Finance (No. 2) Bill — Repayment of dividend tax credit to non-taxpayers — 30 Jun 1998

Not amended in Committee and as amended in the Standing Committee, considered.

(b) after "96" there shall be inserted ", 97".

(6) This section applies where the issue by company X referred to in section 95(3) or (6) or 97(4) or (7) of the Finance Act 1986 is an issue on or after 1st May 1998.-- [Mr. Geoffrey Robinson.]

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

The clause makes two changes to the scope of the relief from stamp duty reserve tax, known as SDRT, when there is an exchange of shares held in a depositary receipt scheme or a clearance service. SDRT on share transfers is usually charged at 0.5 per cent., but the rate is 1.5 per cent. when United Kingdom shares are issued or transferred into a depositary receipt scheme. The higher rate is a kind of season ticket charge. It reflects the fact that transfers of depositary receipts within the scheme will not be liable to the tax. There are similar rules for clearance services.

There is a relief from the 1.5 per cent. charge when there is an exchange of shares in a takeover or merger. For example, when company X takes over company Y, there is no 1.5 per cent. charge on the shares that company X issues into the depositary receipt scheme in exchange for the existing shares in company Y. Normally, 1.5 per cent. tax will already have been paid when the existing shares in company Y entered into the scheme in the first place. The aim of the relief is to prevent a second 1.5 per cent. charge from being levied merely because new shares are being issued in exchange for the existing ones.

The new clause deals with two points. First, the Inland Revenue has received legal advice that the relief works more narrowly than the way in which it has been applied because, in this context, the meaning of exchange is confined to cases where company X issues shares to company Y shareholders in exchange for the existing company Y shares. In practice, there are also cases where the existing company Y shares are cancelled and new company Y shares are issued to company X in return for the issue of new shares in company X to company Y shareholders. Until the receipt of the legal advice, such cases were also considered to be within the scope of the relief. The new clause will enable them to continue to qualify for relief.

Secondly, the new clause will restrict the relief in certain cases where it may be available, but is not justified because there is no double charge to be relieved. In such cases, no 1.5 per cent. charge has been paid on the existing shares in the target company Y because they were outside the scope of the charge. A particular example is where company Y is a foreign company because the1.5 per cent. charge applies only to shares in UK companies. Under the new provision, the issue of new shares will qualify for relief only if the existing shares in the target company Y are chargeable securities within the scope of the 1.5 per cent. charge.

I hope that hon. Members will agree that the new clause makes desirable changes to the current rules, and I commend it to the House.

Mr. David Heathcoat-Amory (Wells):

In general, the House should disapprove of the Government introducing provisions at an extremely late stage to remedy deficiencies in legislation, especially as they have had

Question put and agreed to.

Clause read a Second time, and added to the Bill.

(5) In the second column of the Table in section 98 of the Taxes Management Act 1970 (penalties in respect of certain information provisions), in the entry relating to provisions of the Capital Allowances Act 1990, after "Sections" there shall be inserted "22B(4),".

(6) Subject to subsection (7) below, the preceding provisions of this section have effect in relation to every chargeable period ending on or after 12th May 1998.

(7) No claim for an allowance falling to be made by virtue of subsection (1) above may be made at any time before such date as the Treasury may by order appoint; and where the period for making any such claim would (but for this subsection) have expired before the end of the period of twelve months beginning with that date, it shall expire, instead, at the end of that period of twelve months.'.-- [Mr. Geoffrey Robinson.]

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

Madam Speaker:

With this, it will be convenient to discuss the following: Government new clause 15-- First-year allowances: consequential amendments etc.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

(b) in subsection (6), for "'parent company'" there shall be substituted "'parent undertaking'".

(3) In subsection (8) of that section, after paragraph (b) there shall be inserted--

"but for the purposes of this section each of those provisions shall be construed as if references, in relation to a group, to the parent company were references to the parent undertaking."

(4) In sections 23(6), 42(9) and 50(3) and (4A) of that Act (which contain provisions relating to the temporary first-year allowances under section 22(3B) and (3C) of that Act), for the words "subsection (3B) or (3C)", in each place where they occur, there shall be substituted "one or more of subsections (3B), (3C), (3CA) and (3D)".

(5) In sections 44(5), 46(8) and 48(7) of that Act (which also contain provisions relating to the temporary first-year allowances under section 22(3B) and (3C) of that Act), for the words "or (3C)", in each place where they occur, there shall be substituted ", (3C), (3CA) or (3D)".

(6) In section 39(2)(a) of that Act (definition of qualifying purpose), for "subsections (2) to (3C)" there shall be substituted "subsections (2) to (3D)".

(7) In section 43(5) of that Act (provisions relating to joint lessees in cases involving new expenditure), after "(3C)" there shall be inserted ", (3CA) or (3D)".

(8) In section 76 of that Act (which modifies the effect of section 75 in cases where machinery or plant has not been used before a sale)--

(a) subsection (3) shall cease to have effect; and

(b) in subsection (4), for ", (2B) and (3)" there shall be substituted "and (2B)".

(9) Subsections (1) and (4) to (8) above have effect in relation to every chargeable period ending on or after 12th May 1998.

(10) Subject to subsection (11) below, subsections (2) and (3) above have effect in relation to expenditure incurred on or after 12th May 1998.

(11) Subsections (2) and (3) above do not have effect--

(a) for the purpose of determining whether any expenditure is expenditure to which section 22 of that Act applies by virtue of subsection (3C) of that section; or

(b) for the purpose of determining whether any expenditure incurred in pursuance of a contract entered into before 12th May 1998 is expenditure to which that Act applies by virtue of subsection (3D) of that section.'.-- [Mr. Robert Ainsworth.]

Brought up, read the First and Second time, and added to the Bill.

I beg to move, That the clause be read a Second time.

New clause 1 is an attempt to put right an injustice that was raised in Committee. I pay tribute to my hon. Friend the Member for Bognor Regis and Littlehampton(Mr. Gibb) and to Age Concern, who have highlighted the issue. Very simply, before the abolition of dividend tax credits, non-taxpayers could claim back the tax credits up to 20 per cent. of the dividends that they received. From next April, they cannot.

These are, perhaps, relatively small amounts of money, but they are extremely significant for non-taxpayers who are pensioners. They may be pensioners on very low fixed

30 Jun 1998 : Column 160

incomes of £4,000 or £5,000 a year who now stand to lose £100, £200 or £400--sums of that order. It is just dawning on those pensioners exactly what injustice they face.

Question put , That the clause be read a Second time:--

The House divided: Ayes 171, Noes 284.

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