Clause 195 - Leases

Finance Bill – in a Public Bill Committee am 2:30 pm ar 18 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

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

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

With this it will be convenient to discuss the following:

Government amendments 103 to 106.

That schedule 39 be the Thirty-ninth schedule to the Bill.

Photo of David Gauke David Gauke The Exchequer Secretary 2:45, 18 Mehefin 2013

Clause 195 and schedule 39 simplify the stamp duty land tax rules that apply to certain lease transactions. Approximately 22,000 taxpayers are expected to benefit from the changes, which will reduce compliance costs by up to £150 per business.

In most cases when a person acquires land or property, stamp duty land tax is paid only once. Certain transactions involving leases can require the purchaser to make further notifications to HMRC, for example when the lease is extended or there is an abnormal increase in the rent. Some of the provisions are complex and onerous for the taxpayer, who may not be aware of his or her ongoing liability. HMRC has been working with its stakeholder group for some time to identify areas of legislation that would benefit from simplification. Three areas under provisions on leases were identified as priorities for such simplification, so we have taken action.

The clause introduces schedule 39, which will abolish the rules on abnormal rent increases, simplify the reporting requirements when a lease continues after the expiry of its fixed term, and simplify the reporting requirements when an agreement for a lease is substantially performed  before the actual lease is granted. As I have said, those three areas of the provisions on leases were identified by the stakeholder group as priorities for simplification. HMRC has continued to consult interested parties throughout the process to ensure that the measures give the desired result.

As I said, the clause and schedule are intended to simplify the reporting requirements for certain lease transactions, including when a lease continues after the expiry of its fixed term. However, in some circumstances, the interaction of such changes with another provision under existing legislation would result in the taxpayer being required to subject a return under both provisions for the same period. The potential interaction of the two provisions was not recognised during the consultation period prior to the drafting of the Bill. It is not intended that two returns should be required; indeed, that would go against the objectives of the changes made under schedule 39. Government amendments 103 to 106 will therefore ensure that only one return is required in such circumstances.

For those affected, the changes will streamline the reporting requirements and reduce the administrative costs for business. They support the Government’s objective of simplifying the tax system, so I hope that the Committee will agree to amendments 103 to 106, the clause and the schedule.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

The Government have stated that their intention behind the abnormal rent increase regime is to prevent the parties from at least agreeing to a low or minimal rent for the first five years with an abnormal increase in year six, thereby reducing the SDLT charge over the long term. However, many in the industry consider that the rules are highly unlikely to counter abuse because, commercially, a landlord would not forgo the rent in the first five years of a lease to provide an SDLT advantage for a tenant, especially as the direct tax rules would mean that the landlord suffered tax on the rents forgone.

In their impact note for the measure, the Government state that 9,000 businesses a year will benefit from the reduction in administrative form-filling. It would be useful to know how HMRC has arrived at that figure and what the breakdown is of the number of businesses that will benefit from the change to leases held over, compared with the number of businesses that will benefit from the changes to agreements for leases.

HMRC also estimates that 13,000 businesses will benefit from the change by not having to carry out the complex calculations needed to determine whether their rent increase is abnormal. Again, it would be helpful to understand the basis of that estimate. As the provisions are being repealed, what assurance can the Minister give that the avoidance that was originally targeted by these measures no longer presents a problem or risk for HMRC?

Photo of David Gauke David Gauke The Exchequer Secretary

If I may, I shall deal with the last question first, which was whether, as these provisions were brought in to deal with avoidance, removing them runs the risk of further avoidance. When stamp duty land tax was introduced in 2003 there was a perceived risk that rent  payable under a lease could be structured to avoid the tax. The normal rent increase rules were introduced in 2004 to address that risk. Experience over the years that the tax has been in operation has shown that the risk has not materialised: leases are not structured to avoid stamp duty land tax in such a way. It was therefore right to abolish the rules, although HMRC will keep this area of tax under review to ensure that no new avoidance opportunities emerge. It should be pretty clear to the Committee that the Government’s determination to deal with stamp duty land tax avoidance is strong. We will take action where necessary. In light of the experience that HMRC has had over eight or nine years, it was felt that there was an opportunity here to make a simplification.

The hon. Lady also asked me to break down some of the estimates of entities that will benefit from these changes and the value of that benefit. We do not have any numbers that further break down the benefits and the beneficiaries beyond what has been published. I know she has read the tax information and impact note, and I do not have further numbers that can break that down more precisely. I hope that she will appreciate that this is a measure that, without increasing avoidance risk, will help to benefit a number of businesses and reduce the regulatory burden where we can.

Question put and agreed to.

Clause 195 accordingly ordered to stand part of the Bill.