Finance Bill

Debate between George Howarth and David Gauke

Tuesday 28th June 2016 Commons Chamber

[The Temporary Chair (Mr George Howarth)]

With this it will be convenient to discuss the following:

That schedules 11 and 12 be the Eleventh and Twelfth schedules to the Bill.

Government amendments 30 to 35.

Clauses 73 to 75 stand part.

Government amendments 36 to 38.

That schedule 13 be the Thirteenth schedule to the Bill.

Clause 76 stand part.

Government amendments 39 to 64.

Amendment 181, in schedule 14, page 432, line 45, at end insert—

“169VS Expiration of Chapter V provisions

(1) The provisions of Chapter V of part 5 of this Act shall remain in force until five years after their commencement and shall then expire, unless continued in force by an order under subsection (2).

(2) The Secretary of State may by order made by statutory instrument provide—

(a) that all or any of those provisions which are in force shall continue in force for a period not exceeding 12 months from the coming into operation of the order; or

(b) that all or any of those provisions which are for the time being in force shall cease to be in force.

(3) No order shall be made under subsection (2) unless—

(a) a draft of the order has been laid before and approved by a resolution of both Houses of Parliament,

(b) the Secretary of State has laid the report of a review of the operation of Investor’s Relief before both Houses of Parliament.”

Government amendments 65 to 68.

That schedule 14 be the Fourteenth schedule to the Bill.

Amendment 182, in clause 77, page 135, line 17, leave out “£100,000” and insert “£50,000”.

Government amendment 184.

Clauses 77 to 81 stand part.

New clause 2—Review of remuneration of investment fund managers—

“The Chancellor of the Exchequer must commission a review of ways in which the law could be amended to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income, and must publish the report of the review within six months of the passing of this Act.”

New clause 11—Entrepreneur’s relief: value for money—

“The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish a report giving HM Treasury’s assessment of the value for money provided by Entrepreneur’s Relief.”

[Mr Gauke]

The final session of today’s debate considers a number of changes to capital gains tax, along with Government amendments and one Opposition amendment.

Clause 72 will provide an incentive for people to invest in companies by reducing the main rate of capital gains tax from 18% to 10% and 28% to 20% on most gains made by individuals, trustees and personal representatives. The Government want to ensure that companies can access the capital they need to grow and create jobs, and want the next generation to be backed by a strong investment culture. We believe the best way to encourage this is to let investors keep more of the rewards when their investment is successful. At 28%, our higher rate of capital gains tax is among the highest in the developed world. We do not want high tax rates to deter investment. The lower capital gains tax rates introduced by this clause will make it more attractive for people to invest in companies, helping those companies to access the capital to expand and create jobs. Gains made on residential properties that do not qualify for private residence relief, and those from carried interest, will remain subject to the 18% and 28% rates. Retaining these rates will create an incentive for individuals to invest in companies rather than in property.

Clauses 73 to 75 make changes to ensure that entrepreneurs relief on capital gains tax rewards business owners and entrepreneurial investors while safeguarding the effect of measures introduced last year to prevent abuse of the relief. The Government are committed to supporting enterprise and entrepreneurship, but they are equally committed to fairness in the tax system. Entrepreneurs relief allows certain capital gains to be taxed at 10%, rather than the normal rates, and plays an important role in supporting the enterprise culture of this country, but, as with all tax reliefs, we need to make sure that it is not being claimed in circumstances where it does not achieve its intended purpose.

These changes will improve the targeting of the anti-abuse rules introduced in 2015. The changes in clause 73 will allow relief for gains on disposal of a private asset used in a business in cases of genuine retirement or where members of the claimant’s family succeed to the claimant’s business. These changes will level the playing field for family-run businesses and allow them to be passed to the next generation without an unfair tax charge.

The changes in clause 74 will allow someone selling their business to a limited company to claim relief on the goodwill of that business, providing they have only a small stake in the company. The relief will still be denied where the former proprietor or partner could continue running the business through the company and benefit directly from future profits and business growth. Entrepreneurs relief on gains on shares is due only where those shares are in trading companies or the holding companies of trading groups. Clause 75 amends the definition of a trading company to ensure that relief is available for shares in a company that has no trade of its own but which holds shares in a trading joint venture company where the investor effectively holds 5% or more of the joint venture company. The further changes made by these clauses will be backdated to the date on which the 2015 changes came into effect, meaning that no one who has made a genuine disposal for commercial reasons should be disadvantaged by the new rules.

The Government have tabled several minor amendments to the clauses. Amendments 30 to 33 simply move one of the new conditions introduced by clause 73 to a different place in the relevant statute. Amendments 34 and 35 correct two unintended retrospective effects of clause 73. Without the amendments, someone who made a disposal after Budget day 2015 and was eligible for entrepreneurs relief could find themselves deprived of that relief by changes announced at Budget 2016. Amendments 36 to 38 clarify the commencement provisions for the new rules introduced by clause 75 and ensure that the new definition of a trading company supersedes the definition used by the Finance Act 2015. These amendments do not reflect any change in policy and will have no impact on the costings of the measures.

Now is an appropriate time to address new clause 11, tabled by Opposition Members, which proposes that my right hon. Friend the Chancellor of the Exchequer publish within six months of the passing of the Act a report of the Treasury’s assessment of the value for money provided by entrepreneurs relief. Opposition Members will be aware that the Government keep all tax policy under review. This includes entrepreneurs relief, as demonstrated by recent action taken to ensure that the relief is effective, well targeted and not open to abuse, and we will continue to act where appropriate. I can inform the Committee that officials have for some time been developing a detailed research programme designed to identify taxpayers’ motivations for using entrepreneurs relief, and I expect the results to be published at some point in 2017. I do not believe it is necessary to legislate for a review, so I hope that the Opposition will not press the new clause.

Clause 76 and schedule 14 introduce investors relief and apply a 10% rate of capital gains tax to gains accruing on the disposal of qualifying shares held by an external investor in an unlimited trading company for at least three years. Many companies struggle to attract the long-term external investment they need to grow and expand, and this can be particularly difficult for unlisted companies, which is why, on top of cutting the capital gains tax rates, the Government are introducing this additional financial incentive to invest in these companies over the longer term. Investors relief has been designed to help unlisted companies attract inward equity investment from external investors. This clause and schedule apply a 10% rate of capital gains tax to gains accruing on the disposal of qualifying shares held by an investor in an unlisted trading company or trading group. The investor must not be an employee or officer of the company at the time of subscription. In addition, the shares must have been newly issued after 17 March 2016 and held for a period of at least three years starting from 6 April 2016. The amount of relief is capped, with individuals subject to a lifetime cap of £10 million on qualifying gains.

We are today making a number of amendments to this clause to ensure that the rules surrounding the relief are fair and clear, and to extend the scope of the relief to prevent market distortions and unlock further sources of capital. Amendments 39 to 41, 43, 44, 50 and 61 will ensure that trustees of a settlement as well individuals who choose jointly to subscribe with other individuals are able to subscribe for investor relief qualifying shares. In the case of trusts, amendment 51 includes rules that prevent individuals from creating multiple trusts, each with a £10 million lifetime limit.

Amendments 45 to 49 clarify how to determine the number of shares that qualify for investors relief when a disposal is made that consists of a mixture of qualifying and non-qualifying shares. Amendments 52 to 60 and amendments 65 to 68 clarify the provisions that deal with share disposals, share exchanges, elections, subscriptions and the distribution of value to existing shareholders.

Finally, some investors may wish to monitor and protect their investment through a seat on a company’s board. Amendments 42 and 62 to 64 allow such an investor to become a director after their investment has been made as long as they are not remunerated in that capacity. They also allow an individual who becomes an employee of the company to access relief in most situations after 180 days of the share issue. Investors relief is designed to attract new capital into unlisted companies, enabling them to grow their business. It will help to advance this Government’s aims for a growing economy driven by investment and supporting businesses to grow.

Let me turn to the Opposition amendment that was tabled by the hon. Member for Feltham and Heston (Seema Malhotra), but is now being taken up by her successor—and may I congratulate the hon. Member for Salford and Eccles (Rebecca Long Bailey) on her promotion? Amendment 181 seeks to end the relief after a period of five years, with the option of an additional 12-month extension if agreed by both Houses, subject to the Chancellor laying a review of the operation of the relief before both Houses. The amendment is unnecessary when the Government rightly keep all tax policy under review in line with normal tax policy-making practice. There would be limited merit in conducting the review within five years; the first data on the uptake of the relief in its first year of operation would not be available to HMRC until 2020-21. The Government believe that legislating for a review within five years is unnecessary and inappropriate. I therefore hope that amendment 181 will be withdrawn.

Clause 77 relates to shares given to employees who accept employee shareholder status. It places a lifetime limit of £100,000 on the capital gains tax exempt gains that a person can make on disposal of those shares. The limit will apply to shares received under arrangements entered into after 16 March 2016. The change will enable employee shareholders to realise the significant growth in the value of their shares without paying any capital gains tax, while helping to ensure that the status is not misused. The clause provides for fair and consistent treatment of transfers of shares to a spouse or partner. The change will benefit the Exchequer by £10 million in 2019-20 and £35 million in 2020-21.

It is also an appropriate point to address amendment 182, which was tabled by Opposition Members. It proposes that the lifetime limit be £50,000 rather than the Government’s proposed £100,000. This is not a change that the Government would welcome. The introduction of a cap of £100,000 where there was none before is, we believe, a significant change. The level of the cap is a matter of weighing up two policy objectives—ensuring that employee shareholder status is not misused, and encouraging and rewarding entrepreneurship. The Government believe that setting the cap at £100,000 strikes the right balance. It encourages entrepreneurship by allowing an exemption from capital gains tax which is still generous while reducing the likelihood of abuse by ensuring that the benefits for individuals are proportionate and fair. I therefore invite hon. Members to reject amendment 182.

Budget Changes

Debate between George Howarth and David Gauke

Monday 21st March 2016 Commons Chamber

[Mr Gauke]

As always, I appreciate my hon. Friend’s spirit of helpfulness but I am afraid that I do not agree with him. It was a manifesto commitment by our party that we would fulfil the 0.7% target.

[Mr George Howarth (Knowsley) (Lab)]

Harold Wilson once said that a week was a long time in politics. How long is a long-term economic plan? Three days? Four days? Five?

[Mr Gauke]

Let us be clear: this is a Government who have turned the economy round and delivered this country as the fastest-growing major western economy in 2014. We are forecast to be the fastest-growing again. We have record levels of employment. The deficit will be down by two thirds by the beginning of the next fiscal year. That is what this Government are delivering and will continue to deliver.

Age-related Tax Allowances

Debate between George Howarth and David Gauke

Monday 9th September 2013 Westminster Hall

[Mr Gauke]

In a moment I will turn to what we are doing with the basic state pension and the steps we have taken to ensure that it is rising more quickly than it otherwise would have.

My hon. Friend the Member for Suffolk Coastal touched on simplification. We want to make the tax system simpler and easier for people to understand, and the changes to age-related allowances are an important part of that. It is worth pointing out that we are not the only people to conclude that such allowances add unnecessary complications to the tax system. A 2009 report by the Public Accounts Committee commented:

“The age-related allowance rules are complex and hard for older people to understand and place too much emphasis on older people having to prove their eligibility, resulting in errors in claims and potential overpayments of tax.”

And, in March last year, the Office of Tax Simplification published its interim report on pensioner taxation, highlighting no fewer than nine complexities.

The taper feature is one of the main sources of complication in age-related allowances. It is worth setting out how it works, to demonstrate the degree of complexity in age-related allowances. The taper removes an individual’s age-related allowance where their income exceeds the aged income limit,—£26,100 in 2013-14—at a rate of £1 for every £2 over the limit. The age-related allowance is reduced up to the point at which the income tax allowance is exactly the same as the normal personal allowance. That taper creates a 30% effective rate of tax for individuals on modest incomes and, most importantly, brings hundreds of thousands of people into the self-assessment system when, in many cases, they would otherwise have no need to complete a tax return.

Our changes to age-related allowances will remove such complexity and confusion for older taxpayers. The simplification is not only of benefit to taxpayers; a simpler tax system is also easier for the Government to administer, enabling HMRC to focus on reducing the tax gap, which I know the hon. Member for Luton North cares about passionately.

[Mr George Howarth (Knowles) (Lab)]

I apologise, Mr Hollobone, for not being here at the commencement of the debate; I had inescapable commitments elsewhere in the House. May I press the Minister to respond to a point? The arguments he puts would be better received by those affected if they did not compare the changes to their tax allowances with the fact that those at the higher end of the income scale have received benefits that amount to about £100,000, as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out. That comparison is what makes the situation so objectionable.