HC Deb 18 July 1927 vol 209 cc121-4

Where a recognised law agent, acting for a trust, satisfies the Income Tax Commissioners that—

  1. (a) under the trust the sole beneficiary is, or all the beneficiaries are, not liable to Income Tax by reason of the total income being below the statutory free allowance, the dividends for all capital not taxed at source shall be issued free of Income Tax;
  2. (b) in the case of a trust in which some, but not all, of the beneficiaries are exempt by reason of the total income being below the statutory free allowance and in which a portion of the income not taxed at source can be specifically allotted for the benefit of such exempt beneficiaries, dividends for such capital shall be issued free of Income Tax.—[Brigadier-General Charteris.]

Brought up, and read the First time.

Brigadier-General CHARTERIS

I beg to move, "That the Clause be read a Second time."

This point has been brought to my notice by law agents in various parts of the country. It seems that in the case of a trust where some of the beneficiaries are below the Income Tax limit, although some of the funds or profits of the trust are derived in monies issued free of Income Tax at source, yet the law agent handling that money is called on by the Income Tax authorities of his neighbourhood, first to pay the tax, and then to claim relief. Not only does this practice prevent beneficiaries from receiving the money at once, but it also causes the law agent to made additional charges on the beneficiaries according to scale for the services which he has to render. The proposed new Clause is in two parts so as to cover the contingency of a trust having several beneficiaries, some of whom are not exempt from Income Tax. In that case, if it is possible for a portion of the trust fund to be earmarked for the benefit of the beneficiary who is not liable to Income Tax, then the Clause allows the benefit to be given direct. The Clause has particular reference to money on deposit receipt. I am informed by the law agents who have brought this matter to my notice that there are in almost all trusts, especially small trusts, some such sums which are on deposit receipt for convenience and on which Income Tax has to be paid first and recovered afterwards. I understand that this custom is not general, and that in certain parts of the country the Income Tax authorities do not require that tax should be paid and afterwards recovered. If that be so, and if, by any means inside the mechanism of the Inland Revenue, the custom can be made general in the country of not calling for Income Tax in the first instance from beneficiaries who are below the Income Tax limit, then the purpose of the Clause will have been met.


I beg to second the Motion.

I appeal to the Chancellor to accept this Clause as it is proposed entirely in the interests of that large body of the the community who have limited means and have suffered in recent times from the effects of the severe depression through which the country has been passing. More especialy would I appeal to the right hon. Gentleman on the ground that in the ultimate resort, this proposal makes no difference to the Treasury, as the amount which is first deducted for tax has then to be recovered, at a cost to the recipients by the payment of bigger fees to the law agents acting on their behalf. Under these circumstances, I hope the Chancellor of the Exchequer will be able to accept the Clause.


My hon. and gallant Friend the Member for Dumfries (Brigadier-General Charteris) has drafted this Clause in what he considers the best form to achieve his object. It is not perhaps very clear in its text, but it is, I gather, intended to secure that, in the case of an exempt beneficiary under a trust, any income derived from investments not taxed at sourer shall be paid to the beneficiary in full and shall not be taxed in the hands of the trustee. My hon. and gallant Friend was good enough to discuss this matter with the expert authorities of the Inland Revenue, and I think they were able to satisfy him that, to a very considerable extent, the matter is already provided for under the existing administration of the law, and that on every possible occasion steps are taken to avoid the necessity of collecting tax from the trustees and subsequently refunding it to the exempted beneficiaries. That, at any rate, is our practice. My hon. and gallant Friend, I understand, thought that nevertheless it would be advantageous if he brought this matter before the House in the form of a new Clause, in order that some attention should be drawn to it. As I have said, under the existing law and practice the exempted beneficiary is, wherever possible, already treated in the way that my hon. and gallant Friend and the hon. Member for Maryhill (Mr. Couper), who seconded the Clause, desire. There are, however, more complicated cases, cases where the trust income consists partly of income taxed at source and partly of income not taxed at source, and where some beneficiaries are only entitled to the residue, or share of the residue, of the income, and in these cases it would be quite impracticable to carry out the proposed procedure. For these reasons, while I have taken this opportunity of affirming what is our practice, namely, to take every step to avoid the necessity of collecting tax from the trustee which would be subsequently refunded to the exempt beneficiary, and while that will continue to be our practice, I could not accept a proposal which would bind us in such a rigid form as that which is suggested.

Brigadier-General CHARTERIS

After the statement of my right hon. Friend, I beg leave to withdraw the Clause.

Motion and Clause, by leave, withdrawn.


The new Clause—(Amendment of Rule 13, Schedule E)—standing in the name of the hon. Member for Dudley (Mr. Lloyd) would involve a charge as it stands. Perhaps he will refer to a Government Amendment which, I think, will meet the point in a way which does not involve an additional charge. That disposes of the new Clauses.