Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss that schedule 24 be the Twenty-fourth schedule to the Bill.

I congratulate you, Mr Amess, on your speedy passage through a complex piece of legislation.

The clause introduces a charge to capital gains tax on both UK and non-UK resident natural persons, other than genuine commercial businesses and other limited categories. It relates to the clauses that have been considered on enveloped dwellings, because UK resident limited companies currently pay corporation tax, rather than capital gains tax, on gains made. Given that capital gains tax is higher than corporation tax, under these provisions both resident and non-resident companies will pay capital gains tax on disposals. The provisions need to be read in conjunction with the ATED provisions that we just considered.

I want to raise a number of issues that have been highlighted, particularly on how the provisions have been targeted, which is fairly broadly and expensively. The tax information and impact note makes it clear that all three taxes—stamp duty land tax, capital gains tax and ATED—will apply to the same UK high-value residential property valued at more than £2 million, held by non-natural persons and not used for the specified relievable purposes that we have already discussed, nor used by persons relieved from the charge.

The types of property that the relief applies to are fairly extensive. The list includes: property development, investment rental and trading businesses, residential properties open to the public for at least 28 days a year on a commercial basis, residential properties held for employee accommodation, residential properties owned by a charity and held for charitable purposes, working farmhouses, diplomatic properties and some other publicly-owned residential properties.

Concerns have been expressed that the scheme is widely targeted. The Institute of Chartered Accountants in England and Wales has called it “fundamentally flawed” and said:

“It is not properly targeted, is highly complex and burdensome and likely to be expensive to administer and enforce.”

When one looks at all the measures being implemented in the Bill, it starts to look distinctly like a mansion tax, although Government Members would shudder at the thought.

Given the number and types of properties listed as being relieved from the package, do the Government have figures on how much capital gains tax is expected to be paid that would not have been paid before this measure was introduced? What is the likely split between the UK-resident non-natural persons and the non-UK resident non-natural persons who are likely to be affected by the change? The tax information and impact note suggests that the new liability to capital gains tax will result in an additional £25 million to the Exchequer in 2013-14, then no additional receipts in 2014-15 and 2015-16, before increasing slightly to £5 million in 2016-17 and 2017-18. Most people would find those figures slightly odd and surprising. For the purposes of the Committee, can the Minister clarify how those figures were arrived at?

Clause 64 introduces schedule 24, which provides for a capital gains tax charge on the disposal of high-value residential properties when those properties are held in envelopes, such as companies. Those vehicles are known as non-natural persons. The capital gains tax charge forms part of a package of measures intended to ensure that non-natural persons holding high-value residential properties pay their fair share of tax. The other components of that package are the annual tax on enveloped dwellings, which we have just discussed, and the 15% rate of stamp duty land tax that we introduced last year.

It may again be helpful if I provide a little background. The avoidance of property tax due on residential property is unacceptable. As I have already explained, the use of corporate structures to hold UK property and avoid paying stamp duty land tax has been identified as an issue by the Government and we are taking action to ensure the fair taxation of residential property. We consulted on a package to address such forms of property tax avoidance over summer 2012 and received over 175 representations. In response to the consultation, we announced a number of changes to the original proposals. The Government were able to focus the measures so that that they would more effectively deter tax avoidance while not impacting on bona fide businesses. In particular, a series of exemptions were announced to apply across the package of measures to ensure that they targeted property owners who were actively avoiding paying their fair share of tax. The Government also decided that the capital gains tax charge should apply to gains that built up after 6 April 2013 only, which acknowledges concerns raised that taxing gains built up before April 2013 could in some way discourage de-enveloping.

In January 2013, the Government announced that, for consistency, the capital gains tax charge would apply to UK companies as well as non-resident ones. Some gains that were previously chargeable to corporation tax will instead be charged to capital gains tax, but no gain that is presently taxable will fall out of the tax net. If a gain or part of a gain is not charged to capital gains tax under this measure, it will remain subject to existing corporation tax and capital gains tax rules.

Clause 62 and schedule 24 extend the scope of capital gains tax so that it is payable by companies and by some other non-natural persons at 28% on gains that they make when selling UK residential property worth more than £2 million. The charge applies whether the non-natural person is resident in the UK or overseas. They will not be liable to corporation tax on the same gains, and individuals, trusts and personal representatives are excluded from the new charge. The capital gains tax charge is closely linked to the annual tax on enveloped dwellings, which we have just discussed. Broadly, if the annual tax was not charged on the property while it was owned, capital gains tax will not be charged either.

As I have said, a wide range of exemptions from the annual tax on enveloped dwellings exist for genuine commercial businesses. Companies benefiting from such exemptions will also be exempt from the capital gains tax charge under clause 64 and schedule 24. As under the new annual tax on enveloped dwellings regime, there are, for instance, exemptions for properties used in bona fide rental and property development businesses, for certain farmhouses and for properties that are open to the public as part of a trade. The Government recognise that such properties are unlikely to be owned by companies for tax avoidance purposes.

If the residential property was acquired before April 2013, the charge will apply only to the gain for the period from April 2013 to the date of disposal unless the taxpayer chooses to base the gain—or loss—on the whole period of ownership. Any part of a gain that is not subject to the new CGT charge remains subject to the normal rules. A UK company will be chargeable to corporation tax on that part of the overall gain. As a result of the exemptions introduced, the restriction of the charge to disposals of directly-held property and the rebasing, which ensures that gains up to April 2013 are not charged, the Government expect that a relatively small number of non-natural persons will be subject to the charge.

I turn to the questions relating to yield. As the hon. Member for Newcastle upon Tyne North said, the estimated yield set out at the Budget is £25 million in the first year, nil for the next two years, and £5 million a year for the next two years. That was signed off by the Office for Budget Responsibility. However, like all forecasts, future yields and costs, the yield is dependent on a number of assumptions, including house price levels and volume of house sales in the years to which the figures relate. Those assumptions are subject to margins of error.

The yield when the policy was originally announced and the measure applied only to non-resident, non-natural persons, was scored as negligible. That meant it was not expected to reach £3 million in any of the years forecast. However, some yield is expected from non-residents. It would be fair to say that only a small number of non-natural persons will be affected each year. We estimate fewer than 20 in total; that is both UK residents and non-residents.

The new CGT charge on disposals of property worth more than £2 million is an important element of the package to ensure the fair taxation of residential property. It complements the other elements: the 15% rate of SDLT and the ATED, which we have debated. Taken  together, the changes provide a significant deterrent to holding high-value UK residential property in envelopes. The CGT charge plays its part by ensuring that disposals of property held in envelopes will be subject to tax, and I hope that the clause and schedule will stand part of the Bill.

Question put and agreed to.

Clause 64 accordingly ordered to stand part of the Bill.

Schedule 24 agreed to.

Clause 173 ordered to stand part of the Bill.