§ Mr. CHURCHILLDuring the financial Debates of last year reference was made to the various loopholes in the law which enabled taxpayers to avoid part of the burden of Inland Revenue duties. The hon. Member for South Salford (Mr. Radford) referred in vigorous terms to the loss of Super-tax which was capable of arising from this cause. I undertook to investigate the question as a whole, and I have done so. No system of direct taxation in the world is more scientifically planned or effectively administered than ours, and no body of taxpayers meet their obligations with greater readiness than the British taxpayer. There is also the well-known dictum of Lord Sumner on the subject of legal avoidance. He says:
The highest authorities have always recognised that the subject is entitled so to arrange his affairs as not to attract taxes enforced by the Crown so far as he can legitimately do so within the law.Without challenging this axiom, it is clearly the business of the Government to watch for loopholes, and to propose remedial measures from time to time. The investigation which I have just concluded, and in which I have been assisted by a Cabinet Committee and by my right hon. Friend the Atorney-General, shows that means exist by which taxation, especially Super-tax and Death Duties, can be legally avoided in whole or in part, and His Majesty's Government feel that the time has come to make proposals to Parliament on a few prominent aspects of the subject. The loss is not yet grave. The yield of the Super-tax and the Death Duties, even in this year of difficulty, is evidence of that; but it is our duty to close these loopholes as far as possible before they are so widely resorted to as to injure the revenue.
§ Sir FREDRIC WISEWill that take in the Channel Islands?
§ Mr. CHURCHILLMy hon. Friend must have had a premonition of what I was going to say. I have first of all to make this announcement. The Government have invited the Governments of 86 the Channel Islands to co-operate with them in preventing the loss of duty in the case of residents in this country who migrate to Jersey or to Guernsey. I shall not ask the Committee to consider the matter in detail until the negotiations, which are being actively pressed forward, have been completed.
I shall propose provisions to strengthen Section 21 of the Finance Act, 1922, which deals with the avoidance of Supertax through the medium of the "one-man company." I shall also suggest legislation to prevent the avoidance of Super-tax by the sale of securities cum dividend and their immediate repurchase, and I shall take at the same time the opportunity to remove a long standing grievance of the Super—tax payer, to wit, the excessive charge which arises when two years' dividends happen to be declared in one single Income Tax year. I shall propose a small amendment, without retrospective consequences, to prevent avoidance of tax in connection with subscriptions to charities, and I shall at the same time propose a relief to charities which was strongly pressed upon me last year, to wit, the exemption from Income Tax of the profits of public schools and other similar trading profits of charities. I have also been giving and shall continue to give attention and consideration to the legal avoidance of Estate Duty. It may well be that the proposals upon this subject should be introduced next year. At the same time I propose to examine the basis of the liability of agricultural land to Estate Duty with a view to rectifying any injustice or anomaly in its charge. No time will be lost through the postponement of this aspect of the subject till next year. The provisions relating to Super-tax avoidance cannot in any case come into operation until 1928, and any Estate Duty provisions on which we may decide will be made operative at the same time, so that the whole process of dealing with tax avoidance will come into operation simultaneously. I cannot estimate the gain to the revenue. Provisionally I have taken the view that there may be a benefit of £500,000 in a full year, but the point is not so much the positive gain as the prevention of a loss which, over a long period of years, might very seriously affect the whole basis of our taxation.
87 In the meanwhile there is one Estate Duty question with which I am able to deal at once. When a little while before the War my right hon. Friend the Member for Carnarvon Boroughs (Mr. Lloyd George) altered the basis of the charge on settled property, his eagle eye overlooked one detail. This detail is now discovered to be costing the Exchequer a sum which approaches £1,000,000 a year. It is not a subject which lends itself to an explanation at once lucid and brief. It belongs to the more mysterious technique of the duty. The general rule at present is that to determine the rate of duty on an estate, all the property passing on death, whether free or settled, is added together. On the other hand, property which was settled by a person who died before the introduction of the Estate Duty in 1894, and which was settled in such circumstances that it would have been subject to Estate Duty had the settlor died after the introduction of the duty—the property in such circumstances is not aggregated, when passing on the death of the life tenant, with the other property passing on that death, This is an anomalous exception to the general rule. It was, I conceive, entirely by mistake that this provision was left unaltered in 1914, when the general basis of the charge upon settled property was under review. Rectification of the oversight will yield to the Exchequer £300,000 this year, and £800,000 in a full year—an addition to my resources which I cannot at the present time ignore.