Finance Bill passes unamended

No amendments were moved during the Bill’s passage.

Written evidence from CIOT on property tax clauses and Transfer of Assets Abroad and from CIOT’s Low Incomes Tax Reform Group on the High Income Child Benefit Charge was cited during the session, with both the Financial Secretary and Shadow Financial Secretary thanking the Institute for its input.

The main contributors to the debate were:

• Nigel Huddleston (Financial Secretary to the Treasury (FST))
• Gareth Davies (Exchequer Secretary to the Treasury (XST))
• James Murray (Labour, Shadow Financial Secretary to the Treasury)
• Tulip Siddiq (Labour, Shadow Economic Secretary to the Treasury)
• Drew Hendry (SNP, Economy Spokesperson)

Public Bill Committee – Tuesday 21 May

Clause 5 - Increase high income child benefit charge (HICBC) thresholds to £60,000 and £80,000

Nigel Huddleston opened the session with thanks to “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.”

He told MPs that the changes made by clause 5 will have a positive impact for around 485,000 families and would ensure that the HICBC continues to withdraw child benefit from high-income families, without unfairly penalising those on middle incomes.

James Murray welcomed the adjustment to the threshold, but cited the CIOT’s Low Incomes Tax Reform Group’s concern about the rate of clawback and marginal tax rates. He said: “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”. The Shadow FST highlighted that this could lead to “more complexity” in the tax system”.

While Drew Hendry (SNP) did not oppose the clause, he said: “If they [government] 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.”

Responding, the FST acknowledged that high marginal rates introduce complexity to the tax system, but he stressed the need to be weigh this against other considerations when designing tax policy. He added that recent changes allow newly liable taxpayers to pay the HICBC through their tax code without registering for self-assessment. On the impact of threshold increase on marginal rates, the FST argued the proposed changes would “reduce the total marginal effective tax rates”, which includes income tax, employee national insurance contributions and HICBC.

Clause 5 was agreed to stand part of the Bill.

Clauses 6 – 11 – Property Tax measures

Clause 6 - Reduction in higher CGT rate for residential property gains to 24%

The FST said that the current 28% rate has been deterring sales of residential property and the reduction of the rate would encourage more landlords to sell their residential properties – leading to more available homes in the market.

Murray queried whether there would be a permanent higher level of income as a result of this change after the end of the forecast period. The FST responded that the Office of Budget Responsibility has indicated that the measure will have a positive impact beyond the current forecasting period and generate a small long-term yield too.

Clause 7 - Abolition of multiple dwellings relief (MDR) for Stamp Duty Land Tax (SDLT)

The FST argued that multiple dwellings relief is not fit for purpose and HMRC have seen a “high number of incorrect and abusive” claims for the relief. He added that the changes made by clause 7 will not impact those purchasing a single property and, for contracts that were exchanged on or before 6 March 2024, relief will continue to apply regardless of when the contracts complete.

The Shadow FST quoted the CIOT, which warned 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”. He asked if the minister is “aware of the potential for anomalies and for new behaviour to emerge around the acquisition and definition of property”.

While reiterating that MDR is “no longer cost-effective”, the FST argued that the government continues to engage with stakeholders in the build-to-rent sector to understand their concerns and the impacts that the abolition of MDR could have in the future.

Clause 8 - First-time buyers’ relief from SDLT: acquisition of new lease on bare trust

The FST argued that clause 8 is part of the government's commitment to support homeownership for first-time buyers and victims of domestic violence. Murray added that the clause corrects issues arising over the eligibility of claims and showed his support for it.

Clause 9 - Exemption from SDLT: registered providers of social housing etc

The minister highlighted that the current legislation is “out of date” and has caused uncertainty for local authorities. He continued that there is also uncertainty around the eligibility for the exemption where public subsidy is recycled for the provision of new social housing. He said that the proposed changes would update the list of public subsidies and amend references to the exemption.

The Shadow FST asked whether purchases made before March by local authorities will be treated as separate from this clause. The minister responded that the exemptions would not be applied retrospectively.

Clause 10 - Purchases by public bodies not to be subject to special 15% rate of SDLT

Huddleston suggested that clause 10 would reduce the tax burden on public bodies that acquire residential property valued over £500,000 and ensure that public money “is used to its maximum effect”.

The CIOT has “pointed out that with the measure not being retrospective, there are concerns among stakeholders”, said the Shadow FST. He asked the minister to clarify what the situation would be for a public body that may have incurred a 15% SDLT liability in the weeks immediately before this change was announced. The minister answered that the number of transactions has been very small, and “we therefore do not anticipate a huge impact”.

Clause 11 - Treatment of non-UK agricultural property and woodlands for IHT purposes

The FST said the existing inheritance tax treatment of these types of land is “anachronistic” and emphasised the need to update the scope of the relief. Murray added that this measure will reverse changes made in Finance Act 2009 and his party would not oppose it.

Clauses 6 – 11 were agreed to stand part of the Bill.

Clauses 14 – 15 - Audio-Visual Expenditure Credit

Clause 14 - Additional relief for low-budget films with specified UK connection (from 34% to 53%)

Clause 15 - Section 14: commencement and transition

Huddleston argued that changes made by clauses 14 and 15 “substantially” increase the level of audio-visual expenditure credit available to smaller budget films, adding that the 53% tax credit would be applied to up to 80% of a film’s production costs.

Murray also offered his party’s “strong” support for the UK’s creative sector and argued that the measures would provide “certainty and greater opportunities” for growth in the sector.

Clauses 14 – 15 were agreed to stand part of the Bill.

Clauses 16 – 18 – Creative industries tax credits

Clause 16 - Increase in theatre tax credit

Clause 17 - Increase in orchestra tax credit

Clause 18 - Increase in museums and galleries exhibition tax credit and removal of sunset

The FST argued that changes made by clauses 16 and 17 were the “key ask” of the sector. He continued that the tax reliefs will reduce to only 40% for non-touring productions and 45% for touring productions and orchestral productions in April 2025 and then will remain at that level permanently. He suggested that the proposed changes would benefit approximately 1,300 theatre and orchestra companies, museums and galleries.

The Shadow FST was pleased that the government has provided “clarity and certainty to the creative sectors” and supported the changes.

Clauses 16 – 18 were agreed to stand part of the Bill.

Clause 20 - Collective investment schemes: co-ownership schemes

Exchequer Secretary Gareth Davies told MPs that the reserved investor fund (RIF) would fill a gap in the UK’s existing fund offering by creating an onshore alternative to existing non-UK fund vehicles that are commonly used to hold UK real estate. He added that clause 20 would provide power for the Treasury to make detailed tax rules through secondary legislation.

Shadow minister Tulip Siddiq welcomed the introduction of RIF, but suggested that due to the government's decision to classify it as an alternative investment fund instead of a special investment fund, the RIF and ACS now differ in key ways, including that fund management services are now standard-rated at 20% instead of being VAT-exempt.

Clause 20 was agreed to stand part of the Bill.

Clause 21 - Economic crime (anti-money laundering) levy - charge for very large firms increased to £500,000

In relation to clause 21, the XST highlighted the change would impact an estimated 100 to 110 very large firms across the anti-money laundering regulated sector. He continued: “No other aspects of the levy’s calculation or operation are changing and we therefore anticipate administrative impacts on affected firms to be negligible.”

Drew Hendry and Tulip Siddiq both criticised the government's effort to tackle economic crime with Siddiq arguing that the measure would not “significantly move the dial”. Citing UK Finance, she also raised concerns about the transparency of the levy and reporting on economic crime.

Siddiq raised another of the CIOT’s points here, asking: “Does the Minister agree that better feedback and wider publicity around successes could help AML-regulated firms to see the value and importance of work in this area more clearly”.

Responding, Davies stressed that the levy is a targeted measure in the anti-money laundering regulated sector. On the reporting and transparency of the levy, the XST acknowledged the concern and explained that there would be a report on the levy this year and it will be reviewed in 2027 again.

Clause 21 was agreed to stand part of the Bill.

Clause 22 - Transfers of assets abroad

Huddleston said that clause 22 has been introduced following a Supreme Court decision, showing that the government is “quick to crack down” on tax avoidance loopholes. He continued that the changes would have an impact on transactions only “where the purpose of the transfer is to avoid tax” and do not impact transfers that are genuine commercial transactions.

Siddiq said Labour supported the aims of the clause but had heard concerns raised by CIOT about the effectiveness of the government’s proposals. She put three of these to the minister.

The first was about the complexity of tackling perceived corporate tax avoidance through personal tax legislation. “Could the minister explain the thinking behind the government’s decision to tackle corporate tax avoidance in this way, rather than through the corporate tax regime? Does he agree with the Chartered Institute of Taxation that it could add unnecessary complication to the tax system?”

The second was CIOT’s concern that the government’s position that any participator in a company is deemed to be involved in a company’s decision to move assets abroad is unfair. “For example, a company may have several minority shareholders who have no participation in the running of the company. What is the Minister’s assessment of the case made by the Chartered Institute of Taxation that only major shareholders, directors and shadow directors should be assumed to be involved for the purposes of this legislation?”

The third was CIOT’s warning that the changes could damage the UK’s international competitiveness, “because the test as set out in the legislation leaves too much discretion to HMRC, which compounds uncertainty for businesses. For example, a UK holding company that provides a loan to an offshore subsidiary that in turn generates profits could be caught by the changes, despite that being a routine transaction. The Chartered Institute of Taxation argues that that could lead to an increased number of inquiries and appeals to the tax tribunals and could seriously undermine the UK’s attractiveness for international headquarters.”

Siddiq asked the minister to respond to these concerns. “What steps will HMRC take to ensure that involvement and objection defences under the clause are not ambiguous or uncertain, and to ensure that those charges do not prove to be increased excessively for taxpayers?” she said, before adding a final concern, that the changes appear to be retrospective, so potentially catching commercial transactions “that were carried out many years ago, but from which income arises after April 2024”.

Responding, the FST said he appreciated the input of stakeholders including the CIOT. “Some of those points are about broader issues around the TOAA regime, rather than specific to this legislation, but we do hear what they have to say.”

On the first concern raised by Siddiq, the minister argued that the legislation was necessary to prevent individuals sidestepping the TOAA regime’s anti-avoidance provisions by transferring an asset to a company that they controlled before the company made a transfer abroad. “The legislative changes are aimed at preventing that situation and ensuring that the TOAA rules are applied as intended,” he told MPs.

Was the legislation too broad? The minister that the legislation just intends to put the situation involving company transfers back to how HMRC considered it operated before the Supreme Court decision.

With regard to minority shareholders, Huddleston said the legislation “gives individuals the opportunity to exclude themselves from the tax charge if certain conditions are met. We respectfully disagree with the CIOT on some of those conditions. We have outlined some of those, and HMRC will produce further guidance in due course”.

He said HMRC “will review the facts of a case to judge whether someone is directly or indirectly involved in the decision making of a company. It will accept evidence that shows whether someone is involved or not. However, any arrangements that are put in place purely to be used as evidence that an individual is not involved in the decision making of a company will be disregarded and a charge will be levied if the other conditions are met… HMRC will issue guidance on how it will approach the matter in due course. Decisions will be made based on the facts of each individual case.”

Would this measure create uncertainty and damage competitiveness? The minister explained that the legislation does not impose a tax charge if the transfer is for “genuine commercial reasons” or tax avoidance was not the intention.

The minister said the clause has retroactive effect “because if it did not, it would have allowed individuals to abuse the loophole between the date of the Fisher judgment and the enactment of the legislation. Again, we do not believe that there will be a significant increase in complexity. The purpose behind the legislation is primarily to ensure that the regime acts as intended.”

Clauses 22 was agreed to stand part of the Bill

Clause 23 - Minor VAT amendments

On clause 23, Huddleston highlighted that the measure makes a number of minor, technical changes to VAT legislation relating to the DIY house builders’ scheme and VAT credit in the penalty reform regime, and allows for reform of the VAT terminal markets order. 

While Siddiq supported the proposed changes, she raised two CIOT’s questions in her remarks. She asked if the minister has considered “adding the online application [for the DIY housebuilders’ scheme] as a service to the agent services accounts so that an agent can prepare and submit the claim on behalf of their client”. And she asked if the minister had given any thought “to reinstating HMRC’s ability not to charge interest on VAT errors where the supplier did not charge VAT, with no loss to the Exchequer because the customer could claim in full?”

Drew Hendry, for the SNP, accused the government of lacking ambition, suggesting that they could have used VAT “as a mechanism for helping our high streets”.

Replying to Hendry, Huddleston said that the UK government has supported the tourism, hospitality and leisure industry and has extended the 75% business rates reduction for the sector – a policy which has not been implemented in Scotland.

Responding to Siddiq’s questions the FST said he took on board what she had said, as does HMRC, because there is “a constant need to review and assess the scope of IT systems”. He assured the shadow minister “that the points that she raised are constantly under consideration.”

Clauses 23 was agreed to stand part of the Bill.

Clause 24 - Collective money purchase (CMP) arrangements

Huddleston highlighted that the proposed changes will allow employees of Royal Mail (set to become the first provider of a CMP scheme) to join the scheme “with all the benefits”, without risking survivor benefits being treated as unauthorised transactions. Siddiq said Labour backed the clause.

Clause 24 was agreed to stand part of the Bill.

The FST concluded the session by giving particular thanks to the clerks and officials who had worked on the Bill as well as “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.”

James Murray, for Labour, thanked his own team and colleagues, and added: “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.”

Third Reading – Thursday 23 May

Following the calling of a general election on Wednesday 22 May the timetable for the Bill was accelerated and the Bill returned to the Commons in the ‘wash-up’ the following day.

No amendments were tabled for report stage so there was only a brief third reading debate.

Commending the Bill, the FST said the economy has recently “vastly improved” and is “growing again”. “The Finance Bill builds on that economic improvement by rewarding work, encouraging investment in our economy and boosting home ownership,” he added.

James Murray said while Labour would support the Bill, his party would make changes should it win the election, including a “strengthened” windfall tax or energy profits levy which would end no later than the end of the next Parliament, capping corporation tax at 25% and ending the non-dom tax status “once and for all”.

He also added his thanks to organisations including the CIOT “for all their help not just with this Finance Bill, but with all six Finance Bills for which I have been responsible as a Shadow Minister”.

Kirsty Blackman (SNP) said she would be voting against the Bill, arguing that many people in the UK would not be “better off” as a result of the measures in it.

The Bill was read a third time and passed.

Read the full transcript of the public bill committee stage and third reading, as well as further documents related to the Finance Bill.

House of Lords debate – Friday 24 May

The Bill was debated briefly in the House of Lords the following day, the last sitting day of this Parliament.

Baroness Vere of Norbiton, the Treasury minister in the Lords, opened the debate. She echoed her Commons colleagues by describing the Bill as rewarding work (eg the increase in the HICBC threshold) and driving investment in the economy (eg support for the creative industries). She said the property measures “will not only encourage more transactions in the housing market but boost supply and opportunities for home ownership for first-time buyers, as well as making the property tax system fairer.”

Concluding she said the Bill “boosts our vital industries, rewards hard work, drives forward home ownership and continues to build a fairer, simpler and more modern tax system. It reinforces this Government’s commitment to prioritise economic growth, and, in turn, it will help deliver a brighter future for this country.”

Baroness Hazarika, a new Labour peer who presents a show on Times Radio, chose the debate to make her maiden speech. After some personal reflections she particularly welcomed the tax breaks for the creative industries that are in the Bill. But she warned that: “For many in this great country, everyday life has become a financial endurance test.”

Another Labour peer, Lord Davies of Brixton, focused on clause 24 – collective money purchase arrangements. He argued that “the government have still to get their act together on the introduction of this new type of pension scheme. Many of us with considerable experience on pensions believe that this is important for the future development of pension coverage across the economy, yet we are still getting these regulation-making powers”.

He also told the minister that the term ‘collective money purchase arrangements’ is misleading. The pensions industry describes them as ‘collective defined benefit schemes’, he explained. “Calling them collective money purchase schemes gives the appearance that they are simply savings arrangements, with the infamous freedom of choice when people get to retirement. What people want is pensions. Adopting this terminology is grossly misleading about where this area of policy has to go.”

For the Lib Dems, Baroness Kramer said she was particularly pleased with the support in the Bill for the creative industries, but focused most of her remarks on wider tax policy.

“The freezing of tax thresholds has squeezed people on low and modest incomes in some of the harshest times, while oil companies really got away with it thanks to loopholes in the windfall levy; and today in this Bill, they were handed some additional goodies,” she argued. The Lib Dems, she said, would “fight for a fair tax strategy, a proper industrial strategy and an apprenticeship scheme that actually works.”

For Labour, Lord Livermore also used the debate to make a wider economic speech. On tax he highlighted “the highest tax burden for 70 years” and what he called the Chancellor’s “£46 billion unfunded plan to abolish national insurance contributions”. “Replacing national insurance revenues with higher rates of income tax would mean an income tax increase of 8% — a tax bombshell aimed squarely at Britain’s pensioners,” he claimed.

“We have said consistently over the course of this Parliament that taxes on working people should be lower,” he continued. He invited the British people to ask themselves: “Do they and their families feel better off than they did 14 years ago?”

Responding, the minister said the government “remain very sympathetic to all the pressures felt by people, families and communities across the country.” She told Lord Livermore: “[Y]ou can have lower taxes only if you control spending. Demanding much more money will not lead to lower taxes”.

Responding to Lord Davies she said she and her officials “will take back his comments on the terminology”. She continued: “We are taking more regulation-making powers, because the government’s policy intention has always been that payments made from a collective money purchase pension scheme and wind-up should be treated as authorised payments, and there were various powers available.”

The Bill passed its second and third readings in the Lords without opposition, as protocol dictates. It received Royal Assent later the same day and is now an Act.

Full Hansard of Lords debate here.