§ He said, that the Chancellor of the Exchequer might congratulate himself on the moderation shown in the discussion of the Bill in Committee, after the lucid ruling from the Chair, reminding the House that a Bill of this kind opened the door to a discussion of the whole area of taxation. As far as he was concerned, he had confined himself to three very modest proposals. The 248 complexity of the Finance Act was, no doubt, very great, and probably no one clearly comprehended the results of the changes made by it. The end of the First Clause said that on the property which passed at death an Estate Duty should be levied at graduated rates, but the Duties named in Schedule One should no longer be levied. In this Schedule were five Duties, and he was concerned only with the fifth, which was the Legacy and Succession Duty of 1 per cent. Thus there was not only an enactment that Estate Duty should be levied on certain property, some of it newly brought within the charge, but there was also a promise that certain other duties should no longer be levied. The Chancellor of the Exchequer having by Section One let loose the deluge of taxation, had by Schedule One set his bow in the cloud, and made a covenant that the other duties should not be levied. His contention was that that covenant had not been observed though the bow was still in the cloud, and that considerable injustice had been done. It had long been sound policy on the part of the tax-collecting authorities of the Inland Revenue to encourage, as far as possible, the payment by anticipation of duties not yet due. In many cases it acted extremely well. In the first place, it got rid of the liability of the taxpayer, enabled the Department to bring to an end what must be a complicated state of bookkeeping accounts, and poured into the coffers of the Chancellor of the Exchequer money he might use to build ironclads or construct light railways in Ireland. So that the taxpayer benefited, the Revenue benefited, and also the machinery; because they got rid of outstanding claims. So the Legacy and Succession Duty Acts had given considerable power (which had been largely availed of) to the tax-collecting department to take duties in advance. For instance, the 33rd Section of the Legacy Duty Act gave such a power which had been largely availed of. The 34th Section was very much to the point, because it directly met the overpayment of duty. He submitted that the Commissioners should repay duty which had been improperly overpaid. Now, where the death had occurred since the passing of the Act and the estate had come intact into 249 charge, there was no anticipated payment and grievance did not arise. But in many cases, in which those liable had availed themselves of the power of making commutation of the duty and had obtained permission to pay duty in anticipation and in advance of the death, an entirely different case arose. Suppose 1 per cent. duty had been paid by anticipation before the death to clear the estate, and that the death came after the fatal 2nd August 1894. Estate Duty was paid on the whole estate. Then there was aright to come in—to point to the bow in the cloud, and to call for a return of the 1 per cent. paid by anticipation, but which if not paid by anticipation it would not have been necessary to pay at all. Where one man had paid by anticipation and another had not, the former was mulcted in 1 per cent. more duty than the latter. This seemed to him undoubted, and it was to enable the Commissioners to return the 1 per cent. that he proposed the Amendment. He only called for the commonest of common justice-for the equal treatment of the two contributories-his desire being to make this Act workable.
§ THE ATTORNEY GENERAL (Sir ROBERT REID,) Dumfries
said, the points raised by the hon. Member's Amendment were by no means so easy and simple as he represented them to be. They were, in his view, surrounded by a great deal of difficulty. The fact was, the whole point of the Amendment turned on certain payments that might have been made in cases of settled property where the Estate Duty might have been paid after the Act of 1894 was passed, and yet certain prior payments might have been made in respect of this property. It was settled property, and settled property, alone which would be affected by the Amendment. Its effect would be to take away 1 per cent. from that restricted class of property which had been settled by deed, and which would not affect the case of property settled under will. In that case the Estate Duty under the Act of 1894 was not payable at all. It was quite true that there might be a demand of 1 per cent. upon the life interest of the first tenant for life of the settled personalty, and there might be also a payment in anticipation of 1 per cent. in regard to 250 the remainder. But the only grievance that could arise was in the extremely small and limited class of cases, that it would be possible that in future cases there might be a double payment of a very minute kind. That was true, but the answer was this, that in the first place these were, as he had said, only cases of settled property, and settled property had been specially treated in the Act of last year. The matter had been considered in every aspect in which it was capable of consideration by the Government, and it having been so considered, the House, rightly or wrongly, agreed to a compromise with regard to the adjustment of the tax upon settled property. The basis of that compromise was that one Estate Duty alone should be payable. All these things were taken into consideration last year, and it seemed to him that if they were going to rip up that adjustment as regarded the case of settled property, they would have to rip it up altogether. It was quite impossible to obtain absolute precision in intricate taxation of this kind, but it was equally a mistake to suppose that inequality necessarily meant injustice.
§ MR. G. J. GOSCHEN (St. George's,) Hanover Square
said, that to his lay mind it was extremely difficult to follow the argument of the hon. and learned Attorney General, but the impression that that argument had left upon his mind was that there were cases in which there would be a double payment exacted. He understood the hon. and learned Gentleman the Attorney General to admit that much, and his admission, as far as he was concerned, appeared to him to be the only part of the matter that was absolutely clear. When the hon. and learned Gentleman began to explain why this injustice could not be rectified it was extremely difficult to follow him. He, however, should have thought that it would have been possible to have dealt with this admitted injustice by some means or other. If that could not be done, all he could say was that the Act of last year must be rather an extraordinary- piece of legislation, as it distinctly took from the taxpayer in advance a certain payment, and then required payment over again in a different form.
§ THE CHANCELLOR OF THE EXCHEQUER (Sir WILLIAM HARCOURT, Derby)
said, that he should be very sorry to think that there was any injustice in this matter that could not be remedied. He admitted the complexity of the question, but, as he had said last evening, the hope that an Inland Revenue Act might be made so clear that he who ran might read, when they came to deal with settled property, was one that was not likely to be realised. The law of settlement was one of the most complicated inventions of the ingenuity of conveyancers, but he thought that he could give a more vulgar and unlearned view of the question. The real truth was that, before the passing of the Finance Act, settled property had had very special advantages. It paid less than any other class of property, it never paid a duty upon its capital value at all, but only on the interest of the succcessors. Therefore, there was not the same reason for giving relief to settled property that there was in the case of property which had paid the Probate Duty. He could not for a moment admit that the Government had confessed, as the right hon. Gentleman opposite had suggested, to having committed an injustice which they were unwilling to remedy. The Government did not consider that there was any injustice in this enactment, but on the contrary, they believed that when they came to deal with settled property under the Act of 1894, they did what was thoroughly just and equitable in the circumstances of the case. The hon. Member was, practically speaking, demanding for a privileged class the same advantage after the Act that they had before the Act. Nor was there really a double payment in any true sense of the word.
§ *MR. T. GIBSON BOWLES
said, that the argument of the Chancellor of the Exchequer had nothing to do with the case brought forward. His case was that of two men with the same kind of property, one of whom had to pay 1 per cent. more than the other. It was not a question of a distinction between different kinds of property, but of a distinction between two men having the same kind of property who were 252 made to pay different rates of taxation. He felt bound to take a Division upon it.
§ The Committee divided:—Ayes, 78; Noes, 168.—(Division List, No. 90.)
§ *MR. T. GIBSON BOWLES
admitted that on the second proposed new clause he had not so strong a case as on the first. It dealt with the limit of time for disposition, and proposed that—Section 2, Sub-section 3, of the Finance Act, 1894, is hereby amended as follows: The description of property in Sub-section 3 shall be construed as if the words 'more than 12 months before his death' were omitted therefrom.Why was it that the estate of a man who had made a settlement and died within 12 months was to be treated as though the settlement had never been made, because that was what it came to? The only explanation was, that the Finance Act assumed that the settlement was a fraudulent attempt to evade the duty, which was an entirely unjustifiable assumption to make. Whether it was or was not so was a question of the facts and ought to be settled, like the question of domicile, upon the facts, and not upon a hard and fast assumption. The effect of the change that he proposed would be that property passing on the death of the deceased would not be deemed to include property held under a disposition made by the deceased, even though that disposition were made within 12 months of his death. It might be said that he was leaving the revenue too much open to evasion. But he would point out that enormous securities were still left to the revenue. In the first place, full possession and enjoyment of property must have been absolutely assumed by the beneficiary, and all benefit whatever must have been renounced by the deceased person. That was an admirably complete security; and it seemed to him monstrous when a man bona fide made a settlement, and happened to die, possibly in a railway accident, within 12 months, that duty was to be levied on that property as if the settlement had never been made. He submitted that when a man had absolutely divested himself of the property, it did not matter whether he made the settlement a month 253 or a week before his death, the Government were not entitled to oust it by making the assumption that it was based upon, and had its origin in, fraud. The attempt to do so was made for the convenience of the tax-collector, and in order that he might not have the trouble of going into the facts; and it was neither right nor fair. The Chancellor of the Exchequer had paraded his immense receipts from the Death Duties before the House, and therefore he could afford to make just concessions. Let him act in justice to the honest man. The proposed clause left him every power to detect and defeat the dishonest man.
§ THE CHANCELLOR OF THE EXCHEQUER
said, he quite understood the hon. Member's object in proposing this clause. The hon. Member was the great apostle of evasion. He had predicted from the first that everybody would evade the Act of last year; and that, in consequence, they would collect, not more money, but less money than they collected before. But he had been disappointed, and the Act had produced every month more and more revenue. But a false prophet always desired to turn himself, if he could, into a true prophet, and this clause was to enable those evasions to be made which had not up to this time occurred. Not having succeeded in scuttling the ship, he thought he could explode a torpedo at its bottom. He was sure the right hon. Member for St. George's, Hanover Square, would not vote for this clause, because the principle of setting aside a settlement made within a certain period before death was not new. It was an old-established principle which, under the name of the Account Duty, was originally introduced to prevent evasion of the old Probate Duty. In the old days settlements or gifts were set aside if they were made within three months before death. But that was found a totally insufficient protection of the revenue; and the right hon. Gentleman, in 1889, extended it to 12 months.
§ THE CHANCELLOR OF THE EXCHEQUER
asked why evasions should be allowed with respect to land that were not allowed with respect to personalty. The hon. Member had let the 254 cat out of the bag. What the right hon. Gentleman said when he extended the term was this:—I trust I shall have the concurrence and sympathy of hon. Members in several proposals which I have to submit for preventing ingenious evasions of the duties imposed when property changes hands at death.The hon Member for King's Lynn suggested several dozen of these ingenious evasions, none of which had held water. The solicitors had found that the hon. Member's evasions would not pay. The fact was that the Bill which the hon. Member said was so badly drafted was so watertight that he was obliged to introduce this new leak into it. The right hon. Gentleman proceeded:—The Committee is probably aware that death-bed gifts are caught and taxed by what is called the Account Duty; and not only deathbed gifts, but gifts or voluntary dispositions made within three months of death. I am sorry to say that the experience of Somerset House has proved that the three months fixed in the Act is insufficient to protect the revenue, and I propose to extend the period to twelve. If the State expects that accumulations are to pay tribute to the State when transferred in the natural course of events from one person to another, I think there will be no sympathy with devices by which the State loses what the Legislature intended it to gain.''That principle was so clear that there was no Debate upon the subject. If the hon. Member's clause was adopted, any man who wanted to avoid the duty had only to ascertain from his doctor that he was not going to live.
§ THE CHANCELLOR OF THE EXCHEQUER
said, that was the favourite doctrine preached by the hon. Member. It was always those dying impenitents who desired to defraud the State, and it was to encourage and facilitate their operations that this clause was proposed. All a man had to do when he found that he was not likely to live was to declare himself a trustee; and, having done so, the Death Duty was not payable on his estate. The whole object of this was to defeat, not any principle introduced into the Finance Act of 1894, but an old-established principle for the protection of the Revenue.
§ THE CHANCELLOR OF THE EXCHEQUER
thought that really it would be waste of time to carry the argument any further. He was quite sure the House of Commons would not patronise—if he might say so without offence—such a barefaced attempt to defraud the Revenue to realise the Cassandra prophecy of the hon. Member for King's Lynn.
§ MR. GOSCHEN
was unable to support his hon. Friend's Amendment, but he wished to observe that the Chancellor of the Exchequer was extremely fond of quoting certain propositions of his and fitting them into a system of finance which had been entirely changed. Regulations which were perfectly equitable and workable under the old system ceased to be so under another system; and therefore he wished to enter his protest against his authority being invoked for certain portions of the machinery which the right hon. Gentleman had in other respects so entirely changed and modified. There was another point on which the Chancellor of the Exchequer had dwelt, not for the first time. The Chancellor of the Exchequer pointed to the receipts from the Death Duty during the last five months as proof that the prophecy that the increased duty would lead to avoidance and evasion was entirely wrong and misplaced. But as yet they had had no experience. They had had no experience yet as to the transfer during lifetime either of landed estates or personalty to any considerable extent. The increase of the Chancellor of the Exchequer's resources was due to two things—the increased resources were due to the increased duty, and they were due also to the natural development in the Death Duties generally. It did not occur last year, but from year to year there had been an increase in taxable property. Up to this moment they had absolutely no experience whatever of the degree to which the natural increase through the growth of wealth would be checked by the transfers that were prophesied. He did not know whether the Chancellor of the Exchequer knew what was well known to many—that large transfers were taking place and had taken place during the last 12 months. The right hon. Gentleman, if he chose, could have 256 a list of large estates which had been broken up. Estates were being given to sons during their father's lifetime. Through the 12 months' provision the Chancellor had caught a certain number of people who actually during the last year had transferred a large portion of their property, but through premature death had not been able to realise that avoidance on which they calculated. He knew such cases himself where persons who died soon after the passing of the Finance Act made these transfers. Solicitors would tell the right hon. Gentleman that this was taking place to a great extent and would continue to take place. He trusted, in the interests of the Exchequer, that the Chancellor would find there was not much avoidance, but he could not admit that up to the present there was any proof of it. Such proof as there was supported the view that it prevailed to a considerable extent.
§ *MR. BRODRICK (Surrey, Guildford)
said, the Chancellor of the Exchequer had put it that this was a Motion intended, as usual, to absolve land.
§ *MR. BRODRICK
His remarks were sympathetic, but his actions were hostile. He had an inveterate hostility to land and to agricultural property, and so he had enormously taxed it. But that was not the point of the Amendment. The point was that this was a question between settled and unsettled property. Take the case of a man who had a son or married daughter, on whom he had settled a certain sum of money and paid interest during his life. By the law up to August last he paid nothing upon his death on any sum which he had settled and upon which he had paid interest in his lifetime. Obviously the intention of the Legislature never was to touch these cases. Take the case of a man who was paying his son £1,000 a year on 257 £25,000 capital. Under the old law that £25,000 never paid a farthing. Under the new law it would never pay a farthing after the first 12 months, because every man who was paying out £1,000 a year would at once transfer the capital to his son. That was not an evasion; it was merely bringing himself into line with what was the law up to a few months ago. Why should such persons be fined because they happened to die during a particular year. Yet a heavy fine was being put on all those who died in this particular year. With regard to marriage settlements the case was different. A man could not choose the moment at which his son or daughter might marry, and at that time it was customary to make a settlement. Why was the son or daughter to be fined nine or ten months afterwards because their father happened to die? This also was not a case of evasion. If the Chancellor of the Exchequer were not humane, let him at least be just in regard to such transactions, for the operation of his present scheme was monstrously unjust.
MR. GRANT LAWSON (Yorkshire, N.R., Thirsk and Malton)
said, that the clause was very important in consequence of the adoption of the system of aggregation. Even when the sum settled before death was small it might, when aggregated with the rest of the deceased's property, have the effect of raising the rate of duty for the whole of the estate. The inclusion of these sums might therefore affect very seriously the family of a dead man. The time-limit laid down was not a satisfactory test of a man's bonâ fides. Supposing a man made a settlement and died 364 days afterwards, he was looked upon by the Chancellor of the Exchequer as having done something wrong in making the settlement, but if he died 366 days afterwards he was buried in the odour of sanctity and might even have a Chancellor of the Exchequer attending his funeral. The present time-limit was very unsatisfactory, and he hoped it would be altered.
§ THE CHANCELLOR OF THE EXCHEQUER
said, that he was not responsible for the test of the time-limit. It was a test established by the right hon. Member for Midlothian, and extended by the right hon. Member for St. George's, Hanover Square. The right hon. Gentleman apparently objected to 258 his relying upon his authority, but he always liked to agree with the right hon. Gentleman when he could, and he did not understand why the right hon. Gentleman should complain of his conduct in relation to this matter. The argument of hon. Members opposite seemed to be that the inducement to evasion would now be much greater than it was before, and the conclusion which they came to was that still greater facilities for evasion should be given. That was not very logical. This clause if accepted would destroy the whole scheme of the Death Duties. The Act, it should be remembered, laid down that land and personalty should be placed on an equal footing. He hoped the hon. Member opposite would be satisfied with the discussion that had taken place.
§ *SIR JOHN LUBBOCK (London University)
observed that the Chancellor of the Exchequer seemed to have evasion of the brain. Formerly when a man gave large sums for philanthropic purposes he was looked upon as a public benefactor, but now the right hon. Gentleman charged him with the offence of evasion. Until last year, when a man settled, say £10,000, and died within 12 months, the money settled was alone affected, but now the aggregation of that money might have the effect of raising the deceased's estate from a lower to a higher limit of taxation. The Chancellor of the Exchequer had suggested that a man could ascertain from his doctor how long he had to live. Doctors, however, were not absolutely infallible, and they certainly could not foresee railway and other accidents. After such great changes were made last year in connection with the Death Duties they ought really to re-consider this question of the 12-months limit. Bonâ fide settlements on children should be protected.
§ *MR. T. GIBSON BOWLES
said, that it was unjust to represent him as favouring evasion. Evasion was unlawful avoidance, and that he had always deprecated; but avoidance was lawful evasion, and that he favoured. The right hon. Gentleman had referred to him as a Cassandra. Well, but had the right hon. Gentleman forgotten that, in that little story, Cassandra was the only person who was right? After hearing the speech of the right hon. Gentleman he had come to the 259 opinion that his case was unanswerable, and he should certainly go to a Division.
§ The Committee divided:—Ayes 100; Noes 183.—(Division List, No. 103.)
§ *MR. T. GIBSON BOWLES moved the following:—