Friday, February 13, 2015

More tax! Yay!

Oh, while I'm on the subject, Philip Collins makes the following point about the Tories and tax:
Last week, Mr Cameron refused to say why he would not force hedge funds to pay stamp duty on stock market transactions. I am sure the motives of the hedge-fund impresarios who donate to the Tories are as pure as the driven snow on the slopes of Verbier. No doubt they are all keen to see the national roll-out of universal credit rather than, say, a crony place in the House of Lords or favourable tax treatment for hedge funds. So why the reluctance?
PMQs is a spectacularly useless format for getting actual answers to good faith questions. This was the question from Ed Miliband:
Everyone pays stamp duty on stock market transactions except those involved in hedge funds, who are allowed to avoid it. That is costing many hundreds of millions of pounds. Why is the Prime Minister refusing to act?
It's a direct question. But it's a very difficult one to answer for two reasons. The first is that the premise of the question is untrue. Intermediary tax relief applies to institutions that deal in stock, and has done since 1997 (via the inserted s.80A Finance Act 1986). Hedge funds don't actually benefit directly from this exemption, what they do is trade exposure to shares held by the banks, rather than trade the shares themselves (so-called "contracts for difference"). Since the banks are exempt from paying SDRT on the shares at the heart of the CFD, there is no SDRT payable at any point in the transaction. It's not just hedge funds that do this either - probably the largest beneficiaries are pension funds. What Labour are asking for, therefore, is not that hedge funds should stop getting special treatment through the tax code, it is that hedge funds should start getting special treatment through the tax code.

As a bonus, there is no legal definition of "hedge fund", and so legislating to prevent them utilising contracts for difference would be non-trivial.

The second reason this is a hard question to answer is that it is a highly technical question on an obscure part of tax law that has been left relatively undisturbed since the late 90s. Without prior warning, there is simply no way that any Prime Minister could answer it. Given that warning, a competent answer could look something like this:
As the Honourable Member is surely aware, hedge funds do not qualify for the intermediary exemption on SDRT. That exemption applies principally to investment banks, and was introduced in order to increase liquidity in the stock market - to the great benefit of the economy. The Government has no plans to abolish this general exemption, which is of most benefit to our pension funds. It was, in fact, introduced in by 1997 by the Member for Kirkcaldy & Cowdenbeath. I must say it is rather surprising to see that the party opposite are so keen to reverse one of the few entirely sensible policies they introduced when last in Government.
As it is, it was just an excuse for yah-boo gotcha-ism.

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