ESTATE DUTY DEDUCTIONS. (Hansard, 22 September 1909)

§ Sir W. ROBSON
I think in two words I may explain this very brief Resolution. The Resolution is intended to prevent the creation of incumbrances which have the only object of operating for the purpose of defeating the Death Duties. It has become necessary by a recent decision in the court of law, which I do not think I need deal with in any great detail. If I state its substance, I think I will make sufficiently clear to the Committee the object of the Resolution. The following case has been decided by the law courts, the highest tribunal, to be good law, as the law stands now. A landowner having very large estates and being aged 79, was minded to escape if he could the payment of Death Duties on the part of those who succeeded him. That is an object I ascribe to him without injustice because it was admitted by his successor. He said his father had the object of his escaping the Death Duty. That landowner was a tenant for life, like most great landowners in England and Scotland. At this extreme age of seventy-nine he devised, with the assistance of a very astute legal adviser, a plan of purchasing a reversion, which was possessed by his son and grand- 566 son. The landed property with which he was dealing was worth about £500,000 or £600,000. I do not give the exact figures. His son's interest was, of course, very valuable. The son's reversionary interest was worth over £400,000; the grandson's reversionary interest was worth £200,000. Together they made very nearly the value of the estate. What was done was for the father to purchase both these two reversionary interests. I need not explain the somewhat complicated, legal mechanism necessary in such a case.
This was a Scottish case, but the same principle would very nearly apply to English cases. He purchased the two reversions. He did not intend to pay in cash. He could not. So he gave bonds to his son and grandson for the purchase amount of between £600,000 and £700,000. The bonds were conditioned at 5 per cent., which was never paid nor intended to be paid. No interest whatever was paid. But some lower rate of interest was agreed to by some collateral document. The interest went on till it reached a sum which, with the principal, was far in excess of the value of the estate. The father, in the meantime, though not paying interest, continued to give his son and grandson their ordinary allowance. All the deeds, elaborate mechanism, conveyances, etc., were, of course, never acted on, in fact. When the father died the Inland Revenue officers descended upon the son, and they invited him to pay Death Duty upon this estate, 567 which was estimated to be worth some £700,000. The father before dying had left the estate to the son upon the ordinary trust of the settlement. The son then explained that he was deprived of his share, and, because he was a creditor, that he had shown extreme generosity in not pressing it at death. The Inland Revenue officer then descended on the grandson. He, I believe, had been a most affectionate child. He also explained that he was a creditor of his grandparent, and that the grandparent in this particular estate had died in a condition of the most deplorable insolvency. The incumbrances which had been created, of course, amounted to more than the value of the estate, and, of course, the son and grandson claimed that they were not subject to Death Duties. That view was resisted by the Crown unsuccessfully.
We had some hopes of success in the House of Lords. Two noble lords favoured the view of the Crown, but in a Court of five there was a majority of one against the view of the Crown. There can be no doubt if the law be allowed to continue in that state there will be a very serious flaw indeed. I need not tell hon. Gentlemen opposite that Death Duties by this time have become a necessary financial expedient not only to the Liberal Party but to any party which happens to hold the reins of Government. I am sure whatever the views of hon. Members opposite be on thorny fiscal subjects, it will be agreed that no Government can now dispense with Death Duties. It has, therefore, become necessary to adopt some means by which incumbrances, created with the motive and of the sort I have referred to, should be checked. It is not by any means an easy Amendment to frame. There will be difficulties, I have no doubt, when the words of the Amendment come to be put before the House, but I think what I have said is sufficient to explain the purpose of the Resolution. The precise mode by which effect will be given to it will remain for future consideration.

§ Mr. WATSON RUTHERFORD
Nobody can fail to sympathise with any Government who have got to collect Death Duties and find themselves done out of a considerable sum of money in the ingenious manner in which the hon. and learned Gentleman has just explained. If the Resolution which is now before the Committee had been limited in its terms to deeds and incumbrances that were of a fictitious 568 character, or which had been created or manufactured for the purpose of avoiding Death Duties, then I do not think many on this side would have objected to the terms of the Resolution. When we read the Resolution and find that it does not refer, at all events in its wording, to any of these matters of which the hon. and learned Gentleman has just given us an account, we are entitled to ask whether it is the intention of the Government, in the Amendment or new Clause which they intend to propose, to strictly limit it to such kind of fictitious debts and incumbrances as the hon. and learned Gentleman has described. If we pass the Resolution in this shape there will be nothing at all to prevent the Government afterwards bringing in a new Clause or an Amendment to the existing Clause—I do not know which form it would take, because we have not got it on the Paper—which would be very much wider in its scope.
The Resolution starts: "That it is expedient to limit the debts and incumbrances." Everybody feels that it is expedient to limit debts and incumbrances. I would like to limit my own if I possibly could. But we want to know more about it. We are justified in pointing out that hitherto Death Duties—although they have been pretty severe, and although in a good many cases they have inflicted great hardship, and although they are going to be much increased—hitherto Death Duties have only had to be paid on the net amount of a man's estate. If an estate existed at all Death Duties could be paid; and it is a provision in the whole of the assessments for Death Duties as the law stands to-day that every debt and every incumbrance of the deceased must be given credit for and taken into account. If we pass this Resolution that will drop. I can imagine a case where the debts and incumbrances amount to more than the value of the estate; in such a case, if there were any limiting of the amount of debts and incumbrances, which could be taken off, the Crown would be demanding duty where there was not enough estate to pay duty with. We are entitled, therefore, to something more than the hon. and learned Gentleman has just now said. We are entitled to an assurance that in this Amendment or new Clause these limitations will simply be as regards fictitious debts or incumbrances, or debts and incumbrances which have been merely created for the express purpose of avoiding the duty. If we can get that assur- 569 ance I feel certain that my hon. Friends round me will be disposed not to divide against the Resolution.

§ Sir W. ROBSON
I think I can give the hon. Gentleman that assurance, with a qualification to which I do not think he will object. This is a difficult task, and the terms used in the new Clause will have to be of a general character. I cannot confine myself to the use of the word "fictitious" for this reason—that although under the existing law debts and encumbrances must have been created bonâ fide there is a good deal of difference of opinion as to what is the proper significance of the phrase. In fact, the Resolution is necessary in consequence of a recent decision in the House of Lords. The word "fictitious" will not serve my purpose. In the choice of phraseology I do not want to go further than to avoid evasion.

§ Mr. WATSON RUTHERFORD
On that assurance we do not desire to divide.

§ Mr. STEWART BOWLES
This is the 23rd of September, and I think the thirty-third day in Committee upon this Bill, and what the hon. and learned Gentleman is now proposing is really nothing less than to recast the whole framework and principle of Estate Duties. Up to now the whole principle of Death Duties has been this—that the duty is to be assessed and paid on the value of the property which passes at death—the value of the property which actually passes. If you tax a man not on what he receives, but on a national and fictitious value, which may have any or no correspondence to what a man actually receives, you hold out a very strong temptation indeed to the very persons who are most easily influenced to avoid your tax. It has been called by many names, such as "evasion" and "avoidance," but I think that the most accurate description of the process would be rather "abstinence." People have abstained from paying these duties, and they have simply walked through the hole which must necessarily be left in any scheme which depends not upon reality, but upon a sort of notion which has been hitherto at the bottom of the whole system of Estate Duties.
The hon. and learned Gentleman at this period of the Session and at this hour of the morning—past two o'clock—comes down, and, after we have considered and passed the original proposals of the Government, proposes a new fiction, a new notion, an entirely new principle, on which to assess Estate Duties, which he 570 says with great truth have become an essential and important part of our fiscal system. What is he going to do? He is going to take power to limit the deductions which may be made from the value of an estate passing on death. What does that mean? It means that the hon. and learned Gentleman and the Government are going to take power to tax a man not alone on the property which in fact passes on death, but on some other value, on some other score, which is clearly not to be the value of the property actually passing, but, by some machinery not yet divulged, is to be deemed by him and by the Government to be the value of the property. I think the hon. and learned Gentleman was putting it mildly when he said that it would be a difficult task, and I think it will be clear to the Committee, as it was evidently clear to him from the very expression he used, that the words proposed in this Resolution must necessarily be general words. He said, indeed, that the words would be aimed at evasion. The right hon. Gentleman may aim them at evasion. The question we shall have to consider is not what the right hon. Gentleman is aiming at, but what he is going to hit. It appears to me that we shall have to seriously consider whether any words having a general effect are not certain not to prevent evasion, but to put a gross injustice upon incumbrances which may come within the meaning of the words. This is a tremendous proposal at this time of the Session; a proposal of this size ought really not to be made to the House of Commons. It is a very far-reaching proposal and almost impossible of accomplishment in any scheme of equity and justice.

§ Mr. FELL
I do not intend to move the Amendment standing in my name. But I would ask when we may see what the Government intend to propose? Very grave injustice may be felt unless we see the Amendment. Anxiety is felt on all sides.

§ Sir W. ROBSON
The Amendment has been considered. It is now drafted, but I desire to subject it to a little further consideration. It will be down upon the Paper before many days.
Resolved, "That it is expedient to limit the debts and encumbrances which maybe deducted from the value of an estate in determining the value of the estate for the purposes of Estate Duty."