HC Deb 24 May 1878 vol 240 cc627-40

in rising to call attention to the incidence of the Probate, Legacy, and Succession Duties; and to move— ''That the present system of taxing the succession to property is unjust, and, in the opinion of this House, ought to he re-adjusted, said: I must express my surprise that this subject has not been discussed in this House since 1853. In that year my right hon. Friend the Member for Greenwich (Mr. Gladstone) spoke of the probate duty as one which called for reform, although he was then obliged to postpone its consideration. The noble Lord the present Prime Minister, also, at the same time, spoke of his hope that a measure would be brought forward which might reconcile contending interests, and terminate the system complained of. Under these circumstances, my object is to call attention to some of the anomalies attending the existing system, of which I apprehend many hon. Members are not aware. In speaking of the re-adjustment of these taxes, I do not intend to propose an increase of the taxation of the country; my contention will be that the present taxation should be fairly and equally distributed over all kinds of property, and all classes of the community. But if the Chancellor of the Exchequer desires to increase the Revenue of the country—and I fear, from the policy the Government is pursuing, increased taxation will be necessary—I think I can point out to him that by charging the richer classes the same rates of duty as the poorer have to pay on the smaller estates, and by extending the taxes to all kinds of property alike, he will have an increased fund at his disposal of over £5,000,000 sterling. I do not intend to enter on the history of the various taxes further than necessary to explain, so far as explicable, their anomalies. The probate duty was first introduced many years ago in the form of a uniform stamp of 5s. on all estates. After some years, the stamp was increased by charging higher rates on groups of estates of different amounts up to £300, and estates beyond £300 were charged nothing more. The scale was extended from time to time until, in 1815, it reached £1,000,000 sterling, at which it remained until 1859, when it was extended to cover estates of any amount. The first anomaly of the probate duty to which I shall call attention is that this tax is not charged on real estate. An estate of, say, £30,000 in cash, stocks, or even mortgages' of real estate, has to pay probate duty; but if, before his death, the deceased had invested the amount in land, the land would not have paid any duty. If even he had directed by his will that the £30,000 was to be invested in an estate of which his successor was to have only a life rent, then the £30,000 in cash would have escaped duty. On the other hand, if the deceased had owned £30,000 in land, and directed the estate to be sold and divided among the legatees, the amount would be chargeable with duty. Then, again, real estate is chargeable with duty when forming part of partnership funds engaged in trade. The share which, a deceased partner of a manufactory owns of mills, or bleaching grounds, has to pay the same as personal estate. Money in land, or going into land, pays no duty; but money coming out of land, or in real estate for purposes of trade, has to pay the same as personal property. It is thus evidently nothing inherent in the land itself, no special character it has—because the landed estate of a deceased person sold under his will has to pay duty as well as partnership funds in land—but an arbitrary exemption of the owners of real estate. I do not see any ground why real estate should not be dealt with in the same way as personal estate. There is nothing in the nature of land why it, or its owner, should be exempted from taxation. On the contrary, there seem special reasons that land, which enjoys the exceptional advantage of increasing in value without effort of the owner, and the security of which is guaranteed by the whole national resources, should, instead of being exempted, bear even a higher rate than personal estate. About half-a-century ago, Mr. Gwynne, the then Comptroller of the Duties, expressed his surprise that the probate duty had not been extended to real, as well as personal estate. Mr. M'Culloch, the economist, writing on taxation in 1863, said to exempt land from such duties was plainly an abuse, and he attributed it to the superior influence in the Legislature of the landed gentry. All the arrangements with regard to this tax clearly show that the exemption is intended to fall exclusively on the landed proprietors, and the only explanation seems to be that those who had the principal influence and control in imposing this duty declined to impose it on themselves, or to share that burden of taxation which they were placing upon others. The second anomaly is that the duty is charged at a higher rate on smaller estates than on those of larger amount. A testate estate of £200 is charged £5; and, if intestate, the duty is £8; or 2½ per cent in the one case, and 4 per cent in the other. An estate of £1,000 pays probate duty of 3 per cent or 4½ per cent, according to whether the deceased was testate or intestate; £2,000 pays only 2½ per cent; £3,000, only 2 per cent. If an estate is so large as £30,000, the tax is only 1½ per cent. The effect may be illustrated thus—An estate of £30,000 pays probate duty to the amount of £450; but if, instead of being left in one estate, the same amount had been left in 30 estates of £1,000 each, the probate duty charged, instead of being £450, would have amounted to £900. Thus, the one largo estate of £30,000 pays only one-half the rate of the tax levied on 30 estates of £1,000 each. This is altogether against common justice and sound principles of levying taxation. It places the higher rate on the poor, and the lower rate on the rich, instead of levying an equal rate on all, or inclining in the opposite direction, and relieving to some extent from the burden of taxation those least able to bear it. Mr M'Culloch has remarked upon this, that it is impossible to say a word in excuse of a practice of this sort, which is as scandalous as it is unjust. Another anomaly in charging probate duty is, that it is levied on groups of estates between certain amounts, and not by a certain percentage. The first group consists of estates between £100 and £200, and on every estate between these sums the duty is £2 if testate, and £3 if intestate. The stamp advances irregularly by successive steps. For instance, the next group consists of estates between £200 and £300, on which the duty is £5 if testate, and £8 if intestate. Then, on testate estates between £2,000 and £3,000, the duty is £50, or about 2½ per cent on the minimum amount in the group. Now, it is evident that if the £2,000 estate is charged the proper amount of duty, and if a £2,900 estate pays nothing more, the portion over £2,000—namely, £900—goes untaxed. Going up to the larger amounts, an estate of £34,500 pays no more than one of £30,000—the lowest amount in the group—and so on. On estates of that amount the sum of £4,500 pays no probate duty. We have this striking anomaly—that while you tax estates of so low an amount as £100 and £200, 10 times that amount may pass untaxed on estates of large value. The clear plan that should be adopted in the imposition of this duty is, that, like the legacy duty, it should be levied by a percentage on all estates. Another anomaly is that intestate estates are charged a higher rate than testate estates. I can find no ground why it should be so. If an individual fails to devise his property according to his own desire, and the State steps in and distributes it according to what is supposed to be natural right, there is no reason why the estate should be taxed more highly than when there is a will. This, again, presses very heavily on the smaller estates, for it is the poorer classes, for the most part, who die intestate. The Return, which was made on my Motion last year, shows that about one-third in value of the estate under £300 are intestate; whereas, in estates over £1,000, only one-twelfth are intestate. I will now briefly refer to the legacy duty, in which the anomalies are not so great. That duty is imposed by a percentage on all incomes, and is intended to be levied on the legatees by whom it is payable. In this case, poor and rich pay the same percentage, the difference in the rates depending upon the degree of relationship, and ranging from 1 to 10 per cent. This duty was imposed by Mr. Pitt, in 1780, to provide funds to carry on the war then waging. His proposal to increase the rates in 1796 included real as well as personal property, and both Bills passed the House of Commons; but the Lords rejected the Bill imposing the duty on real property, and passed the other. Nothing corresponding to the legacy duty was imposed on real estate until 1853, when the succession tax was introduced by my right hon. Friend the Member for Greenwich, then Chancellor of the Exchequer. The right hon. Gentleman then intimated his intention of placing the probate duty on a more equitable footing; but the pressure of other matters probably prevented him from dealing with the question. The succession duty is, however, really a very different tax from the legacy duty. By Section 21 of the Succession Duty Act, it is provided that the interest of every successor to real estate shall be considered as only an annuity of the amount of the annual value of the property, and the duty eligible thereon, payable in eight half-yearly instalments. For instance, a son aged 40 years, who succeeds to an estate of £30,000, has to pay succession duty on a sum of about £14,800 only, and on this latter sum the duty amounts to £148. Compare that with the case of a son of the same age inheriting the same sum in stocks or cash. He would, in the first place, have to pay probate duty of £450 if his father died testate, and £675 if he died intestate; then a legacy duty of 1 per cent, amounting to £300. These sums together make £750 if the parent died testate, and £975 if he died intestate; while the inheritor of the same value in land in unfettered fee simple pays only £148. I cannot conceive what excuse can be offered for this anomaly. Let me again compare this charge of £150 on the landed estate of £30,000 with what the poorer classes have to pay. If the land had to pay at the same rate as an insurance policy of, say, £200, which comprises the whole estate of the deceased, instead of paying less than £150, the £30,000 estate would have to pay £1,050 in the case of testacy, and£l,500 in case of intestacy. That is, a small estate of £200 pays, in the one case, 10 times, and in the other, 15 times proportionally higher rates than an estate of £30,000 in land. The general results are these—The probate duty, in the year 1877, amounted to about £2,500,000 and the legacy duty to over £2,750,000—the two sums together, levied exclusively on personal estate, produced £5,100,000. During the same period, succession duty, the only tax paid by real estate, yielded only £849,000. Now, in 1876–7, the total annual value of real estate, by the Income Tax Returns, amounted to £153,475,000; and, if we consider such property worth from 25 to 30 years' purchase, and that the life of a generation is of about the same duration, we come to this—that the total value of the annual succession to real estate must be about £150,000,000 sterling, and, if so, real estate should pay annually duty on that amount. Now, during the same year, the total value of the succession to personal estate was £131,000,000, a considerably smaller amount; but this smaller amount paid probate and legacy duty of over £5,100,000, while real estate paid less than £850,000. It thus appears that real estate—that is, property in land and houses—is exempted to the extent of over £4,000,000 sterling annually, as compared with personal property. Besides the real estates belonging to private individuals, there are the estates in land belonging to corporate authorities, trustees, &c., which are not subject to taxation for either probate or succession duty. The public are beginning to recognize that the funds belonging to corporations are not proper subjects of exemption from fair taxation; and when we consider the use to which a considerable portion of those funds are devoted—as, for instance, in the City of London—there seems very little ground for their exemption. As regards readjustment of these taxes, Mr. M'Culloch in the Enclyclopœdia Britannica, says— We cannot but think that the mode of charging the duty, as well as the duty itself, should he identical on all sorts of property. This taxation does not yield more than one-fourth or fifth that it would if assessed in the same way as the tax is assessed on personal estate. If the taxation is to be maintained, it ought to be imposed at a uniform rate over all properties. It is open to consideration whether the smallest class of estates ought not to be exempted. Incomes under £150 are altogether exempted from income tax, and an allowance is made on incomes up to £400; but probate duty is charged on small estates down to £100. I think a succession not exceeding £300 represents as humble a class in the community as £150 of annual income. Estates of under £300 probably go to poor families, and it would be a great relief to them if estates of £300 were altogether exempted from probate duty, not only on account of the duty itself, but in saving the large amount of expense in the administration of small estates. An exemption of estates under £300 would also admit of a great economy in the collection of the tax. The Return of last year shows that more than one-third of the total number of estates on which probate duty was charged was under £300, and that the tax on such estates amounted to less than £48,000. If these small estates were charged 1½ per cent, the same as large estates, the amount derived from them would not exceed £35,000, so that the Chancellor of the Exchequer, in exempting estates under £300, would be making a very small sacrifice indeed. Then the charges on small estates by the various troublesome forms required are very heavy. In the case of a small succession, consisting wholly of a policy of £100, the recipient, who was a son, had to pay charges at Somerset House to the amount of nearly £5. Considering the forms necessary, and the legal assistance required, I fear the charges on small estates, including duty, amount, in many cases, to well on to 10 per cent before the money gets into the hands of the successor. This is a serious matter, and occasions a great deal of heart-burning and bitterness throughout the humbler classes of the community. I have refrained from comment upon those extraordinary anomalies, as comment appeared to be unnecessary. But, in considering this subject, there recurs forcibly to my mind an objection urged against an extension of the franchise—that a great danger would arise in extending the representation to the poorer classes, because they would probably impose taxes unjustly, unfairly, and dishonestly on the rich. It is not open to me to discuss this objection at present; and I will only say that such an objection comes with very bad grace from Gentlemen who all these many years never raised their voice against a system of taxation so indefensibly unjust and one-sided as this of the probate and succession duties—which dishonestly taxes the estate of the poor man at a higher rate than that of the rich, and reduces the small provision for the orphan by the probate duty, while it allows the large landed estate of the wealthy landholder to go free. I thank the House for the attention they have given me, and beg to move the Resolution of which I have given Notice.


said, he only rose to express the hope that the Chancellor of the Exchequer or the Secretary to the Treasury, before the discussion closed, would, at all events, tell the House that they were favourably disposed towards the view of his hon. Friend the Member for Forfarshire (Mr. Barclay). He (Mr. Baxter) had never heard our system of succession duties adequately defended in that House or out of it, and he felt tolerably satisfied that the system admitted of no adequate defence. Just let them take the incidence of the probate duty. Why should probate duty be levied at a higher scale upon a small sum than upon a large one? Why should territorial estates—why should landed property—go scot free, while personal estates of the same amount were taxed? Why should premises employed in trade be taxed, while land and buildings not so employed were exempted? He must say that all those were things that passed his comprehension. Surely, there was a primâ facie case made out in favour of all kinds of property being taxed in the same way. He believed that if they were to tax real property in the same proportion as personal property, it would yield to the Public Exchequer three times the sum that it now did. That was a consideration which ought to weigh with the Chancellor of the Exchequer as guardian of the public purse. He would, without entering into the details of the question, simply appeal to the Chancellor of the Exchequer to pluck up his courage, and put an end to the present anomalous state of things. By doing so, he would do an act of justice, would greatly benefit the finances of the country, and would take a course commending itself to the good sense of the nation.

Amendment proposed, To leave out from the word "That" to the end of the Question, in order to add the words" the present system of taxing the succession to property is partial and unjust, and, in the opinion of this House, ought to be re-adjusted,"—(Mr. James Barclay,) —instead thereof.

Question proposed, "That the words proposed to be left out stand part of the Question."


said, he agreed with the hon. Gentleman opposite (Mr. Barclay), that there were several anomalies in the present mode of levying the succession duty, as contradistinguished from the probate duty, which it was desirable should be removed, and he did not see why all estates should not be treated on the footing of an equal percentage. But the principal object of the hon. Gentleman's Motion was the imposition of the probate duty upon landed property, and, with respect to that, he (Mr. Gregory) wished to point out that the hon. Gentleman had left out of his calculation the land tax, which was about £1,000,000 a-year. There was also the land tax which had been redeemed, which, he believed, was about another £1,000,000 a-year. Moreover, a stamp duty of, he thought, about 10s. in every £100 was imposed on every conveyance of land, but a vast amount of personal property was constantly changing hands without paying any tax. Nearly all local rates fell upon the land, and personal property was practically exempt from that taxation. The case of personal property was very different from that of real property, for personal property might be dealt with in various ways by which the State was prevented from realizing taxation on it again. In these circumstances, it would be unfair to charge land upon the same footing in respect of succession as personalty was dealt with, seeing that it contributed more largely than other descriptions of property to the general taxation of the country.


said, he heartily approved of the views expressed by the hon. Member for Forfar (Mr. J. W. Barclay). The hon. Member had opened up a large question, and only into one part of it did he (Mr. M'Laren) wish to enter. But he must first call attention to the remarks of the hon. Member for East Sussex (Mr. Gregory), and though he agreed with much that that hon. Member had said, yet he could not but feel that he had fallen into a mistake when, in comparing the burthens imposed upon moveable property with those imposed upon land, he asserted that moveable property—as, for example, railway shares—paid a lower rate of stamp duty on conveyance than was paid on the conveyance of land. The stamp duty upon £1,000, be it in land, or railway, or bank shares, was the same; but take £1,000,000 in railway shares or in bank shares, and then select estates worth £1,000,000 in any part of England—it would be found that men holding the shares paid four times, and perhaps ten times, as much as the holders of the land, because shares were frequently bought and sold as opportunities occurred, and paid the same stamp duty as land on each transfer; and it followed that in the result they really paid far more than land, which seldom changed hands. This was exactly the opposite of the conclusion drawn by the hon. Member for East Sussex. The hon. Member had referred to the land tax as a heavy burthen on land, and as having originally produced £2,000,000, although now only £1,000,000, owing to redemption. It was well known that the land tax when first imposed—nearly two centuries ago—was in lieu of certain feudal and other burthens which land had then to bear. All these old burthens were removed upon the condition that land should for ever pay 4s. in the pound upon the real annual value. There was no mention of nominal value. Real value was set down as plainly as the Act could make it. But how did the landowners escape from their engagements and the obligations imposed upon them? They valued the land the year after the Act was passed, and they had never valued it since, so that land now paid upon a valuation made nearly 200 years ago—although they ought to pay 4s. on the present real value, according to the bargain made with them when the feudal burdens were abolished. If this bargain were honestly carried out, few other taxes would be required. The analogy which the hon. Member for East Sussex endeavoured to show between bills of exchange stamps, and stamp duties on land, did not exist; for a bill of exchange was really only a convenient way of deferring the payment of a debt owed from one man to another. The one thing desirable in relation to the probate duty was equalization. Take an illustration. A man having saved £1,000, leaves it by will to his son or daughter—all, perhaps, he has in the world. The probate duty has to be paid, and the deputy of the Chancellor of the Exchequer goes to the party inheriting the money, and out of every 33 sovereigns upon the table insists upon picking up one. On the other hand, a wealthy man dies, leaving £30,000 to his heir, and what happens? The deputy of the Chancellor of the Exchequer, instead of £1 in every £33, claims only £1 in every £66. Could that be fair, and was there any justice, or even common sense, in such an arrangement? Suppose the man with the £1,000 complained, and asked how that could be defended, what answer could be given? Only this—the man who paid £1 in £66 was a rich man; rich men made the law, and in framing the law adjusted it so as to suit themselves. He appealed to the Chancellor of the Exchequer, not asking him to raise the one rate or to reduce the other, but to strike a fair medium, and make each class pay the same percentage; so that the same amount would in this way be raised, and there would be no complaints of the Revenue being injuriously affected. With respect to the succession duty imposed on land in 1853, it was expected to produce above £2,000,000, but had never reached one-half of that amount; and, surely, that showed that the object with which the tax was imposed had not been realized, and that the rate ought now to be increased. Under the circumstances, he thought it a fair demand to ask for an equalization of the probate and legacy duties. If the Government were not prepared to reduce the higher duty to the lower, then let both be placed upon the same footing. Let each pay £1 in £45, or such other figure as, in a couple of hours, an accountant could adjust easily as producing a Revenue equal in amount to the present system. He cordially supported the Motion.


thought the House was greatly indebted to the hon. Member for Forfarshire (Mr. Barclay) for the clear and able manner in which he had brought forward that important subject. As to the probate duty, he did not think that anybody would wish to get rid of it, neither was it desirable to limit its operation merely to higher sums. It answered an essential purpose, forming, as it did, a title to the property to be administered; and there was nothing unjust in a poor man having to pay for his probate according to the value of the property which he obtained. He concurred in the demand made by the hon. Member for the equalization of the probate duty through a fixed percentage. The numerous interesting points that presented themselves in connection with the discussion of this question showed that taxation was in a chaotic state, and that it required to be overhauled. He desired to impress upon the Government that they should never allow a tax to exist on false principles. A tax which was a charge upon property only at death was a very imperfect tax, and far inferior to a charge on the annual value of property. He trusted the Chancellor of the Exchequer would give his favourable attention to the subject whenever the finance of the succession and probate duty came before him.


said, that the inducement thrown out by the hon. Member for Forfarshire (Mr. Barclay), that such a re-adjustment of these duties as he recommended would give an increase of £4,000,000 to the Revenue, would naturally recommend itself to one in the position which he had the honour to hold. But the proposal before the House went very far. The hon. Gentleman stated that the probate and succession duties ought to be readjusted, that the exemption of real property from probate duty ought not to be maintained, and that the succession duty was not a fair one. But it had been argued before the House, by persons of very great authority, that there was a substantial difference between real and personal property, and therefore that there ought to be a difference in the duties charged upon them. That was argued by the right hon. Gentleman the Member for Greenwich when he introduced the present measure, and the right hon. Gentleman had never since expressed any different opinion in reference to this question. The right hon. Gentleman the Member for the University of London had tried to re-adjust those duties, but the attempt had not met with a success which should encourage others to follow his example, for he withdrew his proposal. In considering the question, they must bear in mind the local burdens which were a direct charge on real property, and which handicapped it as against personal property. These local burdens and charges formed one of the principal reasons why real property was not taxed the same as personal property, which did not bear the same burdens, and the right hon. Member for Greenwich had said that the charges upon real property made an imposition of this kind impossible. Another point raised in the Resolution was the difference of the amount raised upon small and large properties. There was no doubt that the amount levied upon smaller properties was a heavy one, and that it was one which required consideration; but it was a subject surrounded with difficulties, and he ventured to think it could not be dealt with hurriedly by a Resolution of the kind before the House. He, therefore, hoped that the House would not agree to the proposal.

Question put.

The House divided:—Ayes 150; Noes 107: Majority 43.—(Div. List, No. 146.)