In a dramatic last-minute intervention during the Finance Bill committee stage, the government has scrapped and rewritten proposals for stamp duty reserve tax reform.
A raft of ten pages of detailed amendments were rushed out late on Thursday following consultations with the industry from Monday to Wednesday, leaving MPs just one day to make their own amendments.
Economic secretary Patricia Hewitt said the changes – which are due to take effect in February – resulted from ‘extremely helpful representations from the industry’ since the publication of the Bill and ‘represent the government’s willingness to listen to and seek and take expert advice’.
She said the existing regime required replacement to facilitate electronic trading by removing the need to physically stamp documents.
Current complex arrangements require trusts to show that a proportion of assets have been realised as a consequence of the surrender of a unit in order to claim a refund of duty.
She warned that the recent court case between fund manager M&G and the Inland Revenue had indicated that refunds should follow cancellation of units on surrender, creating new ones for new investors. Receipts have plunged from £30m in the first half of 1998-1999 to just £7m in the second half.
Hewitt said the new rules require trusts to net surrenders and sales in the two weeks following a surrender and pay 0.5% tax on the balance if there are more sales than surrenders. The original period was two months.
Trusts would pay the tax on the disposal of underlying assets where there were more surrenders than sales.
The minister said the industry had failed for two years to put forward proposals to remove complexity while protecting the Revenue after the previous Tory government had been forced to withdraw proposals.
She said the amendments had been put down as soon as they were ready, adding: ‘I would have been delighted to have been able to table them earlier, but they deal with technical issues and we wanted to make sure we have got them right.’
Tory accountant MP Nick Gibb said this section of the Finance Bill was ‘a complete fiasco’ as the original proposals demonstrated ministers had ‘a total misunderstanding and an absence of basic knowledge of the unit trust industry’.
Gibb demanded a further six-month delay to July of next year after protesting about the latest details of consequent regulations for open-ended investment companies and about accounting, payment and record-keeping requirements.
He claimed that after a further delay while the Financial Services Authority draws up its own rules and a freeze on computer systems changes due to the millennium bug, trusts would have just six days to implement them before they take effect on February 6.
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