§ Sub-section (1) of section thirty of the Finance Act, 1922, shall have effect as if for the words after the word "testator" where it first occurs to the end of the sub-section there were substituted the words "there shall be treated as being the income of the charity for the purpose of the Income Tax Acts such portion of the income, if any, which accrued to the estate in respect of the period between the death of the testator and the date or dates on which the residue or part of the residue was paid to the charity as would have accrued to the charity if the residue or the said part of the residue had been paid to the charity on the day of the death of the testator."—[Mr. H. Williams.]
§ Brought up, and read the First time.
§ 5.40 p.m.
§ Mr. H. WILLIAMS
I beg to move, "That the Clause be read a Second time."
This matter was first raised two years ago by my hon. Friend the Member for West Nottingham (Mr. Caporn) and again last week on the Committee stage. Our Amendment on that occasion was not as well drafted as it might have been, because we overlooked certain governing words at the beginning of Section 30 of the Finance Act, 1922. When it was reached in Committee, at, I think, half-an-hour after midnight the Financial Secretary used certain words which were interpreted by the Deputy-Chairman as carrying the meaning of the Amendment to a point where it imposed a charge on the revenue. I do not think that was the intention of my hon. Friend the Financial Secretary, but the words happened to be ambiguous. However, as a result the debate came to a premature end, from my point of view, although probably the rest of the Committee were glad, in view of the late hour. I have retabled that Amendment in its present form, which will carry out the purpose I had in mind, and I am grateful to you, Mr. Deputy-Speaker, for giving me the opportunity of raising the matter again. In the Act of 1922 a provision was made that where the residue of an estate went to a charity and where the estate was not wound up for more than a year after the death of the testator, Income Tax should not be payable on any income accruing in respect of the part of the estate that was ultimately to go to the charity from one year after the death until the money was handed over. That was an advance.
1578 I am raising this matter at the request of an accountant in my constituency who saw a charity defrauded, as he regarded it, of a substantial sum owing to the fact that for the 12 months this money, which ultimately was going to the charity, was subject to pay Income Tax on the ground that it was still lying in the estate. I think that if someone dies and leaves money to a charity—I am dealing only with cases where it is the residue that goes to the charity—the money ought to be deemed to belong to the charity from the very day on which the person dies, and the Treasury should not collect Income Tax from what is, in effect, the income of a charity. I think this new Clause would give effect to that view. I have not been able to work out an estimate of what this new Clause would cost. Obviously it would be a fluctuating amount, because in some years the sums left to charity which would come under the terms of this Clause would be larger than in other years, and I do not think there are any published statistics which would enable an outsider to formulate a precise estimate.
I shall not be very much surprised if the Financial Secretary says that he cannot accept the Clause, because on the Report stage of a Finance Bill a new Clause which would cost a substantial amount is generally resisted. But there is still sitting a Departmental Committee, I think, on the Income Tax law, and some day or another they will report. They have had seven years to consider their problems, and it is said that the first seven years are always the worst in the life of a Departmental Committee. I have no doubt they are approaching the end of their task, and when they have done so I hope that the Treasury, in formulating any legislation on their report, will give consideration to the point which I have put forward. It may be that when the time for consideration comes things will be more prosperous, and it may then be easier for the Treasury to make this concession, but on broad general grounds I see no reason why a charity should pay Income Tax on any part of what is, in fact, its income.
§ 5.44 p.m.
§ Mr. CAPORN
I beg to second the Motion.
If this Clause were accepted, I understand that it would bring us back, as far 1579 as the law is concerned, to the position in which charities were prior to the decision given in connection with Dr. Barnardo's Homes. As the result of that decision, it was pointed out that technically the residue of an estate, until it is actually handed over, belongs to the executors and not to the charity. Belonging technically to the executors, it did not come within the exemption from Income Tax that had been granted to charity.
Following that decision, the Amendment was made which we are now seeking to amend. It provided that as from the end of what is commonly called the executor's year, in which he has the right to retain it for the purpose of collecting and dealing with debts, the money should be free from Income Tax. We are now seeking that the money should be free from Income Tax as from the date of the death of the testator. My hon. Friend the Member for South Croydon has said that he is unable to ascertain what this concession would cost, and I would not venture to make a prophesy where he is unwilling to do so. I should hope that it would not cost any great amount in an average year, and that the Chancellor may see his way to accept this small Amendment and thereby bring the law into some relation with the facts, the facts of course being that the money belongs to the charity from the death of the testator, and that it is only a technical interpretation of the law which places the ownership in the executor.
When, two years ago, I had the privilege of moving a similar Amendment, the then Financial Secretary to the Treasury pointed out that this was only one of the many anomalies in the administration of the law in relation to taxation and the prolonged administration of an estate. He held out the hope that, if and when the Chancellor of the Exchequer were in a position to reconsider the law, the Amendment which had been moved would be borne in mind. Two years have passed; not a very long time in the life of a committee dealing with the amendment of Income Tax law. The committee have been sitting for seven years, and many people, knowing more about that branch of the law than I, believe that when eventually the report of the committee is issued to the world it will be time for a new committee to be appointed 1580 to consider the anomalies that have arisen since the present committee started to consider the question. I hope the Chancellor will see his way to make this small alteration which would do much to encourage people to leave the residue of their estates or some part of their residue to charitable institutions. It will not cost him any grave anxiety in the administration of the public purse.
§ 5.49 p.m.
§ Mr. RHYS DAVIES
It is very seldom that I find myself able to agree in debate with the hon. Gentleman the Member for South Croydon (Mr. H. Williams), but on this occasion I feel inclined to inform him that, if his Clause be not accepted by the Chancellor of the Exchequer and he should take it to a Division, we will endeavour to rally our forces behind him. The Clause appears to me to be a very reasonable request. Before I heard the speech of the Seconder, I was so unfamiliar with Income Tax law that I did not know that what he stated was the case. It seems to me that the Chancellor of the Exchequer might give way on this occasion. It would be interesting if he could tell us what amount is annually left to charity in this country. I have never seen the figures stated. I am sure that it would also interest us all if we could know whether the amount left to charity be increasing each year. This is not a party matter, and I hope that the Chancellor of the Exchequer will be able to give way upon it.
§ 5.50 p.m.
§ Mr. COOPER
I am sorry if any words of mine on the last occasion should have led to this Clause being drafted.
§ Mr. CAPORN
They were not the words of the present but of the late Financial Secretary to the Treasury, the present Minister of Agriculture.
§ Mr. COOPER
I was referring to the occasion when it came up in the Committee this year, and not to two years ago. My hon. Friend who seconded the new Clause said that it would bring the law into relation with the facts, but I think he is mistaken, because it is not the fact that the moment a testator dies his residuary legatee becomes the real owner of his property. It is, on the contrary, a general principle of law that a residuary legatee has no interest in any of the property of the testator until the residue has been ascertained, his 1581 right being merely to have the estate properly administered and applied to his benefit when the administration is complete. That is a recognised principle of law and has many important results, among them the result that the estate comes to the legatee as capital and not as income, and surtax is not charged on it for that reason. I am sure that my hon. Friend would be reluctant to consider any change in the law in one respect to deal with the issue that has been raised by the hon. Member for South Croydon (Mr. H. Williams) until the whole question of the prolonged administration of estates has been considered. It is, as has been rightly stated, being considered at the present time, and it would be a great mistake to deal with such a matter piecemeal.
An important exception to this general principle of law was made in 1922 on behalf of charitable bequests. The charities are considered to be the owners of the property of the testator one year after the death of the testator, however long it may take for the estate to be wound up. After that year, they are not liable to income tax. That was granted as a result of the appeal from the hospitals, through a committee of the voluntary hospitals, who put it forward in that shape, and they have been very grateful because they have benefited considerably by the concession. The present appeal does not come from them, but from my hon. Friend the Member for South Croydon and from a chartered accountant, I think, who is a constituent of his and who wound up an estate which had been left to charity, and as the result of the prolonged administration of the estate my hon. Friend went so far as to say that the charity had been defrauded of a large sum. I think "defrauded" was a rather strong word to use.
A Motion of this kind is always certain of a favourable reception in all parts of the House. It is a great pleasure for everybody to be charitable, and it is a greater pleasure when we are being charitable with other people's money and not with our own. This is an appeal for us to amend the law in such a way as to make a compulsory contribution to charity from the ordinary taxes. The State would lose. I am not in a position to say, because it is very difficult to ascertain, what the annual loss would be, but the State 1582 would lose. The taxpayer would be compelled to pay more in a direction in which he has already made a considerable concession, and in which, so far as I am aware, there is no very widespread demand from the charities concerned in favour of the plea. I do not deny that we should be very glad if this concession could be made, and no doubt there are cases such as that brought to the notice of my hon. Friend the Member for South Croydon in which a certain amount of hardship has been caused. But we do not think a case has been sufficiently made out for a concession to be made to-day, and therefore we cannot agree to add this Clause to the Bill.
§ Question, "That the Clause be read a Second time," put, and negatived.