HC Deb 12 July 1938 vol 338 cc1181-5

6.50 p.m.

Lord Ansley

I beg to move, in page 53, line 19, at the end, to insert: Provided that this Sub-section shall not apply in any case where the transfer or transfers in respect of which the liability to Estate Duty arises under the provisions of the said Section thirty-five were made before the commencement of the said Act. The reason why this Amendment, which stands in the name of my hon. and gallant Friend the Member for Newbury (Brigadier-General Clifton Brown) and myself, is being moved on Report stage, is that when we discussed the matter on Committee stage and went fully into the arguments, which I do not propose to repeat to-night, there appeared to be some hesitation and difficulty on the Treasury Bench as to the exact difference between companies which came under Clause 35 and those which came under Clause 34 of the Finance Act, 1930. The argument was that the Treasury were unable to grant the relief which was proposed by this Amendment on the ground that there might be some tax evasion. Both the cases which the Chancellor of the Exchequer then cited concerned companies which came under Clause 34, and our contention was that though there might possibly be some tax evasion in the case of Clause 34 there could not be any under Clause 35. These companies are all landed estate companies, all based on settlements. There are not very many of them and those that do exist are mostly of very old standing, and were in being long before the Finance Act, 1930, was passed. Indeed, there can be no question of there being any intention of tax evasion.

Those companies will be severely hit by the Clause in the present Finance Bill. We put forward the plea, also, that Lord Snowden gave the concession to non-aggregations of property in the Finance Act, 1930, and it cannot be contended that Lord Snowden was a great friend of landed proprietors. He was, indeed, a Whig of the old school, and therefore, to a certain extent, swayed by the political prejudices which hon. Members opposite sometimes seem to have inherited. Although the political situation to-day is very different from what it was in the days of the old Whig, their views are remarkably conservative and they find it hard to get rid of those old prejudices. I think that Lord Snowden did go into the question very thoroughly, and did say that the case of these companies was a hard case under Clause 35, and for that reason gave the concession. Therefore, we ask the Chancellor of the Exchequer to go thoroughly into the point himself, as no doubt he has done, and tell us whether there is any reason why that relief which was given by Lord Snowden should not be maintained.

We consider that there will be this additional hardship. When those companies were formed they paid very heavy Stamp Duties to the Revenue, and that was possibly one of the reasons which swayed Lord Snowden when he decided to give relief to non-aggregated property. Having given that relief and allowed them to run for a number of years I think it would be hard suddenly to change the financial order again and take back what had been given by a Labour Lord Chancellor. I would also urge the argument that the heavy burden which Death Duties are in the case of landed estates should not be overlooked from a Treasury point of view. If capital is taken away every few years, whenever there is a death, it will be correspondingly more difficult for owners to pay their Income Tax and Surtax under Schedule A, and the Treasury are bound to lose money. Owners have to sell portions of their estates in order to pay, and those portions come into the hands of small individuals who do not pay taxation at the same high rate of Surtax, and the Treasury are bound to lose. That argument ought to be considered by the Treasury, who should also compare the amount of revenue they lose from the same source when landed estates come under the State. When we get figures of these estates in the Estimates no account is taken of the Income Tax and Surtax which are lost to the Treasury or of the Death Duties which are lost. It might be equally well argued that when those companies are formed they were formed for tax evasion and the same in the case of co-operative estates.

Sir Sydney Wells

I beg to second the Amendment.

6.55 p.m.

Mr. Pethick-Lawrence

I should like to say a word in regard to the position of Lord Snowden, as the Noble Lord has referred to him. It is quite incorrect to say that Lord Snowden deliberately gave a concession to this particular form of company because he thought there was nothing unsuitable in a company being constructed in this way. The facts are entirely different. Before the passage of the Finance Act, 1930, no obstacle had been placed in the way of persons evading taxation by forming companies of this kind. A provision in the Act of 1930 was designed to stop that evasion, but when the draft came to be considered there was found to have been an error in the drafting and the provision did not completely meet the case. All that Lord Snowden did was not to rectify that error in the course of the passage of the Bill, and it was definitely stated by me on Third Reading that there might still be some means of evading direct taxation, but that what Lord Snowden had done, and what it was our intention by that Bill to do, was to put up a signpost saying that if people evaded their due liabilities they would be dealt with when the time came. It is incorrect to say that Lord Snowden deliberately left this loophole for evading taxation. The Act of 1930 made a very great advance in stopping evasion, and it was hoped that it would be a warning to people not to use such methods in the future. Therefore, I support the proposal in the present Bill, and I am entirely against allowing those who have evaded taxation by means of the loophole left in the Act of 1930 being free to escape their due liabilities.

6.58 p.m.

Sir J. Simon

It was interesting to hear the account given by the right hon. Member for Edinburgh East (Mr. Pethick-Lawrence) because he was Financial Secretary to the Treasury when the Finance Act, 1930, was carried through this House. I must say that I have found it rather difficult to understand why the Socialist Chancellor should have permitted Sub-section (3) of Section 35 to stand as it is, and I am obliged to the right hon. Gentleman for explaining it. As far as I am concerned, the matter stands in this way: That Section 35 deals with the formation of companies in the case of settled estates. I do not think my Noble Friend was right in saying that it is limited to agricultural estates. There might be a settlement of stocks and shares or of anything you please; as long as there is a settlement it comes under Section 35. The general arrangement in the case of a settlement was this—for simplicity's sake, I will take an agricultural settlement; that if there was a transfer of the different interests to an estate company formed for the purpose it was thought necessary to secure that the Revenue should be protected from loss of Estate Duty.

Of course, if the life tenant transfers his interest to a company and takes shares in consideration of his transfer, as he ordinarily would do, the shares in the company will belong to him and will pass on his death and they will be, broadly speaking, of the same value as the estate that he transfers. It will be as broad as it is long, and he will pay Estate Duty in respect of the shares which represent the land. It is only if arrangements are made for the transfer of his interest and the interest of the remainder that anything different will happen. It is possible to imagine a case in which the life tenant instead of taking the shares is appointed by the company to be governing director at a salary equal to the annual revenue of the estate and the shares are allotted not to him but to the reversioner. If that is what happens since the annual salary which may be very substantial, necessarily dies with him when he dies Estate Duty no longer attaches as it would if he was passing over the land or the shares to his representatives.

The formation of estate companies may often be a businesslike way of managing agricultural property and we ought not to do anything to discourage it. There may be many good reasons why they should be formed, but that is really no reason why there should be a substantial avoidance or reduction of the Estate Duty. It is a mystery why in the Act of 1930 Lord Snowden said that in this particular case there should not be any aggregation of this property with the rest of the property of a man when he dies. It is an elementary principle in the working of Estate Duty that you bring together all the different properties which belonged to the deceased and pass at his death for the purpose of applying the proper rates of Estate Duty to them. For a reason which does not seem easy to discover, and which the right hon. Gentleman has explained was certainly not deliberate, in this case by a remarkable exception it was said that the property represented by the estate company should be dealt with as an estate by itself. I am obliged to the right hon. Gentleman for explaining the rather mysterious circumstances in which it happened, but I really think there is no sufficient reason why we should not apply the ordinary rule. The Government takes up this attitude through no desire at all to penalise the progressive management of agricultural estates. Undoubtedly everything should be done to encourage it. It is not, as far as I am concerned, that I do not appreciate the very heavy burdens that fall on agricultural owners. They certainly do, but I think our law on the matter must be consistent. I see no reason why we should have this very remarkable and almost unique exception on the Statute Book entirely contrary to the general principle of the law relating to Estate Duty.

Amendment, by leave, withdrawn.