so important because half of properties worth more than £2 million are under-occupied, and most are in trusts or in businesses that avoid taxation altogether.

I hope that the Minister will tell us how he sees the policy developing and give us his views on the mansion tax. Rather than political point scoring, I want to hear his actual thoughts about a 1% levy every year.

Photo of Stephen Williams Stephen Williams Democratiaid Rhyddfrydol, Bristol West

I am sorry that I missed the start of the hon. Gentleman’s speech, Mr Amess, because I always enjoy listening to him. Will he share with the Committee the Labour leadership’s view of the mansion tax in their coalition negotiations with us three years ago?

Photo of Chris Evans Chris Evans Llafur, Islwyn

I absolutely love taking interventions from the hon. Gentleman. He is from my neck of the woods—he is from the Cynon Valley, while I am from the Rhondda—and we have always had a problem with people from the Cynon Valley.

The truth, as the hon. Gentleman knows as well as I do, is that I was not involved in those coalition negotiations. They were not successful, so it is a moot point. When  the Business Secretary was in the hon. Gentleman’s position he was a big fan of the mansion tax, but suddenly the Liberal Democrats were in government and just as with tuition fees and everything else they promised—[Interruption.]—including VAT, guess where it ended up? It ended up in the bin marked “false promises”. I challenge the hon. Gentleman that, when we come to the next election—[Interruption.] No, this is an open invitation—[Interruption.]

Photo of Chris Evans Chris Evans Llafur, Islwyn

Why does the hon. Gentleman not come to Islwyn and take on this Rhondda boy to see whether he can hold on to his deposit as a Liberal Democrat? His party’s candidate lost his in the last election for the National Assembly for Wales. Let us see whether he will do that: what does he think? Why does he not come to Islwyn to take me on?

Photo of Stephen Williams Stephen Williams Democratiaid Rhyddfrydol, Bristol West

I cannot help the hon. Gentleman with his inferiority complex about people from the Rhondda as opposed to the Cynon Valley, but I can do so on the coalition negotiations. The mansion tax has not been introduced by this coalition simply because we could not agree, which is how coalitions work. [ Interruption. ] His party did not offer it and, to deal with the Labour Whip’s sedentary intervention, it was not at all prepared to move on tuition fees.

What happens when coalitions are formed between two different parties is that we get some of the things we want and they get some of those that they want. In 2015, we might have a slightly more grown-up view of how to conduct politics in a pluralist society after a general election result in which no party commands a majority in this House.

Photo of Chris Evans Chris Evans Llafur, Islwyn

Coming from the Rhondda, we have always looked down on Cynon Valley, because we are higher up anyway, as the hon. Gentleman knows.

I see the coalition working differently: the hon. Gentleman’s lot go to the Tories and ask, “Can we have lower tuition fees, please?” The answer is no, and they reply, “All right, then, fair enough.” That is the way it has been from the start. I nearly ended my speech two minutes ago, so I thank him for increasing my contribution.

As I have said, I want to see a bit of funding, and I want to hear the rationale behind why the Minister thinks that the mansion tax would not work. How does he square the circle in relation to under-occupancy, second homes and the wealthiest not paying their fair share?

Ordered, That the debate be now adjourned.—(Greg Hands.)

Adjourned till this day at Two o’clock.