CLAUSE 22.—(Modification of exemption from estate duty on property situate abroad.) (Hansard, 16 June 1936)

§ Mr. SPENS
I beg to move, in page 24, line 33, at the end, to add: (c) which passes under or by reason of a disposition made before the twenty-second day of April, nineteen hundred and thirty-six. I desire to raise a point of some difficulty in connection with this Clause, which is intended to extend the liability for Estate Duty to all foreign personal property which is not at present caught by the Estate Duty provisions. The foreign personal property which is caught at present by the Estate Duty provisions is such as would also have to pay Legacy Duty or Succession Duty. If it has to pay Legacy Duty the foreign personal property has to pass under sale to the executors who have to pay the Estate Duty, although the foreign property on which the duty has to be paid is outside the jurisdiction. The executors themselves are not only inside the jurisdiction but are the persons who legally control the foreign property and, therefore, make the foreign property bear its proper share of Estate Duty. In the same way foreign personal property which is subject to Succession Duty and has to bear Estate Duty being outside the jurisdiction, only becomes subject to Succession Duty if there are English trustees inside the jurisdiction. There, again, although the executors have to pay Estate Duty they have got inside the jurisdiction the person who has a legal right to the property and from whom they can collect the Estate Duty.
As the hon. and learned Gentleman the Financial Secretary explained, the object of this Clause is to make liable to Estate Duty foreign personal property which is not at present liable either to Legacy or Succession Duty, and the hon. and learned Gentleman gave as an instance the case of foreign personal property which a man has given away to a foreigner within three years of his death. Let us suppose that happens, and that within three years of his death a man has given to a friend in America £50,000 worth of investments which he had in New York. The person who, under the Estate Duty provisions, is liable to pay the duty on the whole property is the. executor in England who, before he gets probate, has to pay the 856 whole of the Estate Duty. The only assets from which he can pay it are such assets in this country as are under his control. The result of this Clause will be to increase the rate of duty on the English property, and this will mean that the English property will have to bear, in the first instance, the total increased Estate Duty both on itself and on the foreign property.
Then arises the question as to how the executor, having paid that Estate Duty to the Government, can get it back from the foreign donee of the property. It is an international convention that no foreign country will enforce a tax claim of another country, and this even applies to our own Dominions. In those circumstances, it seems to me that the position would be that the executor, before he could get a probate, would have to pay out of the English property which goes to the English legatees the whole of the Estate Duty, without having any means of getting it back from the foreign donee of the property. If this is to operate only as regards future dispositions, a man may very well take care of himself. If in future a man gives away foreign property and leaves a certain amount of property in this country, after this Clause is passed he will know that the property which he leaves in this country will bear the whole of the Estate Duty, unless he makes an arrangement for his foreign donee to give it back, and that his English legatees will take so much less. I suggest that it will be very unfair if this Clause is made to apply to someone who has already given away his foreign property or part of it, but who may die within three years from making that gift and after this Clause is in operation. In those circumstances, we should be penalising innocent English legatees by making them pay out of what may be intended to come to them not only their own share of the Estate Duty, but the whole Estate Duty on the foreign property, without giving them any means, as far as I can see, of putting the matter right as between those who take the English property and those who take the foreign property. It is for the purpose of raising this difficulty that I have moved this Amendment.

§ The ATTORNEY-GENERAL (Sir Donald Somervell)
I think the argument 857 of the hon. and learned Gentleman the Member for Ashford (Mr. Spens) is based on a misunderstanding of the results which the new Clause will bring about. He started by claiming rightly that this Clause is intended to bring within the ambit of Estate Duty certain movable property situate abroad which does not come within the provisions of the Finance Act, 1894. The property which it is intended to include falls mainly under three heads: First, gifts made abroad within three years of the death of the donor; secondly, joint investments made abroad; and thirdly, foreign settlements where the settlor has a British domicile. These three means have been used for avoiding the payment of Death Duty and Estate Duty, and it is that which the Clause is designed to prevent. I do not think my hon. and learned Friend quarrels with the general intention of the Clause, but what concerns him are the powers which the Clause may confer upon the Inland Revenue authorities to recover the duty so imposed from the executors in this country.
The powers to recover from the executors when this Clause becomes applicable will be no greater than the existing powers which are contained in the Finance Act, 1894, and if my hon. and learned Friend will refer to that Act he will see that the liability of the executor is restricted to Estate Duty on the personal property of which the deceased is competent to dispose at his death. Therefore, in the case of the first form of property which this Clause is designed to include, namely, gifts made abroad within three years of the death of the donor, the liability cannot be placed on the executor because it is not property of which the deceased is competent to dispose at his death. The liability for Estate Duty on such a gift will be on the donee, and if it cannot be recovered from the donee because he is outside jurisdiction, it cannot be recovered at all. As far as joint investments are concerned, again the liability would be imposed on the executor only in cases where the joint investment constituted a joint tenancy. In regard to foreign settlements, my hon. and learned Friend will appreciate that property in that circumstance will only be property of which the deceased is competent to dispose at his death in the event of the 858 settlement itself containing a power of revocation or a general power of appointment. I think it is clear that my hon. and learned Friend moved this Amendment in the belief that the possible liability on the executor was very much wider than it is. I hope that, in view of the explanations I have given, he will be satisfied that the injustice which he feared will not occur, and that he will not press his Amendment.

§ Mr. SPENS
I am very much obliged to the Attorney-General for his explanations which, so far as they go, appear to me to be satisfactory. The only criticism which comes to my mind after listening to him is that it seems to me that we are passing a Clause to impose Estate Duty on foreign property which in a great number of cases, and at any rate as far as concerns property given away to somebody abroad, we are never to be able to recover in any circumstances, and that the only effect of imposing duty on that property will be, in fact, to raise the rate of duty on the English property. I agree, however, that the point which I raised about the English legatees having to bear the duty on foreign property without having any chance of recovering it has been met by the answer of the Attorney-General, and in those circumstances I beg to ask leave to withdraw the Amendment.

§ Mr. BENSON
I would like to raise a point in connection with paragraph (b) which reads: which by the law of the country in which it is situate is immovable property. I assume that the words "immovable property" refer to such things as works of art in Italy and various types of property which may not be exported from the country in which they are. My point is that although the property may be immovable under the law of the country, it may be saleable, and an executor may be able to realise it and therefore have an enjoyable property under his control which would not be taxable.

§ Mr. LEWIS
With regard to the question of removing property from abroad, 859 I would like to refer to what is known as a frozen credit. Hon. Members know that it not infrequently happens at the present time that, as a result of some transaction abroad, a man has a credit in a foreign country which under normal circumstances he could transfer to this country, but which, owing to exchange restrictions, he is debarred from moving from that country. Such a frozen credit might and no doubt often does form part of the estate of a man who has died. In such a case the question of saleability, which was raised by the hon. Member for Chesterfield (Mr. Benson), docs not arise, because clearly one cannot sell a frozen credit. I would like to know what is to be the position of an executor in the event of a large portion of the estate consisting of a frozen credit. Is probate to be denied until the duty on that credit is paid, and if so, is the executor to be compelled to find the money from other property in this country? I admit that the subject is a very difficult one; I tried to frame an Amendment to deal with it but was unable to do so. I would like to have from the Front Bench some understanding as to how this position is viewed, because it is a matter which will arise under this Clause, since exchange restrictions are likely to continue for some time. I take this opportunity to ask for a statement as to how this problem of frozen credits is to to dealt with under this Clause.

§ The ATTORNEY-GENERAL
In reply to the questions which have been put to me, the reference to immovable property does not contemplate the type of property referred to by the hon. Member for Chesterfield (Mr. Benson). It means land or such interests in land as are regarded as immovable property by the law of the country where the land is situate. By a general understanding between nations, no nation in the past has ever attempted to tax land which constitutes part of the territory of another country. Therefore, foreign land has always been outside the Death Duty or Estate Duty net. It is simply a proviso that nothing in the Clause is to operate so as to charge with duty any property which by the law of the country in which it is situate is immovable property. It simply excludes foreign land.

§ Mr. BENSON
Does that also refer to foreign real property—to bricks and mortar?

§ The ATTORNEY-GENERAL
Yes.

§ Mr. BENSON
A man might invest his money abroad in foreign property and that would be excluded from Estate Duty. But if the property were sold and the proceeds brought back here, would they also be excluded?

§ The ATTORNEY-GENERAL
No. It is only as long as the property consists of land and the buildings on it, or such other interests in land as are within the words "immovable property," situate in a particular foreign country that this applies. One, of course, would have to look at the law of the foreign country concerned to see what was regarded as immovable property in that country. Under our own law, land and the buildings on it are included in real property and I have no doubt that foreign systems of law adopt the same principle. But once a man sells that property then, instead of being the owner of foreign land which has houses upon it or similar property, he becomes entitled as a personal right to the purchase price and when the purchase price is paid to him the money thus realised would come within the net. It is only as long as the property is land abroad that it is outside the net.
My hon. Friend the Member for Colchester (Mr. Lewis) raised a point which is wholly outside the Clause. A frozen credit could not possibly come within the three categories of property situated abroad with which the Clause deals. He was, therefore, asking me to give an opinion on the legal effect of the existing law in respect of a matter apart from this Clause. It would he contrary to the Rules of Order to do so, even if I were competent at the moment to express any useful opinion upon that point and I must, therefore, ask my hon. Friend to excuse me from dealing with it.