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Finance (No. 2) Bill

Absolutely not. My point is that such companies are a higher-risk investment, whereas the REIT scheme offers people a lower-risk opportunity to invest in property. That is why it is not appropriate to include AIM-listed companies in these provisions. Amendment No. 23 deals with the definition of a close company, and would remove clause 106(6), which prohibits a close company from becoming a UK REIT. A close company is defined in section 414 of the Income and Corporation Taxes Act 1998; broadly speaking, it is one that is controlled by five or fewer shareholders, as we have heard, but the definition in clause 106(6) is wider than was the case in the draft legislation, which contained a 10 per cent. shareholding restriction. It is important that some form of restriction is retained, to ensure that no individual is able to invest in property for his or her personal benefit. That is why the close company restrictions have been included, but the reasonable concern has been raised that the Bill will require companies to monitor their shareholders continuously to ensure that the condition is not breached. Clearly, however, the actions of the shareholders are outside the REIT’s control, and I would appreciate the Minister telling the House how a trust is supposed to anticipate or prevent such breaches. We believe that deleting clause 106(6) altogether, as proposed in amendment No. 23, is too drastic and could make the scheme vulnerable to the abuse that is tax avoidance. However, if the clause is to be retained in its existing form, the Government will need to explain, perhaps in Standing Committee, how they expect REITs to monitor and enforce the regulations. They should also specify the penalties if the conditions are breached, because automatic exclusion of a trust could increase the risk associated with investment and serve to put investors off. This matter would benefit from consideration in Standing Committee, where we could study the details more closely, in conjunction with the other clauses relating to REITs. We share some of the concerns behind the amendment, and look forward to the Minister’s response.