Finance (No. 2) Bill (Except clauses 1 to 4, 12 and 13, and 19)

James Murray Excerpts

Tuesday 21st May 2024 Public Bill Committees

[The Financial Secretary to the Treasury (Nigel Huddleston)]

It is a pleasure to serve under your chairmanship, Mrs Latham, and I thank all hon. Members for their participation in today’s debate. I also thank those who have submitted written evidence on a variety of the clauses we will discuss today, including the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation, the Low Incomes Tax Reform Group and others, and all those who have contributed to consultations as part of this Finance Bill process.

Clause 5 makes changes to the high income child benefit charge, or HICBC, as it is commonly called. It increases the threshold at which child benefit begins to be withdrawn, from £50,000 to £60,000. The Government are also increasing the threshold at which child benefit is fully withdrawn, from £60,000 to £80,000. That means that 1% is withdrawn for every £200 of income that exceeds £60,000; previously, the rate was 1% for every £100 of income that exceeded £50,000, and child benefit was fully removed once individuals earned £60,000 or above.

The HICBC is a tax charge and was introduced in January 2013 for recipients of child benefit payments, or their partners, on higher incomes. It applies where the highest earner has an adjusted net income—that is, their total taxable income, less certain reliefs, such as pension contributions—above the threshold, which is rising to £60,000. For individuals with incomes above the top of the taper, which is rising to £80,000, the tax charge is equal to the full amount of the child benefit payment.

The changes will ensure that the HICBC continues to withdraw child benefit from high-income families, as it was designed to, without unfairly penalising those on middle incomes. By halving the rate at which HICBC withdraws the child benefit gain, the Government are improving people’s incentives to continue working or to take up more hours. The Office for Budget Responsibility estimates that, as a result of both changes, those already working will increase their hours by a total equivalent to those of around 10,000 full-time individuals by 2028-29.

The changes made by clause 5 will have a positive impact for around 485,000 families, who will gain an average of £1,260 in 2024-25, which they can put towards the cost of raising their children. That includes around 170,000 individuals who will no longer be liable for HICBC, and 135,000 individuals currently paying the HICBC who will have it reduced. The remaining 180,000 are the families currently not claiming child benefit or families opting out of getting child benefit payments who are now eligible to receive payments without incurring a tax charge.

The increase in the HICBC’s adjusted net income threshold reaffirms the Government’s commitment to rewarding working families, by allowing them to keep as much of their hard-earned money as possible in a sustainable way. I therefore commend the clause to the Committee.

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve on this Committee with you in the Chair, Mrs Latham. I am pleased to respond on behalf of the Opposition in the Public Bill Committee stage of the Finance (No. 2) Bill.

As we have heard from the Minister, clause 5 increases the adjusted net income threshold for the high income child benefit charge from £50,000 to £60,000, with effect from the 2024-25 tax year. The clause also amends the rate at which the high income child benefit charge applies to individuals with adjusted net incomes of between £60,000 to £80,000 in a tax year, and contains an administrative easement to prevent backdated child benefit payments from triggering a charge in 2023-24.

As we all know, due to high levels of inflation during the current Parliament, families across the country have felt the impact of threshold freezes, particularly in relation to income tax. Millions of people will be paying income tax for the first time or paying it at higher rates as a result of high inflation and the frozen thresholds. Similarly, the fixed nominal thresholds for the high income child benefit charge mean that more and more people will have been affected by the charge as a result of inflation. The adjustment to the thresholds in this clause will therefore be a welcome step for many families, and brings the number of individuals affected by the high income child benefit charge closer to what Parliament envisaged when the policy was introduced in the Finance Act 2012.

Although we support the measures in the clause and will not oppose them, we would appreciate some clarification from the Minister on one point. In particular, we understand that subsection (2) effectively halves the rate of clawback in the calculation of the charge, so the child benefit is fully withdrawn when the relevant adjusted net income reaches £20,000 above the initial threshold —that is, £80,000. I am grateful to the Chartered Institute of Taxation for pointing out that, because the clawback happens across a wider range of incomes, some individuals will be caught out by higher marginal rates of tax and will therefore likely need to file a self-assessment return. Is the Minister concerned that that will introduce more complexity into the tax system, and if so, what is he doing to communicate these changes so that taxpayers are not caught out?

Finally, we understand that the Government will be moving the assessment of the charge to a household basis from April 2026. I would be grateful if the Minister confirmed when the Government will announce further details about the consultation on that change. Will he also set out the details of what he is doing to consult industry and professional bodies about it?

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

It is a pleasure to serve under your chairmanship, Mrs Latham. We will not be opposing the clause, but I do want to make some comments about this paltry measure, which will help very few people in a cost of living crisis that the Conservative Government are trying to pretend is over and done with—in fact, they are saying that that is the case. That is not the reality for people in their homes across the nations of the UK.

The Minister said that the intention of this provision —I think I am quoting him correctly—was to allow people to “keep as much of their hard-earned money as possible.” That reflects incredibly badly on the way that this Government have conducted themselves by artificially boosting the cost of living through reckless actions such as Brexit and, of course, the mini-Budget. If they wanted to do something that was meaningful to help families, they could have copied the Scottish child payment in Scotland, which has lifted 100,000 children out of poverty. But no: they have decided to do this. They have also decided to keep the two-child limit on universal credit. That should be scrapped, and the Labour party should be joining in calls for that to be scrapped. The rape clause has no place in our society, and this measure will not go far enough to help families.

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These clauses boost transactions in the property market while raising revenue. They remove the opportunity for abuse of multiple dwellings relief, and give public bodies certainty about their exemption from SDLT. I commend the clauses to the Committee.

[James Murray]

Clause 6 applies to residential property gains by individuals, trustees and personal representatives. As the Minister set out, it reduces the higher rate of CGT that applies to such gains from 28% to 24%. The new rate will apply to disposals made on or after 6 April 2024. As we understand it, the lower rate is intended to remain at 18%, and the CGT rates that apply to carried interest gains remain unchanged.

The Government’s policy paper on this matter claims that the measure will be revenue positive for the Treasury and will generate more transactions in the property market, benefiting individuals who are looking to move home or get on to the property ladder. The Opposition will not oppose moves that reduce the rates of tax while also raising greater income. However, I would like to ask the Minister for more detail on the Exchequer impact of this measure. The Government’s policy paper reports expected spikes in revenue of an additional £310 million and £350 million in 2024-25 and 2025-26 respectively. That then falls significantly to an additional £45 million in 2026-27, and to just £5 million by the end of the forecast period in 2028-29. I would be grateful if the Minister set out his explanation for this pattern of expected income. Is he confident that there will be a permanently higher level of income as a result of this change after the end of the forecast period?

Clause 7 abolishes multiple dwellings relief—a relief from stamp duty land tax available on the purchase of two or more residential properties in a single transaction or linked transactions. The change will apply to purchasers of dwellings in England and Northern Ireland that have an effective date of transaction on or after 1 June 2024.

SDLT is a tax on the purchase of land or property, and ordinarily the amount of tax chargeable is calculated on the basis of the total amount paid for land or property. MDR, meanwhile, was introduced in 2011 with the intention of reducing a barrier to investment in residential property and to promote the private rented sector housing supply. We know that the Government evaluations have shown very little evidence that MDR achieved its original aims in a cost-effective way. We believe that clamping down on dubious claims and abusive tax reliefs is the right thing to do, so we will support the clause, but I have a few points of clarification to which I would be grateful for the Minister’s response.

First, I would like to ask the Minister about the reasoning behind the introduction of MDR in 2011. I understand that in September 2010, the coalition Government said in response to a consultation that

“the Government will not be taking these proposals forward at the present time”.

However, at the Budget of March 2011, a few months later, they announced that they would indeed introduce changes to the SDLT rules for bulk purchases of residential property. Does the Minister know why the Government at the time changed their mind?

Secondly, the Minister referred to abuse of the relief, so I would be grateful if he shared with us any figures or estimates of the cost of abuse of MDR since its introduction in 2011. Thirdly, we note that the Government said that they will engage with the agricultural industry to assess whether there are specific impacts of their changes to MDR that should be given further thought. Will the Minister let us know whether he is consulting with any other sectors?

Finally, the Chartered Institute of Taxation has indicated that for the domestic buyer in the build-to-rent sector, the divergence between the rates of SDLT applicable to residential property and those in the non-residential sector is large. There is a great deal of complexity in the system, so is the Minister aware of the potential for anomalies and for new behaviour to emerge around the acquisition and definition of property? I would welcome his assurance that he will work closely with relevant stakeholders to ensure there are no unintended consequences to the changes in the clause.

Clause 8 makes changes to the rules for claiming first-time buyer relief from stamp duty land tax in cases where the purchaser is buying a new lease via a trust or nominee. It applies to purchasers of dwellings in England and Northern Ireland, with an effective date on or after 6 March. We know there have been instances of first-time buyers using trusts or nominees to conceal their identities to protect themselves from behaviours such as domestic violence and stalking. The clause corrects issues arising over the eligibility of such claims. It provides an amendment to correct a defect in the relief in order to ensure that the underlying buyer, not the nominee, is eligible for SDLT, and we will not oppose it.

As we have heard, clause 9 amends out-of-date references and definitions used in legislation relating to the SDLT exemption for registered providers of social housing. As the explanatory notes make clear, that is to ensure that all registered providers of social housing that purchase property with the assistance of a public subsidy are not liable for SDLT. The measure seeks, first, to update outdated references following changes to social housing legislation; secondly, to extend the definition of public subsidy to include receipts from the disposal of social housing; and finally, to amend the definition of registered providers of social housing to confirm that certain entities such as English local authorities are eligible for the exemption, which removes an uncertainty.

The changes are set to apply to transactions on or after 6 March 2024, but we understand from stakeholder representations that there is some uncertainty relating to the “clarifications” set out in the measure. Can the Minister confirm whether purchases made before 6 March by local authorities will be treated as separate to this clause, or has any scope been given in the exemption for those purchases made before that date?

Clause 10 removes public bodies from the scope of the higher rate of SDLT of 15%. As the explanatory notes set out, that is consistent with the treatment of public bodies in relation to the annual tax on enveloped dwellings, which does not apply to public bodies. Given that this is a corrective measure, we will not oppose it, although the Chartered Institute of Taxation has pointed out that with the measure not being retrospective, there are concerns among stakeholders. We understand, again, that the measure will apply from 6 March, the date of the Budget when the measure was announced. Can the Minister clarify what the situation will be for a public body such as a local authority that may have incurred a 15% SDLT liability in the weeks immediately before this change was announced?

As the Minister set out, clause 11 restricts the scope of agricultural property relief and woodlands relief to property located in the UK. As the Government’s policy paper states, the former measure was put in place to ensure compatibility with EU law; it expanded the scope of agricultural property relief and woodlands relief to property located in the European economic area. Now that the UK has left the EU, this measure reverses those changes, so that property located in the EEA will again be treated the same as property located in the rest of the world. This is a technical measure, and we will not oppose it.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

[The Chair]

With the leave of the Committee, I will put the Question on clauses 7 to 11.

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[Nigel Huddleston]

Clauses 14 and 15 make changes to better support the UK independent film industry. That is in recognition of the sector’s cultural importance and its role in growing and supporting UK talent. The Government have heard from several representatives of the British film industry, including the British Film Institute, about the specific challenges that the independent film industry faces. The Government also recognise the vital role that independent film plays in incubating UK talent.

The changes made by clauses 14 and 15 substantially increase the level of audio-visual expenditure credit available to smaller budget films from 34% to 53%. This increased rate for qualifying films is referred to as the UK independent film tax credit. The 53% tax credit will be applied on up to 80% of a film’s production costs, up to a cap of about £15 million. That translates into £31.80 back for every £100 spent, after accounting for corporation tax at 25%.

Films will also need to meet the criteria of a new British Film Institute test, with the expectation that films will have either a UK writer, a UK director or be certified as an official co-production. Clauses 14 to 15 set out the bulk of the measure, but further detail, including on the additional test, will be provided in a statutory instrument in due course.

Productions that start principal photography from 1 April 2024 will be eligible, and companies will be able to make claims from 1 April 2025 on expenditure incurred from 1 April 2024. The UK independent film tax credit is a transformational, generous, enhanced tax credit, which will boost the production of UK independent films and incubate UK film talent.

[James Murray]

As we have heard from the Minister, clause 14 introduces a higher rate of expenditure credit for independent films, defined as films below a maximum budget that have either a UK director or writer, or are an official international co-production. As the Government’s policy paper on this measure makes clear, the basic rate of credit under the audio-visual expenditure credit scheme is 34%. Independent films will now receive a rate of 53%, with the amount of credit capped to relevant global expenditure of £15 million. The Opposition strongly support the UK’s creative sector as one of the areas of the global economy in which Britain is world leading. As such, we will not oppose any measures that provide certainty and greater opportunities for growth in that critical sector.

Clause 15 provides the administrative framework for the previous clause and sets out that the higher rate will be available only on expenditure incurred from 1 April for films that commenced principal photography on or after that date. We understand that claims can in turn be made from 1 April 2025, so I would like to ask the Minister about the role of His Majesty’s Revenue and Customs, because we know that the new schemes will need to be properly explained through new guidance and may require new staff, as the Government’s policy paper makes clear. What is HMRC doing to ensure that the guidance remains timely and up to date for those wanting to make a claim? What will HMRC do to support those who want to apply for the credit so that they can understand how it operates? Similarly, what allocation of staff will be made to administer the measure?

[Nigel Huddleston]

I thank the Opposition for their support. I think there is agreement across the House on the vital role of the world-leading UK creative industries, and, in particular, our thriving film sector. In answer to the broad question put by the hon. Member for Ealing North, further information will provided by a statutory instrument that we will discuss in due course. His Majesty’s Revenue and Customs will have a role in that, and the precise resource allocation is an operational decision for it. As the Minister who oversees HMRC, I will pay close attention to the issue and I will ensure that it is properly resourced. This is a very important policy area and we want to ensure that it is successful. Again, I am afraid that I will ask the hon. Gentleman to be a little patient and wait for the details in the statutory instrument, but we are consulting key stakeholders on that.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15 ordered to stand part of the Bill.

Clause 16

Increase in theatre tax credit

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

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[James Murray]

As the Minister has set out, from 1 April 2025 the rates of theatre tax relief, orchestra tax relief, and museum and galleries exhibition tax relief will be set permanently at 40% for non-touring productions and 45% for touring productions and all orchestra productions. As we know, the so-called creative reliefs were previously set at 20% and 25% respectively. They were temporarily increased on 27 October 2021 to help the sector in its economic recovery from covid-19. As the Government’s policy paper notes, the rates were due to taper to 30% and 35% from April 2025. We welcome the fact that they will now be set permanently at 40% and 45% from next year.

We also note that, by way of these clauses, the Government are removing the 2026 sunset clause on the museums and galleries exhibition tax relief so that it becomes a permanent relief with no expiry date. In previous debates on earlier Finance Bills, I have asked the Minister to give clarity and certainty to the creative sectors, so I am pleased to say that that has been given to the UK’s world-leading theatres through these clauses. As I have said, we in the Opposition stand wholeheartedly behind the UK’s creative industries, and we will of course not oppose the measures set out today.

[Drew Hendry]

I briefly want to endorse the comments about these sectors requiring support. It is good to see some support for the sectors here, but we would like to see more in the future.

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[Nigel Huddleston]

We have moved forward very quickly today. I thank everybody for their participation: you, Mrs Latham, all the officials in the House, the Clerks, and all those who have been working on the Bill at HMRC, HMT and other Government Departments. I repeat my thanks to the external stakeholders for their comments and to all those who have been involved in consultations. In particular, I thank the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, and the Low Incomes Tax Reform Group for their contributions to this Committee, including in written form, and all those who have participated today.

I look forward to the Bill progressing smoothly through its final stages. I thank everybody involved.

[James Murray]

I add my thanks to my colleagues in the Opposition: my fellow shadow Minister, my hon. Friend the Member for Hampstead and Kilburn; the Opposition Whip, my hon. Friend the Member for Gower; and, of course, the Back Benchers who have joined us for this lengthy Committee session. [Laughter.] I place on the record my thanks to all the House authorities and to third parties, particularly the Chartered Institute of Taxation, whose expertise is always greatly valued.

[Drew Hendry]

I, too, rise to pass on my thanks: to you, Mrs Latham, for chairing, and to all the staff and others who have been involved. Whether we agree or vehemently disagree—often, as we have seen today, there are big disagreements—we never forget those people who work hard to produce the documentation and supporting information in all the arms of Parliament, including the House of Commons Library. Thank you.

Question put and agreed to.

Bill accordingly to be reported, without amendment.