Finance Bill 2017-19 Committee - 4th sitting

Documents on the Bill can be read here. These include explanatory notes on the clauses and the text of amendments and new clauses tabled for debate.

Proceedings can be listened to here.

Clauses 5, 15 and 25 were dealt with in Committee of the Whole House, a report of which can be read here. That report also includes a background note on this Finance Bill, its history and its contents.

(NB. Notes reflect debate as heard by author and transcription errors cannot be ruled out) 

FINANCE BILL 2017-19 PART 1 - DIRECT TAXES (continued)

Domicile, overseas property, etc.

29 & sch8 Deemed domicile: income tax and capital gains tax - PASSED
(and amendments 24-26) - WITHDRAWN
30 Deemed domicile: inheritance tax - PASSED
31 & sch9 Settlements and transfer of assets abroad: value of benefits  - PASSED
32 Exemption from attribution of carried interest gains (carried interest and non doms) - PASSED
(and new clause 3)

Clauses 29-31 make significant changes to non-dom status and rules, including deeming people UK domiciled if resident in UK for 15/20 years. These were announced at summer 2015 Budget. 

Shadow Chief Secretary to the Treasury Peter Dowd (Lab) said the proposals were superficial and the Government were not serious about cracking down on avoidance. Why had the Government signposted the changes for non-doms? He said the Government had undermined the measures' effectiveness, opening one loophole as they closed another. While this might catch 'low hanging fruit' this would not catch the wealthy and well-advised, he argued. Labour are opposed to these measures, he said. The party would like to see the removal of the exemption for offshore trusts from the proposals. The Government should consider a register of offshore trusts, with non-doms having to register property held, he said.

Labour's amendment 24 would remove the exemption from the new provisions for deemed domicile in Clause 29 for overseas trusts. Labour's amendments 25 and 26 would require the beneficiary of an overseas trust to provide information about the sources of the property or income on a public register. Labour's new clause 3 would require a review to be undertaken of the effects of the provisions for protecting overseas trusts from the new provisions in relation to deemed domicile.

Financial Secretary Mel Stride said these provisions were a 'historic change'. He explained that non-doms have two advantages - access to the remittance basis which allows them to defer tax on overseas income and gains until it is brought into the UK, and inheritance tax only applies to their UK assets. He said it should not be forgotten that non-doms bring in c£9 billion a year in revenue. However the Government agrees there are some unfairnesses which need to be addressed, especially around people who live in the UK nearly all their lives and continue to be non-domiciled. From April 2017 anyone resident in UK for 15 or more of previous 20 years will no longer be non-dom and will pay tax on worldwide income and gains. It will raise £1.6 billion over the next five years. Regarding the 'offshore trusts exemption', any money coming out of those trusts will be taxed once the indivdual becomes deemed domcile. There is also an important matter of proportionality, he said. He was asked how the Government could be sure of £1.6 billion being raised when the loophole of transferring money to an offshore trust was there. The minister replied that the numbers were robust and had been scored by the OBR. 

The minister said that the top 1 per cent of the population pay 21% of all tax. Anneliese Dodds responded and there was a protracted discussion, with little agreement, about how progressive the tax system was. The minister also responded to Labour claims that the Government was not clamping down on tax avoidance, referring to the amounts being brought in by compliance activity since 2010.

On new clause 3, the minister said the provisions in schedule 8 relate to trusts created before an indiviudal became deemed domcile under the new rules. The Government believes it would be unreasonable to expect individuals in such circumstances to pay UK tax on all the money in such a structure as it arose. Even with these protections in place those who become deemed domicile would only be protected on income and gains that remain inside the trust. Any withdrawals would lead to a tax charge.

Peter Dowd said the issue at stake was fairness between UK-domiciled and non-UK domiciled individuals. He said it was reasonable to ask for a reviwe of how this particular proposal would work.

Clauses 29-32 and schedules 8 and 9 were agreed without a vote. The amendments were not pressed to a vote. New clauses are voted on at the end of committee stage.

33 & sch10 Inheritance tax on overseas property representing UK residential property

This extends IHT to UK residential property owned by non-doms through overseas trusts and other structures.

The Financial Secretary said some non-dom individuals took steps to place UK properties in structures such as companies or partnerships which meant they were no longer liable to inheritance tax. These changes would ensure they pay the same tax as everybody else. He said the Government were tackling a longstanding loophole.

Clause 33 and schedule 10- were agreed without a vote.

Disguised remuneration

34 & sch11 Employment income provided through third parties - PASSED
35 & sch12 Trading income provided through third parties  - PASSED

Clauses 34-37 and associated schedules are part of the same package to tackle avoidance through disguised remuneration schemes. The Financial Secretary explained that the coalition government had introduced changes in 2011 to tackle disguised remuneration. But new schemes had sidestepped the 2011 legislation. These schemes are depriving the Exchequer of hundreds of millions of pounds. These changes would ensure the tax due is paid.

Anneliese Dodds (Lab) noted that the changes reclasify loans as remuneration in some cases many years after they were made. After a long period of relative inaction, many people believed the actions they entered into were legal and did not constitute tax avoidance, she said. Some people would no longer have funds to meet the tax change. How would the minister ensure this measure would not cause hardship to individuals. On clause 35 and schedule 12, where taxable income has been replaced by loans, how will we ensure that a transaction entered into in the normal course of business and on arms length terms isn't acught within the definition of remuneration? The scope seems wide, she said, asking for clarification. How will the minister ensure that these measures are achieving their objective? she added.

Responding, the minister said that some arrangements went back to 1999, but people would have until 2019 to clean the arrangements up. However this was very clear tax avoidance and was clear abuse. He said HMRC would consider requests for time to pay, based on customers' circumstances.

Clauses 34-35 and schedules 11-12 were agreed without a vote.

36 Disguised remuneration schemes: restriction of income tax relief - PASSED
37 Disguised remuneration schemes: restriction of corporation tax relief - PASSED

Clauses 36 and 37 were agreed without a vote.

Capital allowances

38 First-year allowance for expenditure on electric vehicle charging points - PASSED

The minister said the allowance would allow businesses to deduct charging point investments for corporation tax purposes. He said the changes would encourage the use of cleaner, low emission vehicles.

Anneliese Dodds (Lab) said Labour supported measures to encourage the uptake of electric vehicles. She asked whether it was the case that small business wouldn't be able to take advantage of this allowance, because of the way it was set up. Also, how did this measure relate to others aimed at promoting low carbon technologies? Would electricity going through these charging points be green? Ruth George (Lab) also supported the measure but again had concerns regarding the position of small businesses. The minister reassured committee members that the provision applied to businesses of all sizes.

The clause was passed without a vote.

Transactions in UK land

39 Disposals concerned with land in United Kingdom - PASSED

Finance Act 2016 made non-resident developers of UK property pay tax on profits from dealing in or developing land in the UK (a significant change). This makes a limited change extending the scope of the measure.

The clause was passed without debate or a vote.

Co-ownership authorised contractual schemes

Clauses 40-42 Co-ownership authorised contractual schemes - PASSED
(and amendment 32 - WITHDRAWN)

Labour's amendment 32 makes statutory provision for a review of the operation of the new provisions for co-ownership authorised contractual schemes

There needs to be another look at tax avoidance risk, said Anneliese Dodds (Lab), and she is concerned about amount of secondary legislation involved in these clauses.

FST Mel Stride said the clauses have been welcomed by investors and were based on consultation responses, including industry representations. Master Funds were not subject to the consultation, he admitted. The measure is robust against potential tax avoidance and HMRC will continue to be ‘vigilant’. He told the SNP that the changes will ease operation of the COACS scheme by making it work more efficiently.

The amendment was withdrawn. The clause was passed without a vote.

Proceedings were adjourned shortly after 3pm, to resume at 9.25am on Tuesday 24 October, when discussion will focus on indirect taxes, including changes to air passenger duty, petroleum revenue tax and gaming duty, and introducing the Fulfilment Houses Due Diligence Scheme (relates to VAT).

By George Crozier