HC Deb 01 June 1933 vol 278 cc2124-32

Where the Commissioners of Inland Revenue are satisfied that securities or properties which have been valued for probate have been sold to a bona fide purchaser for value on a fair market basis within 12 months of the granting of probate or of letters of administration, as the case may be, or are at the expiration of that period unsaleable, and the amount so realised in the case of a sale is less than the probate valuation of the securities or properties sold, then in any such case the amount so realised for such securities or properties sold shall be substituted for the probate valuation thereof for estate duty purposes, and such unsaleable securities or properties as aforesaid shall be deemed to have no value for estate duty purposes.

Provided always that the provisions of this Section shall not apply unless within three months of the granting of probate or of letters of administration, the legal personal representatives of the deceased person shall have notified the Commissioners of Inland Revenue of their intention to realise such securities or properties.—[Mr. Albery.]

Brought up, and read the First time.

6.10 pan.

Mr. ALBERY

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

By this Clause it is not sought in any way to bring about any reduction in the burden of Death Duties. When Death Duties were first imposed, as has been said, the percentage of the levy was comparatively small, and in the case of many estates securities were readily negotiable and could generally be found and realised to provide the amount which was demanded by the State. In recent years the levy has been very largely increased, and the result is that the method of levying the duties to-day frequently means that the percentage value which is paid in Death Duties is very much larger than the percentage which is laid down in the Schedule. It will be realised that it takes a certain amount of time to get probate, and that executors or trustees cannot deal with securities until probate has been obtained. There have been several notorious cases within the last few years in which, when it has been possible to liquidate securities for the payment of Death Duties, the value which has been obtained for those securities has been materially less than the value put upon them for probate purposes in valuing the estate. It is solely to remedy that injustice that this new Clause is being moved.

It is true, and it may be said by the Chancellor of the Exchequer, that there is no provision in the new Clause for cases in which securities realise a higher value than they had at the date of death. That is true, and the only reason why that has not been done is that that if it were provided for the new Clause would be out of Order. But that is a matter which can easily be attended to by the Chancellor of the Exchequer, if he should see fit to accept the general sense of this new Clause and endeavour to remove what is certainly a very big grievance and in many cases has resulted in real hardship. When the Death Duties were small the injustice was small, but with the very heavy taxation which it has recently been necessary to impose in this country, the injustice has become greater and the incidence of the duties is a much greater burden. In the past the citizens of this country have stood out above all others in their readiness to meet the payment of taxation. There is nothing so calculated to harm the willingness of people to meet their obligations as a sense of injustice.

6.15 p.m.

Mr. HORE-BELISHA

I understand the proposal in the new Clause to be that within three months of the granting of probate the executors are to give notice to the Inland Revenue that, in respect of some selection of securities, instead of paying on the normal value, they will pay upon the market value if they are realised at any time within 12 months, and that, if within that twelve months, the securities turn out to be unsaleable, then no Estate Duty is to be payable to the Exchequer at all.

Mr. ALBERY

If particular securities were found to be unsaleable their value would be returned as nil in the estate.

Mr. HORE-BELISHA

That is exactly what I have said. If the securities are unsaleable no duty will be payable upon them at all. Under the proposition of my hon. Friend, instead of the value being taken as at the date of death, the option could be exercised to sell the securities on the open market, and, if they cannot be sold on the open market, and are therefore unsaleable, no duty will be paid at all.

Mr. ALBERY

On them.

Mr. HORE-BELISHA

On those particular securities. I do not think there is any difference between us as to the meaning of the proposal. But the Committee will observe that the option is one-sided. The executor can decide in respect of any particular security that it is going to fall in value and he can say: "As regards that security I shall pay Estate Duty on the value to which I think it will descend in the course of the next 12 months." Obviously, that would be unfair and would vitiate one of the cardinal principles of taxation, namely, that a taxation Statute must be definite and must tell the tax-gatherer the point of time at which he is to make his imposition. Estate Duty is leviable upon an estate as it is at death. I can understand what has prompted my hon. Friend's proposal. He has observed in the past few years a tendency for securities to decline; executors have consequently been paying upon higher values than those subsequently realised, and that has created a sense of grievance. But that tendency has now changed. Take the case of a man who died just before the last Conversion Loan. He derived very great benefit. [Laughter.] I was not referring to the treasure which he had laid up in heaven. His estate derived great benefit, and, as the whole tendency of prices today is to rise, estates will benefit to that extent. While I realise that that is not much consolation to those who are dead, or their executors, or to those who have benefited under their wills, it may be of some consolation to those who are now living. As I say, I appreciate what has prompted my hon. Friend in making this proposal, but he will realise that the Treasury could not enter into gambles of this nature and allow executors to exercise a one-sided option, because it would always tell in favour of the executor and never in favour of the Exchequer.

Mr. ALBERY

I endeavoured to make-it clear that our proposal was not one-sided, but I am in a difficulty because I was precluded by the Rules of Order from putting down a new Clause providing that the Treasury would get the benefit when the securities rose in value. It is not, however, beyond the power of the hon. Gentleman to do that, and I do not think he ought to use that point as an argument against the New Clause.

Mr. HORE-BELISHA

My hon. Friend will not misunderstand me if I repeat that the option is one-sided, because it is only the executor who is to have the option and in no circumstances, whether the securities rise or fall, is the Exchequer to have an option. I do not think that my hon. Friend, even if he had not been prevented by the Rules of Order, would have changed his proposition in that regard. There is no option to the Exchequer at all.

6.21 p.m.

Captain CAZALET

I appreciate the point raised by the Financial Secretary, but I think that there is a case for some such proposal as that contained in the New Clause. A valuation of property taken on a specific date may be highly unreliable. This New Clause has been put down for the purpose of raising that point and of asking whether it is not possible to review the method of valuation of certain properties. As my hon. Friend has explained, he is precluded by the Rules of Order from putting down the Clause in the form in which he would have wished to put it. If he had put it down in the form in which he wished to put it, there would be as much opportunity for the Treasury to benefit by an increase in value as there is for the individual to benefit by a lower value of the security and consequently a lower duty. I suppose it is only natural that the Treasury should arrange these things on the basis that heads they win and tails the individuals lose. In no case can the Treasury lose, but at present the duty is assessed on the value on a particular day, which may be a wholly unreliable value.

I suggest that the value of stocks and shares, for instance, should not be taken on a particular day but should be averaged over, say, the preceding three months. That method would give a fairer value which in some cases might work out to the benefit of the individual and in some cases to the benefit of the Treasury. We wish to eliminate the element of gambling which exists to-day. In the case of personal property such as a book, a manuscript, a picture, or a horse, one may arrange to have the most careful valuation possible and pay large fees to valuers whom the Government can trust and the Government may accept their valuation. But if within 12 months you sell that object at anything in excess of that valuation to which the Government have agreed, the Government claim duty on the excess value. The Financial Secretary said that the option would be all in favour of the individual, but in the case of personal articles the option always works in the interests of the Government. Therefore, there is something to be said if not for the merits of this Clause as drawn, at least for the principle which it seeks to establish, that the element of gambling should be eliminated from the valuation of estates for this purpose. If this proposal were carried out the individual would at any rate know where he was and would be able to make his arrangements accordingly. He would know if it would be necessary for him to close down to any extent or to dismiss certain employés and in the long run the Treasury would not suffer.

6.25.p.m.

Major COLFOX

There is no great difficulty in this matter. The hon. and gallant Member for Chippenham (Captain Cazalet) has pointed out that, in regard to certain items in estates passing at death, the principle is already in operation that if they are sold at something higher than the valuation the State gets the benefit. Surely it would be easy to indicate that any item in an estate which is sold within 12 months, or whatever period may be fixed, should be taken for the purposes of Estate Duty, not at its valuation but at the actual price which it realised. That would be a fair way of dealing with the matter. Possibly the Clause as drafted, does not carry out that intention, but the Government draftsman should have no difficulty in drafting a Clause which would carry out that intention.

6.26.p.m.

Mr. DAVID MASON

I wonder if the Chancellor of the Exchequer, who seems to be in a rather complaisant mood, will not give some further consideration to this proposal. I think it worth considering whether some period such as has been suggested, say a period of six months, should not be allowed for this purpose. The option would be applicable both to the beneficiaries of the estate and to the Treasury. I agree with the hon. and gallant Member for Chippenham (Captain Cazalet) that to take the value arbi- trarily as on the date of death often works out to the serious loss of those concerned when they come to realise the securities and is most unfair to many estates. Perhaps the right hon. Gentleman before the Report stage will consider whether there is not some way of meeting this grievance and allowing a limited time in connection with these valuations which would get over the difficulties suggested this afternoon by hon. Members, and enable us to achieve what we all desire, namely, a fair valuation of these estates.

6.27.p.m.

Mr. SPENS

This new Clause deals with a practical difficulty of every-day occurrence. When a man dies, and his executors get probate, there and then they have to make some sort of valuation of his estate and pay money on taking out probate. In nine eases out of ten they have to go to the bank and borrow the money. The next step is that the assets are valued at the market price on the day of death, if there is a market value. If there is no market value, then such value is put upon them as is fixed by the commissioners and there are all sorts of inquiries for that purpose. An executorship generally takes anything from three months to three years. It requires that time and often longer to wind up an estate. For the purpose of winding-up the estate, those assets which have been valued either on the market price as at the date of death, or on the valuation of the commissioners have to be sold. In some cases they realise more than the valuation but during the last two or three years in nearly every case they have realised much less than the valuation. The result is that the persons who have to pay these duties have to bear a sum which is out of all proportion to what the estate ultimately works out at for them.

What we are trying to do in this new Clause, though the Rules of Order make it difficult, is to modify the provision that for Estate Duty purposes, the market value on the date of death or the value fixed on that date by the Commissioners should be the final and conclusive valuation. We ask the Chancellor of the Exchequer to consider whether it would not be much fairer to the taxpayer that what is ultimately realised from the estate for the purpose of paying duty should be on the basis of the adjustment of these values. It would be an enormous benefit to taxpayers who have suffered severely during the last two years by the fact that, ultimately, when the executorship has come to an end they have had to realise securities at vastly reduced prices, for the purpose of paying on values fixed perhaps a year or two years previously, values which never could be realised.

6.30 p.m.

Mr. CHAMBERLAIN

The hardship that is complained of here is due to the fact that values have fallen rapidly in the last five or six years, and that fact has operated very much against the estate of the property owner. It is not out of place to give this warning, that if you are going to readjust affairs so that some different system obtains, you may find that you have readjusted them at the very moment when things were going to turn in favour of the taxpayer, but that by your readjustment they will turn to the benefit of the Exchequer. That being so, I am not at all indisposed to consider the matter further, but I think it must be obvious that the Clause, as drafted, could not possibly be accepted, because, while I fully recognise that hon. Members have been under some disadvantage, in that they could not put down, owing to the Rules of Order, exactly what they desired to do, even so, I think their proposition must turn upon the value received by the sale of certain securities. Who will choose which securities are to be sold? I do not think there is any proposition that the Treasury should have the right to say which securities should be sold, and, therefore, even if you put in this provision, that if the value goes up, the Treasury will benefit, whereas if the value goes down, the owner will benefit, to give the option as to which securities are to be sold to the executors would mean naturally that they would choose those which are likely to benefit them and would not choose those which benefit the Exchequer. Therefore, the Clause could not be accepted as it stands.

My hon. and gallant Friend says, "Oh-let us take a valuation on the average price of the three months before death." Is he sure that that will eliminate the risk to the executors? Is it not quite possible that values may have been level for three months before the death and may then go down, or that they may have been particularly high during the three months before death and then go down? At any rate, that does not seem to get rid of the chance of loss, but it is an entirely different proposal from that which appears on the Paper. I would suggest that my hon. Friends should reconsider this position, first of all, among themselves, and that then, between now and Report, they should talk to me and bring me the results of their reconsidered reflections, and if I can find anything more practical and more fair all round than the present proposal, I should be prepared to consider it.

6.34 p.m.

Mr. SMITHERS

The Chancellor of the Exchequer has made the very generous offer, with his usual courtesy, that we should make certain proposals to him as to how the valuation of securities in an estate could be more fairly carried out. We are in a very great difficulty. He and his advisers, the Board of Inland Revenue, have much more information at their disposal than we can have. On the big principle, I am certain that the Government do not want to take advantage of the trustees who have to pay these duties, but, at the same time, the taxpayers do not want to take an unfair advantage of the Treasury. It seems very unfair that an estate with a large amount of shares should have those shares valued at some chance quotation for perhaps 10 or 15 shares on the day that the owner dies.

I would ask the Chancellor of the Exchequer if we may come and see him, if he will think the matter over with his advisors, and if he can suggest some fair way—I emphasise the word"fair"—by which a large amount of shares will not be valued at an inordinately high price because of some chance quotation. We want to arrive at some fair means of valuation by which the State shall get its full share and by which the trustees shall not have to pay Estate Duties greater than the value of the whole estate put together, which is, of course, an extreme case, but which has happened. I hope the right hon. Gentleman will enlarge his offer and not only let us come and see him and try to arrive at some fair means of valuation, but will also, if he can, initiate and suggest some means by which this fairer valuation can be obtained.

Mr. ALBERY

I wish to thank the Chancellor of the Exchequer, and beg to ask leave to withdraw the Clause.

Motion and Clause, by leave, withdrawn.