NEW CLAUSE.—(Payment of Death Duties.) (Hansard, 11 July 1939)

§ Sir William Wayland
I beg to move, "That the Clause be read a Second time."
This is one of the rare proposals which do not cost the Treasury anything. It might be that the Treasury would lose on the swings, but it would gain another time on the roundabouts. We all know that the value of an estate is estimated at the time of a person's death and that the executors are left to realise the estate. I want to point out to the Chancellor that we do not live now in the peaceful times of the 'eighties or even the 'nineties. Markets are liable to drop very quickly or to rise sometimes. Presuming that an executor realises, as has been done lately, a much less sum than that at which the estate has been valued, those who were to inherit, maybe many shares or property of another kind, would lose considerably. A case was brought to my notice in which an estate was valued at the time of a man's death at £100,000. When the shares were sold they did not realise as much as was due to the Exchequer. That condition of things is not right.
The proposed new Clause would work in this way: The estate would be valued at the time of the person's death. Then the executors or trustees would be given power to notify the Commissioners that they intended to take a certain part of the estate which was of the nominal value, at the time of the death, of the sum required to satisfy the Death Duties. Whether that part of the estate realised the amount which the Exchequer demanded or not, it should be taken as representing the value of the shares at the time of the persons' death. Assuming that a man or woman were to die in the near future, and the value of the estate was given for Death Duty purposes, what would be the value of the shares or property comprising the estate if war clouds gathered? During the Great War, the value of property in London fell by over 50 per cent., and the value of shares might fall by as much as 80 per cent. so that, instead of the heirs receiving anything, the Exchequer might come upon the executors to pay something more than the estate actually realised. That, I contend, is grossly unfair. The Chancellor may say that such a proposal as I am making cannot be carried out, because it would involve too 2118 much office work, or because the Treasury might lose, but I would only say that, if a thing is just, it must be carried out, and I contend that it is just that the amount realised by the estate should be taken as the value for Treasury purposes.

§ Mr. Spens
I beg to second the Motion.
I do not claim that the Clause, as drafted, is as perfect as it might be, because it would, I think, entitle executors to pick out and appropriate to the Revenue the assets most difficult to realise. But the underlying principle, which is very familiar in dealing with interests in any estate, is that, where a number of persons share in an estate which has to be realised, their shares are appropriated to them as at the material date—in this case the date of death— and they are realised for better or worse and regarded as the respective shares of the persons concerned. The present system with regard to Death Duties is that an estate is valued at the market value on the date of the death, and, when realised, it may produce more than that valuation or it may produce less. If it produces more, the beneficiaries get off by having to sell fewer assets than they had anticipated, while the Revenue gets the sum stipulated. In recent years, however, when markets have been continually falling, this claim has been made from more and more quarters throughout the country, but the sum that has to be realised by the Revenue remains the same no matter what it may cost the beneficiaries. As my hon. Friend has said, that is not fair as between the beneficiaries and the Revenue. In other words, from the point of view of the Revenue it is a case of "Heads I win, tails you lose."

§ Mr. Silverman
That is the way you want it.

§ Mr. Spens
If the hon. Member had taken the trouble to read the Clause, he would have seen that that is exactly what we do not want. The Clause leaves no option whatever to the taxpayer. If it be assumed that the rate of duty works out at one-fifth of the total value of the estate as at the date of death, one-fifth of the assets at that value would be appropriated to the Revenue. If the market rises, the Revenue will realise that and 2119 get more duty, while, if the market falls, the Revenue will suffer in the same way as the beneficiaries. It would make the matter fair as between the Revenue and the taxpayer. Therefore, I would ask the House to give serious consideration to the principle involved. The present method was put into the Finance Act in 1894, when matters in this country were very different, and it really is not standing the test of time.

§ Sir J. Simon
While my hon. Friends have made interesting speeches, they will not be surprised to hear that I cannot accept this proposal either as it is on the Paper or, as my hon. and learned Friend the Member for Ashford (Mr. Spens) suggests, in its broader sense. I must say that, reading the Clause, I should have thought it was giving the executors or trustees an option. I do not quite understand what the meaning of the wording is if it does not mean that. I quite agree that the substance of the matter is not to be judged simply by examining the precise language of the Clause. There are two principles which lie at the root of the Estate Duty law. One is that, for the purposes of Death Duties, the value of the estate is to be the value as at the date of death; and the other principle, which follows from the first, is that whether subsequently some particular part of the property receives an accretion or suffers diminution of value does not alter the amount which has to be paid. It would appear to me that a very large reconstruction would be needed in this part of our law if we were to depart widely from these two principles.
As the House knows, the free personal estate has to be made the subject of Estate Duty as a condition of getting probate at all, but, apart from that, there are in many cases other elements in the estate which are not necessarily free—possibly interests under settlements and so on—of even the existence of which the executors and trustees sometimes did not know when the previous owner died, and which necessitate prolonged investigation. It would be an odd thing to say that executors and trustees should have the privilege of picking out such portion of the estate as they think is suitable and informing the Revenue that that is the portion of the estate which has to bear the 2120 Death Duties whatever may be its fortune. That certainly is what the Clause says.
I do not understand the scheme as stated in the Clause. It seems to assume that, within 60 days of the death of any person, there is some list or other which the Commissioners give to the executors, and in which they price out and give a nominal value to each piece of the property. That does not happen at all. It is the executors who make the affidavit setting out what the property is, in many cases stating its value, and in other cases stating that the value is to be investigated; and there are many cases in which some portion at any rate of the property is not valued until much later. I could not hold out any hope of changing the general nature of that system. The instances which my hon. Friend the Member for Canterbury (Sir W. Wayland) gave—and I do not at all deny that there are instances which work out very hardly and involve great sacrifice on the part of some beneficiaries—prove conclusively that he was wrong when he said at the beginning that his Clause would not cost the Treasury anything at all, for the whole object of the illustrations was to show that, as things are, the Treasury gets too much and other people get too little.
Finally, I should doubt whether it is quite a true view of the law relating to Death Duties to say that, as my hon. and learned Friend the Member for Ashford suggested, we should treat the State as though it was one of the heirs who was to take pot luck with the other interests. Under the law, the State takes a toll in the form of tax from the estate. The right hon. Gentleman opposite had another plan the other day, by which it would be taken annually, but under our existing system it is taken at death. But in any case I think it would probably be truer to say that the claim of the State is a prior claim to that of the beneficiaries. It does not share with the other beneficiaries and take pot luck with them, but we endeavour to fix what is thought to be, in the judgment of the House of Commons, a proper rate of duty, which varies very greatly according to the total size of the estate, and the payment of that duty is exacted by law from the estate when death occurs. The beneficiaries then receive their various rights according to law. I should be the 2121 last to suggest that the present system does not work very hardly in some cases; it would be the greatest folly to suggest that that is not so; it sometimes involves fearful burdens on members of the family, and that ought to be recognised; but I do not think we can alter it in this way, and the responsibility for the revenue if it were left to be realised from some particular piece of property selected for the purpose by the benevolence of executors and trustees is one which I am not prepared to assume.

§ Sir W. Wayland
Although I am very unconvinced by the arguments of the Chancellor of the Exchequer, I will not press the matter. I beg to ask leave to withdraw the Clause.