§ When the securities of a Foreign State or British Possession are held under any trust, and the person who is the beneficiary in possession under the trust is the sole beneficiary in possession and can, by means either of the revocation of the trust or of the exercise of any powers under the trust, call upon the trustees at any time to transfer the securities to him absolutely 1205 free from any trust, that person shall be deemed to be the person owning the securities for the purpose of Sub-section (2) of Section seventy-one of the principal Act (which exempts from Income Tax under certain circumstances the interest and dividends of the securities of a Foreign State or British Possession.)—[Mr. Hobhouse.]
§ Motion made, and Question proposed, "That the Clause be read a second time."
§ Mr. HOBHOUSEThe Committee will see, from Section 71, Sub-section (2) of the principal Act, that a person not resident in the United Kingdom who owns securities and is entitled to the interest on them is exempt from Income Tax in the case of such securities as are securities either of a British possession or of a foreign State, if the dividends of those securities are payable in the United Kingdom. We propose that a person who is the sole beneficiary of a trust, and who can also call upon the trustees to transfer the securities to him, shall be deemed to be not merely the beneficiary, but the owner of the securities. Thus he will be brought within the exemption of Section 71, Sub-section (2). Some question might be put to me as to why we are exempting a person who is the sole beneficiary and not giving exemption in the case where there are two beneficiaries of such a trust. The answer is this. A person who is sole beneficiary and controls the Trust is really the master of the trustees in the disposal of the securities of his trust. He being resident abroad, the whole of the income would be payable to him and to nobody else. If there were two beneficiaries, one of whom is resident in the United Kingdom and the other of whom is not resident in the United Kingdom, the trustees might be in difficulties as to the allocation of the interest between the person resident in the United Kingdom and the person resident out of the United Kingdom. Circumstances have arisen which have drawn the attention of the Treasury to this case, and we think equity is met in the case of a sole beneficiary where he is resident out of the United Kingdom if he is treated as the owner as well as the beneficiary and gets the benefit of the exemption under Section 71, Sub-section (2).
§ Sir F. BANBURYI do not object to the Clause, although I do not altogether understand why it has been brought forward. I think it ought to go further, and 1206 I do not understand the reason given by the right hon. Gentleman for confining it to a sole beneficiary. The right hon. Gentleman says he is going to confine it to a sole beneficiary because, if there are two beneficiaries, the trustees will have some difficulty in ascertaining whether both of them live out of the United Kingdom or whether one lives in the United Kingdom and the other abroad.
§ Mr. HOBHOUSEI am afraid I did not make myself clear. I assumed a case where one lived in and the other lived out of the United Kingdom, and said the difficulty was the allocation of the benefit of the exemption.
§ Sir F. BANBURYI really do not see where the difficulty arises, but I do see where an injustice arises. Let me put a concrete case. There is the Under-Secretary for the Home Office sitting there (Mr. Masterman), who is the sole beneficiary of a trust whose funds are invested in the securities of a foreign State or British Possession. He lives out of the country, and he is going to get his income without paying any Income Tax. The right hon. Gentleman himself and the learned Attorney-General are joint beneficiaries under another trust, whose funds are also invested in the securities of a foreign State or British Possession. The hon. and learned Gentleman lives out of the country, and the right hon. Gentleman lives in the country. The hon. and learned Gentleman does not get the exemption which the Under-Secretary gets, because, unfortunately, the right hon. Gentleman the Financial Secretary has also a benefit in the trust. It seems to me you are going to create a very grave injustice if this Clause is allowed to pass in this form. The right hon. Gentleman says it would be very difficult for the trustees to find out what money ought to be subtracted. I do not see it at all. I presume, if this Clause becomes law, the trustees, when a demand is made for Income Tax, will say, "No, we are not going to pay. The sole beneficiary lives out of the United Kingdom, and that complies with the enactments of this Clause." What is to prevent them, if half goes to the right hon. Gentleman and half to the hon. and learned Gentleman, saying there is a beneficiary out of the United Kingdom, and, therefore, we claim not to pay. I see no difficulty whatever, and I think the right hon. Gentleman must, on further consideration, amend this Clause.
1207 I have a further objection to the Clause. I want to ask whether it would not be possible to amend it so that it should read: "When the securities of a foreign State or British Possession are under any Trust the person who is the beneficiary shall be deemed to be the person owning the securities for the purpose of Sub-section (2) of Section 71 of the Principal Act, which exempts from Income Tax under certain circumstances the interest and dividends of the securities of a foreign State or British Possession." I would like to know whether the Government would be prepared to accept an Amendment of that sort. It has come to my knowledge that at present the Inland Revenue authorities are claiming Income Tax in the case of a widow living abroad and owning securities in a foreign State or British Possession, which are held by trustees in England. If these trustees were living abroad, there can be no doubt she would not have to pay Income Tax, but because they live in England the Inland Revenue authorities obtain Income Tax. If it is just that persons who have property in a foreign State or British Possession and live abroad, and who happen to have that property in trust, should be exempt, it is also just that all persons in similar circumstances should be exempt. I think it is really right that the right hon. Gentleman should accept an Amendment which I propose later on to move.
§ 7.0 P.M.
§ Mr. CAVETake the case where both beneficiaries are out of the United Kingdom and come within the Section. Why should they not both have relief? If you leave out the words "is the sole beneficiary in possession and can, by means either of the revocation of the trust or of the exercise of any powers under the trust, call upon the trustees at any time to transfer the securities to him absolutely free from any trust," you will have a very simple Clause which will cover that case. Cases where a beneficiary has the right to revoke the whole trust or to have the securities transferred to him are rare. I suppose in ninety-nine cases out of 100 there is no such power, and I do not see why the limitation should be put in the Clause. Why should you not leave out the words, "and can, by means either of the revocation of the trust or of the exercise of any powers under the trust, call upon the trustees at any time to transfer the securities to him absolutely free from any Trust"? Then the Clause would cover the everyday case of a life tenant under a 1208 trust. Surely that is the exact case intended to be covered. This Clause will cover very few cases indeed. I think it has been framed for the purpose of covering one particular case, and I am always suspicious of clauses of that kind. I would rather far see a Clause which meets general conditions.
§ Sir RUFUS ISAACSThe Clause is intended to cover cases of a very rare kind. It is intended to cover that particular class of case in which foreign securities are held in trust for a beneficiare abroad by trustees residing in this country. It might be extended to further cases, but I that is a question of policy. It is a question how far we are prepared to make the extension. We realise, under the circumstances, that, in this particular case, the beneficiaire can revoke the trust and take the securities out of the country to deal with it in the way proposed. But we are not prepared to accept the suggestion to extend the exemption.
§ Sir F. BANBURYI beg to move to leave out the word "and" ["and the person who is the beneficiaire"] and to leave out the words ["the sole beneficiary in possession and can, by means either of the revocation of the trust or of the exercise of any powers under the trust, call upon the trustees at any time to transfer the securities to him absolutely free from any trust that person."]
As I said just now, there have been cases where people who are resident abroad—and I have in my mind the case of a widow lady who holds the securities of a foreign State—who would not be liable to Income tax if it were not for the fact that the securities were held for them by trustees living in England. The right hon. Gentleman proposes to exempt a certain class of people who are in this position. He says he is going to do it because they are so few, and it will not have very much effect on the revenue. But surely he must consider justice as well as revenue. I do not think he will put revenue before justice, and if he chooses to exempt certain people under certain circumstances it is no argument to say that he cannot exempt more people because it will cost money to do so. If it is right in one instance it must be right in another. I do not know why, if the law can be altered in the particular case of persons whose securities are held 1209 by trustees resident in this country, it cannot be altered in the case of others who are equally disadvantaged because their money happens to be not in English securities but in foreign securities held by trustees resident in England. The position of the Attorney-General is that he has begun to alter the law. If he had left the law as it stood he might have said there were reasons against this exemption for people who choose to leave money in England in the hands of trustees, and therefore he would exempt them from Income Tax. But having altered the law in one case, he cannot refuse to alter it in another where the arguments are equally good. If he cannot now accept my Amendment perhaps he will give me an answer to it to-morrow on the Report stage. If he will undertake to do that I may be inclined to withdraw it for the present; otherwise, it may be necessary to press it to a division.
§ Mr. HOBHOUSEThe hon. Baronet proposes to extend the operation of the Act. I do not wish to repeat the arguments I advanced at an earlier stage. We cannot extend the limitations as suggested.