HC Deb 12 July 1938 vol 338 cc1163-5

5.48 p.m.

The Solicitor-General (Sir Terence O'Connor)

I beg to move, in page 30, line 10, at the end, to insert: Provided that when the legacy duty charged on the residue, or on the part thereof in which that person has an absolute interest, as the case may be, has been paid in respect of income for any such year or part of a year as aforesaid, his residuary income for that year shall thereafter be treated for the purposes of Surtax as reduced by the amount of that duty so far as paid in respect of such income. I invite the attention of the House to what I fear is a somewhat less interesting matter than that which we have just been discussing which forms the subject matter of this Amendment. The purpose of the Amendment is to implement a pledge which was given, on the Committee stage, to my hon. Friend the Member for Hastings (Mr. Hely-Hutchinson), and it deals with the following situation. We are altering the law as regards the administration of estates in a number of Clauses contained in Part III of the Bill. For the first time, we are treating as income of a residuary legatee the sums of money which arise on income account between the death of the testator and the final administration of the estate. Hitherto, those sums of money have, on the completion of the administration, passed to the residuary legatee as a mixed fund of capital and of income. We are now, for the first time, by a method which I do not need to explain, as it has been explained previously, treating the residuary legatee as though, in the interval between the death and the administration, he were in receipt of a notional income.

It was pointed out by my hon. Friend the Member for Hastings on the Committee stage that by that somewhat fictitious method, we take no account of the fact that, in the course of those years, legacy duty became payable on what the notional income in those years would be. A promise was given at that time, that, as that seemed to be a hardship, the matter would be rectified. We are now rectifying it. It is being rectified only in so far as Surtax is concerned, because to rectify it in the case of Income Tax would deprive quite small residuary legatees of the relief by way of repayment when they had paid legacy duty. They will retain that benefit. But it seemed a hardship that people should be treated as though they had received income when, in fact, the State had taken it in respect of their income interest.

5.50 p.m.

Mr. Benson

I would not have risen to speak on this Amendment had it not been for the fact that the learned Solicitor-General and the Chancellor have, on more than one occasion during the passage of the Finance Bill, lectured hon. Members on this side of the House on the basic principles of taxation and refused to accept some proposals which we moved because, they said, those proposals violated these principles. I draw the Solicitor-General's attention to the fact that this Amendment involves the violation of two separate and distinct principles of taxation. For the first one the Amendment is not responsible; but we have here an extraordinarily anomalous position. The legacy duty, which is primarily a tax upon the capital value of the legacy left, is, either because of bad drafting or because of some ancient legal decision, not only charged on the capital value of the legacy, but is charged upon a certain income which has accumulated after the death. From the date of the death, that income is definitely the income of the beneficiary; it may not be so legally, but in fact it is; and in no circumstances should that income be liable to the tax on the legacy.

In order to rectify the hardship of that, the hon. and learned Gentleman has moved an Amendment, not to relieve the income which has accrued after death from Legacy Duty, but to allow the Legacy Duty which is charged to be set against that income for Surtax assessment purposes. In other words, he suggests that a capital charge should be set against income for assessment purposes, which is in violation of Income Tax principles. On an Amendment which was moved this afternoon, the Chancellor of the Exchequer laid down that any sums set against income must be deductions of a revenue kind, and that nothing of a capital character could be set against income for the purpose of assessment. By this Amendment, the Government propose to rectify an anomaly by introducing another anomaly; namely, the setting of a capital charge against income for assessment purposes. This Amendment involves a double violation of the basic canons of taxation. It arose from an Amendment moved on the Committee stage by the hon. Member for Hastings (Mr. Hely-Hutchinson). The hon. Member for Hastings is a new Member; and this is the first Finance Bill in the Debates on which he has taken part. He has succeeded already in corrupting the Chancellor, in undermining the morals of the Board of Inland Revenue, and in playing havoc with the principles of the Solicitor-General. That is a good start. What the condition of our taxation law will be by the time the hon. Member is father of the House, I hesitate to think.

Amendment agreed to.