Finance Bill (Third sitting)

George Kerevan Excerpts

Tuesday 13th October 2015 Public Bill Committees

[George Kerevan (East Lothian) (SNP)]

I welcome clause 19, which fits in with the drift of the previous discussion we had about not all banks being the same and about how treating them the same under the new levy was therefore the wrong approach. We also agreed that savings banks should be encouraged. I am happy to tell colleagues that they are not simply a Scottish invention, but grew out of the savings movement in the 19th century following the industrial revolution. Given the experience of banking in this country in recent years, the savings movement is to be encouraged at all levels.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

Clause 21

Pensions: special lump sum death benefits charge

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move amendment 13, in clause 21, page 32, line 44, at end insert—

‘( ) In paragraph 16 of Schedule 32 to FA 2004 (benefit crystallisation event 7: defined benefits lump sum death benefit is a “relevant lump sum death benefit”)—

(a) in the first sentence, in paragraph (a), after “benefit” insert “, other than one—

(i) paid by a registered pension scheme in respect of a member of the scheme who had not reached the age of 75 at the date of the member’s death, but

(ii) not paid before the end of the relevant two-year period”, and

(b) in the second sentence, for “sub-paragraph” substitute “paragraphs (a)(ii) and”.”

--- Later in debate ---

[Mr Gauke]

It is up to individuals to decide how they wish to save. We are determined to ensure that the opportunity to own one’s own home is available to as many people as possible. That requires us to increase the supply of homes in this country, and that is a Government priority. We are moving in the right direction, but, as we set out during the Conservative party conference last week, we want to do more to put in place the conditions wherein more people will have that opportunity.

On the impact of the changes, there was a question about whether the measures might move a basic rate taxpayer into the higher tax band. We expect that around 94% of landlords who will have to pay more tax will have a total taxable income of over £35,000. On average, landlords own 2.7 properties. Those currently with taxable income under £35,000 who will have to pay more tax have, on average, larger rental incomes and larger property portfolios; they have an average pre-tax rental income of more than £64,000, and own six properties. It is true that basic rate taxpayers could be affected by the measures, but often—not in every case, but overwhelmingly—those people will have quite large portfolios and may have leveraged up to a greater extent than the typical buy-to-let landlord.

I hope that clarification has been helpful to the Committee, and that the measures will have the Committee’s support.

[George Kerevan]

rose—

[The Chair]

Order. I will make an exception in this case, but, as a matter of form, ordinarily when I call the Minister to wind up the debate, that is it. If the hon. Gentleman wishes to intervene, he needs to be a little more spritely in leaping to his feet.

[George Kerevan]

Forgive me, Sir Roger. I am concerned about a sub-class of property owners in rural areas who might have unincorporated businesses on farms. They often rely on rented accommodation as part of the diversification of their business. I am concerned that one of these changes will make that more difficult for them, as they will be penalised, albeit unintentionally, with regard to investing in their property as part of a farm business. They might also be penalised with regard to their ability to make relevant commercial deductions for investment loans. In rural areas, property is quite often mortgaged less as part of a buy-to-let and more as part of the general farm business. Will the Minister comment on that?

[Mr Gauke]

The same principles apply to rural landlords as apply across the board. We want to ensure fairness in how interest deductibility applies: the same rate should apply across the board. In terms of whether businesses will be able to secure loans against property for business development, the measure will apply to restrict relief for borrowings used for the purpose of residential property businesses, not to borrowings secured against residential properties that are used for the development of other business. I hope that that reassures the hon. Gentleman and, again, I commend the clause to the Committee.

Amendment 22 agreed to.

Amendments made: 23, in clause 24, page 37, line 18, leave out “finance costs” and insert

“costs of a dwelling-related loan”

Amendment 24, in clause 24, page 37, line 19, leave out

“non-deductible costs of a dwelling-related loan”

and insert “individuals”

Amendment 25, in clause 24, page 38, line 26, at end insert—

“274B Tax reduction for accumulated or discretionary trust income

(1) Subsections (2) to (4) apply if—

(a) an amount (“A”) would be deductible in calculating the profits for income tax purposes of a property business for a tax year but for section 272A,

(b) the trustees of a particular settlement are liable for income tax on N% of those profits, where N is a number—

(i) greater than 0, and

(ii) less than or equal to 100, and

(c) in relation to those trustees, that N% of those profits is accumulated or discretionary income.

(2) The trustees of the settlement are entitled to relief under this section for the tax year in respect of an amount (“the relievable amount”) equal to N% of A.

(3) The amount of the relief is given by—

BR × L

where BR is the basic rate of income tax for the year, and L is the lower of—

(a) the total of—

(i) the relievable amount, and

(ii) any difference available in relation to the trustees of the settlement and the property business for carry-forward to the year under subsection (4), and

(b) the profits for income tax purposes of the property business for the year after any deduction under section 118 of ITA 2007 (“the adjusted profits”) or, if less, the share of the adjusted profits—

(i) on which the trustees of the settlement are liable to income tax, and

(ii) which, in relation to the trustees of the settlement, is accumulated or discretionary income.

(4) Where the amount (“AY”) of the relief under this section for the year in respect of the relievable amount is less than—

BR × T

where BR is the basic rate of income tax for the year and T is the total found at subsection (3)(a), the difference between—

(a) T, and

(b) AY divided by BR (with BR expressed as a fraction for this purpose),

is available in relation to the trustees of the settlement and the property business for carry-forward to the following tax year.

(5) In this section “accumulated or discretionary income” has the meaning given by section 480 of ITA 2007.”

Amendment 26, in clause 24, page 40, line 3, at end insert—

‘( ) In section 26(2) of ITA 2007 (tax reductions deductible at Step 6 of the calculation in section 23 of ITA 2007 in the case of taxpayer who is not an individual), before the “and” at the end of paragraph (a) insert—

“(aa) section 274B of ITTOIA 2005 (trusts with accumulated or discretionary income derived from property business: relief for non-deductible costs of dwelling-related loans),”.—(Mr Gauke.)

Clause 24, as amended, ordered to stand part of the Bill.

Clause 25

Enterprise investment scheme

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