Clause 39 - Payments to farmers under the lump sum exit scheme etc

Part of Finance (No. 2) Bill – in a Public Bill Committee am 2:30 pm ar 16 Mai 2023.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of James Murray James Murray Shadow Financial Secretary (Treasury) 2:30, 16 Mai 2023

Clause 39 clarifies the tax treatment of payments received under the lump sum exit scheme, saying they will be treated as capital receipts rather than income, provided that the eligibility criteria are met. As we know, the lump sum exit scheme was designed to make it easier for farmers who wish to retire or to leave the industry. The basis for the scheme was considered in 2021 by a consultation that we understand received 654 responses.

We will not oppose the clause, which is specifically designed to provide clarity on the tax treatment of payments made under the scheme, but I wish to use this opportunity to ask the Minister for more context around the clause and, in particular, for details on the operation of the scheme and what comes next.

I understand that a total of 2,706 farmers made an initial application to the lump sum exit scheme by the deadline of 30 September 2022. Of those claims, 511 were withdrawn or rejected. Will the Minister tell us what analysis there has been of why those 511 claims were withdrawn or rejected?

I am conscious that when the draft Agriculture (Lump Sum Payment) (England) Regulations 2022, which relate to this matter, were debated in March last year, concerns were raised, on behalf of organisations including Sustain, that the scheme could be open to instances of fraud. Will the Minister confirm whether any of the 511 claims that were withdrawn or rejected were in fact rejected on the basis of fraud? If she does not have that information, perhaps she can at least provide us with the detail about what anti-fraud efforts have been made in relation to the scheme and how successful they have been.

I understand that the Department for Environment, Food and Rural Affairs is conducting five pilots aimed at supporting new entrants into farming, and I would be grateful if the Minister updated us on how those pilots are going and any early lessons that she may be able to share with us.

Clause 40 modifies the operation of the period in which a person must notify HMRC that they are chargeable to capital gains tax or corporation tax, and the time limits for assessing chargeable gains and claiming allowable losses, when an asset is disposed of under an unconditional contract.

When an asset is disposed of in that way, its date of disposal for capital gains purposes is treated as being the date on which the contract is made and not the date on which the asset is conveyed or transferred, if this is different. HMRC subsequently has four years from the end of the tax year or accounting period in which the disposal is treated as taking place in which to assess any tax that is due. Similarly, there is a four-year time limit for making loss claims. If there is a long gap between the disposal contract being entered into and it being performed, that can result in HMRC and taxpayers having little or no time in which to make a tax assessment or a claim.

We recognise that the measure removes potential avoidance opportunities by ensuring that HMRC can assess tax due in circumstances in which more than four years pass between an unconditional contract being entered into and an asset being conveyed or transferred. It also provides the taxpayer with a safeguard by allowing a corresponding period to claim allowable losses. We will therefore not oppose the clause.

As we heard, clause 41 makes changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating. It provides that they be given up to three years in which to make a no gain, no loss transfer of assets between themselves when they cease to live together, and unlimited time if the assets are the subject of a formal divorce agreement. It also introduces special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.

Essentially, the clause seeks to make fairer the capital gains tax rules that apply to spouses and civil partners who are in the process of separating. It gives them more time to transfer assets between themselves without incurring a potential charge to capital gains tax. No gain, no loss treatment is currently available only in relation to disposals made in the remainder of the tax year in which the spouses or civil partners cease to live together. After that, transfers are treated as normal disposals for capital gains tax purposes. The measure extends the time available to give separating couples at least three years to make no gain, no loss transfers between themselves for capital gains tax purposes.

It is worth noting that the “Background to the measure” section of the Government’s policy paper on this matter refers to the Office of Tax Simplification and its consideration of how the capital gains tax rules apply to individuals who separate and divorce. The Government responded to the Office of Tax Simplification recommendations by agreeing that the no gain, no loss window on separation and divorce should be extended, and that is what the clause implements.

There is at the very least something ironic about a Government who use one clause of a Finance Bill to implement a recommendation of the Office of Tax Simplification and another clause of the same Bill to abolish that institution. As the Chartered Institute of Taxation has pointed out, the changes to be made by the clause are a result of an Office of Tax Simplification report. In fact, they are the third recommendation from that report to be implemented: it also recommended an increase in the notification period for the disposal of residential properties from 30 days to 60, and the incorporation of capital gains tax into a single customer account.

Will the Minister offer her views on that when she responds, and set out how the Government reconcile the apparent worth they seem to attribute to the Office of Tax Simplification, as evidenced by their decision to implement its recommendation in clause 41, with their decision to scrap it later in the Bill?

We understand that clause 42 will introduce a new elective basis of taxation for carried interest that will tax it earlier than under the current rules. In the UK, carried interest is that charged to capital gains tax, and is taxable at the time it arises to an individual. Some individuals may be liable for tax in more than one country on the same income or gain. To avoid double taxation in such situations, the UK has negotiated treaties with more than 100 countries.

UK resident individuals who pay tax on carried interest are sometimes unable to claim double taxation relief from other countries because carried interest is recognised and charged to tax at a different time between the two jurisdictions. That is the issue the clause seeks to address. We will not oppose the clause, although it does not address the change we believe is needed, which is for carried interest to be taxed as income rather than a capital gain. Will the Minister consider that change?

I also want to ask the Minister for more information on how the Exchequer impact of the clause has been calculated. The documentation on the clause shows a positive impact of £80 million this year followed by £10 million in each of the remaining years in the forecast period. The Budget policy costings document explains that:

“The costing accounts for a behavioural response, reflecting those taxpayers who choose to take up the elective accruals basis.”

Will the Minister set out the detail of that behavioural response so that we can better understand how the predicted Exchequer impact of the clause has been calculated?

Finally on clause 42, the Minister will forgive me if I missed this, but I am not sure that she addressed Government amendment 8 and the changes it makes. I would be grateful if she would set out the detail of its impact on the clause, given that the details of the amendment were circulated to the Committee only in the past 24 hours or so. In addition, I would be grateful if she could explain whether, assuming it passes, it will have any effect on the Exchequer impact.

Clause 43 makes changes to the legislation on capital gains tax roll-over relief and private residence relief to ensure that limited liability partnerships and Scottish partnerships that hold title to land are included. The measure provides consistency for different types of partnership in different parts of the UK on capital gains tax roll-over relief and private residence relief and will have effect for claims for relief made on or after 15 March this year. We will not oppose the clause.