Clause 214 - Unauthorised unit trusts

Part of Finance Bill – in a Public Bill Committee am 4:15 pm ar 18 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of David Gauke David Gauke The Exchequer Secretary 4:15, 18 Mehefin 2013

Clause 214 will enable us to introduce new tax rules for unauthorised unit trusts and their investors. UUTs are pooled investment vehicles. Most UUTs are used solely by exempt investors such as pension funds that are not required to pay tax on any gains they realise. However some have been used by non-exempt investors in abusive avoidance schemes. We therefore announced in our paper “Tackling tax avoidance” at Budget 2011 that UUTs would be included in the review of high-risk areas in the tax code. At the same time, the Government committed to simplify the rules and reduce administrative burdens for exempt investors. The changes made by the clause provide the Treasury with the power to set out the tax rules and administrative machinery for UUTs and their investors in regulations. This is consistent with the approach used for other forms of collective investment vehicle, the principal benefit being the ability to respond quickly to commercial or regulatory change.

The clause provides a power to make further changes through regulations. These proposed changes have been subject to full consultation, initially on broad options in June 2011 and on detailed proposals in May 2012. A summary of responses, a draft Finance Bill clause and draft regulations were published for comment in December 2012. The changes were broadly welcomed by the industry, but, where appropriate, amendments were made in response to concerns about some of the proposals. Those principally concerned sanctions that might apply in the case of minor and inadvertent breaches of the rules and ensuring that investment in UUTs remained tax efficient for pension funds and other exempt investors.

The first regulations provided for by the clause will be subject to the affirmative procedure and are expected to be introduced after the summer recess. A draft of regulations has been published for further comment and is available to the Committee. I have set out the process of consultation that we have undertaken. The question of why it has taken so long to address this matter of tax avoidance has been raised. It is worth pointing out that the Government acted immediately in 2010 to close down  an abusive avoidance scheme that was disclosed to HMRC. However, reform is still necessary to simplify rules that have become increasingly complex. That will help to protect against future abuse. The Government have consulted and officials have been working with industry to make sure that any changes do not adversely affect exempt investors such as pension funds.

The hon. Lady asked how much tax would be safeguarded by this measure. It is correct to say that there is no scorecard figure for revenue protection, as avoidance schemes tend by their nature to be novel and do not always work as intended. However, previous schemes that have sought to exploit the UUT rules involve tax risk in the hundreds of millions. The measures introduced in regulations will simplify and make fundamental changes to the rules that will remove opportunities for avoidance.

The hon. Member for Newcastle upon Tyne North raised the issue of the tax gap. The approach that the Government have taken on the tax gap calculation is consistent with that of the previous Government. The numbers are looked at carefully. I remember the right hon. Member for East Ham (Stephen Timms) when he was Financial Secretary in the previous Government defending the methodology for that tax gap calculation. There have been no changes. I am sure that the hon. Lady is aware of some of the weaknesses in the methodology used in one of the more prominent alternative calculations.