HC Deb 12 June 1934 vol 290 cc1562-8

In addition to any property excluded from aggregation by section four of the Finance Act, 1894, as amended by sub-section (1) of section twelve of the Finance Act, 1900, section fourteen of the Finance Act, 1914, and section fifty-one of the Finance Act, 1927, all property passing or deemed to pass on the death of a person dying after the commencement of this Act, under a disposition not made by the deceased to some person other than the wife or husband, or a lineal ancestor or lineal descendant of the deceased, shall not be aggregated with property of the deceased for the purpose of determining the rate of estate duty.—[Mr. M. Beaumont.]

Brought up, and read the First time.

4.33 p.m.


I beg to move, That the Clause be read a Second time. It is a matter of great regret to me, and, I expect, of even greater regret to the Committee, that the hon. and learned Member for Bridgwater (Mr. Croom-Johnson), whose name is attached to this Clause, is not here to assist us, and that the Noble Lord the Member for Horsham (Earl Winterton), whose name also is attached to the Clause, has only just arrived and is not in a position to open the case for it. It is a matter of some importance and of some legal technicality, and I hope that neither the Committee nor the Financial Secretary to the Treasury will allow it to suffer from inadequate advocacy on my part. In effect, the object of the Clause is to restore the position with regard to the aggregation of property to what it was under the Finance Act of 1894, namely, that there is an exemption with regard to property passing under a disposition, not made by the deceased to some person other than the wife or husband, or a lineal ancestor or lineal descendant of the deceased. As far as I understand it, it means that, provided there is an outside settlement, which has nothing to do with a will, on some person who is neither the immediate predecessor nor the descendant of the deceased, that money, if it ever comes in, should only be charged Death Duty at its normal rate, and should not be affected by the money in the rest of the estate; in other words, that you do not pay duty on something that you do not get.

The case of hardship under the present law is as follows: "A," the tenant for life of an agricultural estate of considerable size charged in 1871 part of this estate with a portion for a younger son, "B," in the form of a rent charge of £9,700 per annum. "B" died in 1933, when £8,200 per annum of the rent charge reverted to "C," the present owner of the settled estates on which it was charged. By reason of aggregation of the principal value of the rent charge of £8,200, "B's" free and other settled estates which pass to his daughter bear an increased rate of at least 5 per cent., or a sum of about £5,000. That, if I understand it correctly, means that in this particular case a man has had to pay an extra £5,000 out of his own pocket, not out of money that has come to him because he has inherited that property, in addition to the duty that he will have to pay on the money that he has inherited. Our contention is that that is in fact paying the duty twice over. I could give the Committee other examples of the hardship involved. There is one, which was given me by the Noble Lord, of a man who had to pay a matter of £900 additional Death Duty for a £200 benefit. The circumstances were peculiar, but it is a perfectly well authenticated case.

The Finance Act of 1894, which, as the Committee will remember, was the first in which the principle of the payment of Death Duties was introduced—a bad day, I venture to think, for the country—had a provision similar to the one which we are now proposing. This was repealed in 1900, and there was substituted a provision that such aggregation should not cause a higher rate of duty than an extra half per cent. That was abolished, for a reason that I have never been able to ascertain, but I have a shrewd suspicion that it was done without realising the consequences, in 1927. Considerable hardship has, as I have said, already been shown under the present system of aggregation. If I am correctly informed—and I speak on this matter subject to correction—the loss to the revenue by the adoption of this proposal would be infinitesimal. I think it is a genuine grievance, and I hope very much that the Minister will see his way either to remedy it now by the acceptance of this Clause, or, if not, to give it his attention and find some suitable words to remedy the grievance, which we believe to be a very real one.

4.40 p.m.


In the course of a long Parliamentary career, I have never spoken before on the question of Death Duties, but, frankly, I am partly responsible for this Clause having been put forward, because of a case which occurred to me. I hesitate to bring it before the Committee. I make no complaint and have no grievance, but the case is so inequitable that I think it should be mentioned. I was asked by a very prominent member of the Law Society, who asked that his name should be kept out of the Debate, to move this Clause, and a number of other solicitors, including many family solicitors who look after the interests of clients who have large estates, were associated with him in asking me to move it. We appreciate that it may not be possible for the Chancellor of the Exchequer to accept it on this occasion, but we hope that the arguments which we put forward, and which I regret are not supplemented by the arguments of my hon. and learned Friend the Member for Bridgwater (Mr. Croom-Johnson), who has had great experience of these cases in a professional capacity, as he is not here to put them forward. We believe that if the change which we suggest—and which I may tell my right hon. Friend has been carefully drafted by the best Parliamentary draftsmen available to a private Member, after consultation with a large number of authorities, not only solicitors, but one or two barristers—were made, the actual detrimental effect from a Revenue point of view would be very small, but it would carry out what we conceive to have been the original intention of Parliament when it dealt wtih Death Duties.

This is not the occasion on which to deal with the whole question of aggregation, and we do not deal with it here. We deal with only one aspect of the problem. My hon. Friend has already given one case of the hardship which arises under the present law, and I would like to give, very shortly, the case in which I was interested. Some time ago a relative of mine died. Under the will of my grandfather, during that relative's lifetime I had to pay him a sum of £200 per annum. Incidentally, though it does not affect the point, I purchased a Government annuity some 10 years ago, and therefore no longer had to bear the actual burden at the time of his death. The value of the annuity, which prima facie ceased, was calculated on a 4½ per cent. basis and agreed with the Inland [Revenue at £4,210 10s. 6d. That value by itself would have attracted Estate Duties at 3 per cent., but by virtue of its being aggregated with the deceased's estate, which did not interest me in the slightest degree—I did not get a penny out of it—it was valued at no less than £23,679, or rather, owing to the deceased's estate being of that amount, the rate of duty was increased from 3 per cent. to 10 per cent., and £421 Estate Duty was thereupon paid—that is to say, almost double what I should have had to pay had the estate been by itself.

But that is not the end of the story. On the 14th January of last year, a further claim for additional Estate Duty was received from the Inland Revenue, on the ground that it had been discovered, with regret, that it would be found necessary to disturb the assessment of 10 per cent., other equitable property having been found to pass under the deceased's will. Again, it did not effect me in the slightest degree. I instructed my solicitor to write back to Somerset House and point out to those always charming and friendly people, that it was regrettable to have to pay this extra amount, as they had already given me a receipt for the amount of Death Duty. With the courtesy which always distinguishes them, they wrote back to say that when one of the Departments of His Majesty's Government gave a receipt, it did not necessarily mean that the subject did not have to pay more money. The result was that the rate of duty was increased from the previous 10 per cent. to 20 per cent., by reason of the value of the further equitable property. I therefore had to pay nearly £900, instead of what I venture to state would have been the true payment of £200 on the value of the estate itself.

I have known of even worse cases. I have not got all the details, so I will not attempt to give them, but I was told the other day of the case of a person who was left £15,000. It was a poor woman, who had very few other means, and who had been expecting this money, which came from a distant relative, for some years, as the relative was very old, but when the relative died, so far from getting £15,000, the whole of it went in Death Duties, owing to the rest of the estate being a very large estate. I showed my own case to a solicitor friend, and he said, "It is a bad case, but not nearly as bad as some that I could give." I realise that we are working to a time schedule, and I do not want to keep the Committee too long, but I would ask my right hon. Friend to give the most careful consideration to this proposal. We do not wish to press the Clause at this stage, but we ask that he should give serious attention to the question of aggregation. It is not right that on the death of a person there should be imposed a burden of this kind, which is inequitable in itself. I am the last person to suggest that the whole principle of Death Duties is wrong; I do not think it is, and I do not mind a high rate of Death Duty, but I do say that aggregation as it now stands is not an equitable principle. I commend the matter to the sympathetic attention of my right hon. Friend.

4.46 p.m.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

The case which my Noble Friend has put, with good humour, is a complaint against the aggregation of property in relation to Estate Duty. While I am not called upon to make a defence of Estate Duty or of the principle of aggregation, I should like to explain the theory. The theory is that this is a duty which is leviable upon property as such, without any regard to any beneficiaries of the property. While the case of a beneficiary who is going to receive or has received much less than he would have expected may seem a very hard one—and certainly Members of the Committee will sympathise with my Noble Friend—to give way on that point would be to contradict this fundamental and essential principle of the Estate Duty. When this duty was first imposed it had a provision in it very similar to that which has been described by my Noble Friend. It gave rise to a great deal of criticism at the time, and it was investigated by a very strong committee, consisting of Lord Finlay, Sir R. J. Reid, Lord Haldane, Mr. Pretyman and by Sir Henry Primrose. I should like to quote what that Committee said on this point: We must observe that the Act as it stands contains an important modification of its fundamental principle that all property passing on death, whether settled or not settled, should be aggregated to form one estate. By the proviso to Section 4 it is enacted that property passing on the death of the deceased, in which he never had an interest, or which passes under a disposition not made by him to some person other than the wife or husband or persons lineally connected with the deceased, shall be treated as an estate by itself, for the purpose of determining the rate of duty. This provision was designed to protect the family of the deceased from having to pay on the property passing to them at a rate enhanced by the fact that other property passes on the death of the deceased to persons outside the family. That is exactly the case put by my Noble Friend. They proceeded to say: No exception can be taken to the provision for exempting from aggregation property passing on the death of the deceased in which he never had an interest. But the rest of the proviso is so worded as to result in conferring on collaterals or strangers, who take under a disposition not made by the deceased, an exemption from aggregation of this property with the other property of the deceased, quite irrespective of the destination of such other property, or of the existence of any persons such as the proviso was designed to protect. Moreover the proviso presents great practical difficulties in administration, and it introduces considerations of the ultimate destination of property passing on the death of the deceased and of the degree of consanguinity of beneficiaries to him, considerations which are quite foreign to the main principles of the Act. Accordingly, they recommended that the first thing to do was to repeal the proviso, re-enacting that part of it which exempts from aggregation property in which the deceased never had an interest. That was done, and that is the law to-day and it is in consequence of that recommendation by that strong committee, enacted in 1900, that my Noble Friend has suffered the hardship of which he complains. Seeing that the Amendment would affect this fundamental principle of the Estate Duty, namely, the principle of aggregation, I cannot accept it. So far from the acceptance of the Amendment meaning a trifling expense, I am informed that it would cost me £2,000,000 in a full year.


In view of the statement of the Chancellor of the Exchequer, I beg to ask leave to withdraw the Motion. As we have already stated, we do not wish to press the matter now. It would seem from the statement made by the Chancellor of the Exchequer that we shall have to attack the whole principle of aggregation at a later date.

Motion and Clause, by leave, withdrawn.


The next proposed new Clause—(Repeal of lax on mutual profit)—is out of Order, because in certain circumstances it would impose a charge.

4.51 p.m.


This new Clause, which stands in my name and in the names of several of my hon. Friends, has been looked upon as of great importance. I do not want to go against your Ruling, but it appears to me that the new Clause is simply a proposal to return to the status quo.


I am afraid that the hon. Member has overlooked one effect of the new Clause. The result of Section 31 of the Finance Act, 1933, was to bring the various industrial and provident societies within the ambit of the relief granted by Section 34 of the Income Tax Act, 1918, and in certain cases they are able to claim relief. The effect of the Clause is to abolish that power of claiming relief.


I thank you very much.