Finance Bill

Since the pre-Budget report and throughout our proceedings on the Finance Bill, we have engaged actively with interested bodies. The amendments that we have tabled today—there are 48—reflect how we have listened and responded. I accept what the hon. Member for Fareham (Mr. Hoban) said—namely, that the schedule might not yet be perfect. I want to make it clear that we will continue to listen. Given the technical nature of the proposals, I have asked HMRC officials to establish a joint committee in the way proposed by the Institute of Chartered Accountants in England and Wales. I pay tribute not just to the ICAEW but to a number of the representative bodies that have made suggestions and enabled me to be reassured that the final shape of the Bill is close to, if not exactly, what we sought to achieve. The joint committee will be led by HMRC. It seemed a sensible suggestion and I will be kept up to date on its work. It will be established following Royal Assent and will review the operation of the legislation in practice to ensure that it is working as intended by Parliament. Amendments Nos. 40 to 45, 52 and 53, like many of the amendments that we are discussing today, clarify how the rules will work in practice. I shall try to answer as many of the points as possible—all of them, if I can—as I go through my speech, but not necessarily in the order in which they were made. Amendments Nos. 20 and 21 effectively ask the Government to draw up a list of services that will fall within the exemption and to formalise them by order and statutory instrument. I am resisting the urge to have some fun at the idea that the hon. Member for Fareham is suggesting such a route. I understand why he has suggested that change. I pay tribute to him for the thoroughness and attention to detail that he has applied to this complex area and I appreciate the way he has brought forward his arguments and pointed out the deficiencies where he has seen them. I have acknowledged some of them and, as he has recognised today, we have brought forward further amendments to respond to others. We cannot support amendments Nos. 20 and 21 because, with the best will in the world, we would be unable to arrive at a list of qualifying circumstances that would cover every service that we would want to include. The process would prolong any uncertainty. Our amendments Nos. 52 and 53 address the same issue from what we believe is a more pragmatic direction. They identify particular circumstances in which a remittance will always take place even if one or both of the conditions for the exemption would otherwise be met. The second set of Government amendments, which are amendments Nos. 46 to 49, deal with mixed funds and have also been introduced for the purpose of clarification. They provide for changes to the rules on the treatment of mixed funds to ensure that they are clear and comprehensive. We touched on that in Committee. Amendment No. 15 would remove the anti-avoidance provision in the way described by the hon. Member for Fareham. The provision, which we have introduced, is absolutely necessary to ensure that the rules are workable. The rules provide clarity and, crucially, they also protect the vast majority of taxpayers from those who might seek to abuse the provisions. He asked me whether I could give an example of a possible abuse without laying out suggestions as to how somebody might get around the provisions. I shall offer one. A non-domiciled individual could obtain a loan at the beginning of the tax year, put the loan capital into a mixed fund and then remit moneys up to the amount of the loan before repaying it. Under the ordering rules, the remittance would be capital for the year, and the anti-avoidance rule would prevent that manipulation of the mixed fund. I have no doubt that many other examples could be given, but that one might help to clarify the matter. I turn now to the amendments that concern the £30,000 remittance basis charge. Our amendments are minor and make a number of changes to the schedule. They make it clear that payments of the charge from overseas employment income is not a remittance. The hon. Gentleman will remember that in the Public Bill Committee I promised to return to this matter on Report to put it beyond doubt. His amendments Nos. 13 and 14 are important but, I believe, unnecessary. The self-assessment process will effectively add £30,000 to the tax bill of a remittance basis user, regardless of how much they nominate. HMRC will manually check nominated amounts, and if more has been nominated than is required, the taxpayer will be contacted and helped to correct their claim. Taxpayers will not be forced on to the arising basis. I was interested to hear what the hon. Gentleman said about amendment No. 110. The new rules have been broadly welcomed, because they provide a simpler and clearer basis for the taxation of employees. However, I noted the representations that he has received suggesting that they pose a risk to UK firms' ability to recruit international talent. The underlying principle that applies to individuals who have elected for the remittance basis is that income that is remitted should be taxed. Unfortunately, the amendment would undermine that principle. The hon. Gentleman gave an example of one employee working for Lloyds and another working for Deutsche Bank. He believes that the rules that we have established would work against the interests of Lloyds, and he gave the example of shares. It is a complicated matter, but shares are different assets. If the German bank's shares were listed on the German stock exchange, they would be German assets—stating the obvious, perhaps. A UK bank's shares listed on the UK stock exchange are UK assets, and there will be no change to how we treat such assets. The new rules reflect the fact that those are different assets, which has always been the case. If representations are being made to him that that will undermine the competitiveness of UK companies, I shall want to study them and follow up on them to ensure that that is not happening. May I take this opportunity to clarify something that I said about employment-related securities in the Public Bill Committee? The hon. Gentleman asked me whether the phraseology of Government amendment No. 323, which was tabled in Committee, included the exercise of an option. The wording of that amendment did not include the exercise of an option, but it worked in conjunction with amendment No. 322, which did cover that. I am sorry if the answer that I gave in Committee was unclear on that point, and I hope that I have clarified the position. Amendments Nos. 111 to 113 are intended to apply a ““just and reasonable”” test. I hope that the hon. Gentleman accepts that I realise that in some circumstances some discretion may be needed in calculating how much income is taxable, rather than rules being applied mechanistically. We listened to representations on the matter and introduced in Committee a new clause providing for a just and reasonable apportionment to be made when the strict rules do not give a reasonable result. That provision is capable of dealing with most situations in which the relevant period rules give rise to difficulty. Furthermore, the amendments would create uncertainty and introduce complexity, to the detriment of schedule 7 as a whole. I turn now to the transitional rules for funds brought to the UK before 6 April. All the relevant Government amendments have been tabled in response to consultations with representative bodies. They provide clarity for remittance basis users who brought ceased-source income to the UK before April 2008. Amendment Nos. 11 and 13 would alter the transitional arrangements for the alienation provisions, where the qualifying property of a gift recipient was either given or brought to the UK before 6 April 2008. The amendments are not necessary, as Government amendments Nos. 62 and 63 address any risk of unintended liability that may arise. Government amendments Nos. 65 to 71 deal with the grandfathering rules for offshore mortgages. They extend the original grandfathering provisions for offshore mortgages to cover cases where repayments of the offshore loan were guaranteed under the terms of a bank guarantee secured on the property. The various conditions for the reliefs that apply to conventional mortgages will also apply to these arrangements, subject to the necessary changes. Government amendments Nos. 65 and 66 provide that the arrangements must have been in place before 12 March this year. Government amendments Nos. 67 and 68 ensure that relief will cease if any term of the guarantee is varied or waived, or if payments under the guarantee cease to be secured on the interest in the property, or if the guarantee is extended to cover repayment of any other debt. I know that what I have said will be studied carefully. Amendment No. 17 would allow relief for offshore mortgages to continue even if a further debt were secured on the interest in the property. As I made clear in Committee, the Bill provides a generous relief and I am not persuaded that there is a case for further relaxation. Amendment No. 19 would allow grandfathering for remortgages to apply where a person uses the money to repay the original loan. Again, I consider the amendment unnecessary as, according to the natural meaning of the statute, it is clear that the person involved would have used the money for the proper purpose if he had instructed the lenders to make the appropriate arrangements. The hon. Member for Fareham asked about unrepresented taxpayers. An offshore mortgage is a complicated financial instrument. In HMRC's experience, unrepresented taxpayers tend not to have offshore mortgages. Extending the grandfathering to a wider range of mortgages would inevitably cost millions of pounds. In addition, payments out of gains and employment income have been treated previously as a remittance, so giving relief would be to untax things that are already taxed. Government amendments Nos. 72, 73 and 85 clarify various elements of the rules covering offshore income gains and the transfer of assets abroad. Government amendments Nos. 74, 78, 79, 81, 86 and 87 make minor and consequential changes and are necessary for the proper working of the legislation. Amendment No. 16 would provide for the rebasing rules for trusts to apply to shares acquired as a result of a share reorganisation, where the original shares were held at 6 April 2008. We believe that the amendment is unnecessary. Where section 127 of the Taxation of Chargeable Gains Act 1992 applies, new shares are eligible for any reliefs to which they would have been entitled had they been acquired when the old shares were acquired. It follows that, if the original holdings were acquired before 6 April 2008, the new holding will be treated as having been acquired at the same date, and rebasing will be available on disposal of the new holding. I hope that that is clear and that I have been able to reassure the hon. Member for Fareham on a number of his amendments. I have saved amendments Nos. 94 to 101 until last, although in no way do I imply that they are least. The hon. Member for Taunton (Mr. Browne) has tabled them in a bid to change the commencement provisions. Amendment No. 94 would delay the reform, and amendments Nos. 95 to 100 would apply a general commencement date of next year. Delaying implementation would increase the uncertainty for the taxpayer that we have been urged to remove, especially by the City of London. It would also cost the Exchequer at least £50 million in 2009-10. In addition, the drafting of those amendments would mean that all transitional arrangements to protect remittance basis users during the move to the new rules would be lost—for example, successful alienations of income or gains and the grandfathering of mortgages. We cannot support any amendment that delays implementation and causes uncertainty or, as in this case, introduces retrospection into the legislation. Throughout our consideration of the Bill, we have had detailed and considered debates, in which hon. Members have raised important issues and presented serious arguments. We have listened carefully to their arguments and those of representative bodies. We have tabled a number of amendments to address those concerns. I accept that this may not have been the most perfect route by which to have made these changes, but I put it to the House that, by doing so, we have brought to an end the review that had been running for a long time and that was in itself a cause of uncertainty. I believe that this is now a good package that underpins the long-term base of the remittance basis rules. I thank hon. Members for their careful consideration of these issues and, as I have said repeatedly, the representative bodies for the time that they have given to HMRC and Treasury officials over the past few months. I commend the Government amendments and hope that, given the way we are taking these issues forward, the hon. Members for Fareham and for Taunton will feel that they need not press their amendments.