HC Deb 12 July 1939 vol 349 cc2305-11

5.44 p.m.

The Solicitor-General (Sir Terence O'Connor)

I beg to move, in page 32, line 9, to leave out from "Commissioners" to "that" in line 12.

The purpose of this Amendment is to implement an undertaking which was given during the Committee stage of the Bill. I went into the question then at very great length.—I am afraid at rather undue length.—and I therefore do not propose to repeat now what I then said. The substance of the Amendment that we are making is to provide that if it can be shown that the disposition of the property which is the subject-matter is not made with reference to, or with a view to enabling or facilitating, the purchase or provision of the annuity or other interest, the Clause cannot operate. The burden is put upon the persons to prove that they are not associated in any way, and that should be sufficient. That was the opinion which I then gave.

5.45 p.m.

Mr. Benson

I am not prepared to accept this Amendment, because it seems to me that it excludes two very important factors in deciding whether a particular disposition has been made for the purpose of creating an interest arising at death. As the Bill was originally drafted, there were three tests—first, whether the money derived from the deceased person was in the possession of the person who was entitled to it; secondly, whether it was in his resources; and, thirdly, whether the disposition was made for the purpose of facilitating the provision of an interest. Two of these tests have been knocked out; it does not matter now whether the person is entitled to the money or not, or whether it is in his possession or not at the time when the annuity is purchased. All that is left is the question of motive. I assume that the Clause as originally drafted was the work of the gentlemen who look after our direct taxation, and who are very able and experienced persons. They do not draft these tax avoidance Clauses casually and without consideration; I assume that, in drafting such a Clause, they have before them a large number of copies of dispositions and the like, and a large number of instances of tax avoidance. They start with the idea of preventing the specific cases of which they already have evidence, and they take care to put in just so much as will catch the cases of which they have evidence. We know from experience that, whenever we attempt to stop up a hole in advance, our proposal is invariably rejected by the Government on the ground that they have no evidence that that particular form of evasion is taking place, so I assume that, when we find in a Clause certain specific tests, those tests have been considered necessary as a result of the experience of men who are continuously coming across the forms of avoidance that are dealt with.

I do not think that the Solicitor-General, in his speech in Committee, made out a case for the elimination of these two tests. It is true that he quoted the hypothetical case of a medical student who received from his father an allowance of £200 or £300 a year to carry him through his studies, and who might put aside a certain proportion of that amount to insure his father's life. That strikes me as a very problematical case, and I should be very surprised if the Solicitor-General could dig up an actual instance where it had happened. The Amendment leaves only one test, the test of motive. The question is whether the disposition was made for the purpose of facilitating or helping in the provision of an interest arising at death. Such a thing is extraordinarily difficult to prove, and, when you are trying to prove what was the motive of a dead man, there is little or no evidence that you can call on either side. It is, however, very easy to manufacture evidence as to an ostensible motive. The question of motive has been discussed before. The Finance Bill of 1936 dealt with the transference of assets abroad, and one of the tests there was the motive of the transfer—whether it was or was not mainly the avoidance of tax. The actual phrase is that a man should be free of tax if he could show to the satisfaction of the Special Commissioners that the transfer and any associated operations were effected mainly for some purpose other than the purpose of avoiding liability to taxation. That is practically the wording of the present Clause, mutatis mutandis. But what happened? That wording was found to be utterly inadequate, and in 1938 the Chancellor had to strengthen the Clause. He gave the instance of a man who transferred his assets abroad, going through all the various and elaborate methods that are usual in tax avoidance. He formed an American company; he took care that the income arising from the assets transferred abroad was not remitted to this country; he did everything that the normal tax avoider does. But he went to the Special Commissioners and explained that the real reason why he had gone through all these elaborate and artificial arrangements was, not that he wished to avoid taxation, but that he was afraid the Socialists might at some time come into power, and he did not know what would happen to his money if they did. And the Special Commissioners accepted that fantastic statement and decided that that was his real motive. If the Special Commissioners have to be satisfied, and if they are satisfied as easily and readily as that, it seems to me that the Clause is not worth putting in the Finance Bill.

If a disposition is made for the purpose of financing an insurance policy, all that the disponer has to do is to set out elaborately in the deed his reasons for making the disposition. He can state in black and white that he makes the disposition to his son or daughter in order that they may maintain, in a state that he considers fitting and adequate, such-and-such an estate or house; or he may make a marriage settlement in which he says that he thinks his son ought to have such-and-such a status and that he will provide the money. That is a definite statement which may apparently be quite reasonable. Who is to say, as regards a marriage settlement, what a parent thinks is the right amount to settle on his child on marriage? We are not dealing here with small matters, but with large amounts. He can say that £5,000,

£10,000, £15,000 or £20,000 a year is a reasonable amount to settle on his child on marriage. He may think that £10,000 a year is a reasonable amount for his son to live on, but he may add another £2,000, £3,000, £4,000 or £5,000 for the purpose of providing money with which to purchase an annuity or insurance. How can the Special Commissioner sort that out? The son has only to say his father has embodied in the deed of disposition that he thinks this is the amount he ought to have on marriage. How can it be disproved? This Amendment is going, if I may use the expression, to take the "guts" out of the Clause.

I do not think it is possible for an insurance on the life of some other person to be purchased without that person's knowledge and without his consent, or, where it is being purchased by someone in receipt of funds from the insured person, without his connivance. There might possibly be cases such as were suggested by the Solicitor-General in Committee, but, in the vast majority of cases, where the individual who insures has in his possession funds derived from the person at whose death the interest arises, it is almost invariably the case that those funds have been provided for the purpose, among others, of enabling the insurer to insure the life of the person from whom the funds were derived. Therefore, I sincerely hope we shall vote against this Amendment, which destroys the efficacy of the Clause.

Question put, "That the words proposed to be left out stand part of the Bill."

The House divided: Ayes, 122; Noes, 213.

Division No. 238.] AYES. [5.59 p.m.
Adams, D. (Consett) Cluse, W. S. Hall, G. H. (Aberdare)
Adams, D. M. (Poplar, S.) Collindridge, F. Hall, J. H. (Whitechapel)
Adamson, Jennie L. (Dartford) Cove, W. G. Hardie, Agnes
Adamson, W. M. Cripps, Hen. Sir Stafford Harvey, T. E. (Eng. Univ's.)
Anderson, F. (Whitehaven) Daggar, G. Hayday, A.
Banfield, J. W. Dalton, H. Henderson, A. (Kingswinford)
Barnes, A. J. Davies, S. O. (Merthyr) Henderson, J. (Ardwick)
Barr, J. Dobbie, W. Henderson, T. (Tradeston)
Batey, J. Dunn, E. (Rother Valley') Hills, A. (Pontefract)
Beaumont, H. (Batley) Edwards, Sir C. (Bedwellty) Hollins, A.
Bellenger, F. J. Edwards, N. (Caerphilly) Hopkin, D.
Benn, Rt. Hon. W. W. Fletcher, Lt.-Comdr. R. T. H. Jenkins, A. (Pontypool)
Benson, G. Gallacher, W. Jenkins, Sir W. (Neath)
Bevan, A. Gardner, B. W. John, W.
Broad, F. A. Gibson, R. (Greenock) Jones, A. C. (Shipley)
Bromfield, W. Green, W. H. (Deptford) Kennedy, Rt. Hon. T.
Brown, C. (Mansfield) Greenwood, R(. Hon. A. Kirby, B. V.
Burke, W. A. Grenfell, D. R. Kirkwood, D.
Cape, T. Griffiths, G. A. (Hemsworth) Lathan, G.
Charleton, H. C. Griffiths, J. (Llanelly) Lawson, J. J.
Leach, W. Oliver, G. H. Stephen, C.
Lee, F. Paling, W. Stewart, W. J. (H'ght n-le-Sp'ng)
Leonard, W. Parkinson, J. A. Stokes, R. R.
Leslie, J. R. Pearson, A. Strauss, G. R. (Lambeth, N.)
Logan, D. G. Pethick-Lawrence, Rt. Hon. F. W. Taylor, R. J. (Morpeth)
Lunn, W. Price, M. P. Thorne, W.
Macdonald, G. (Ince) Pritt, D. N. Tinker, J. J.
McEntee, V. La T. Quibell, D. J. K. Viant, S. P.
McGhee, H. G. Rathbone, Eleanor (English Univ's.) Walker, J.
McGovern, J. Ridley, G. Watkins, F. C.
MacLaren, A. Riley, B. Watson, W. McL.
Maclean, N. Ritson, J. Welsh, J. C.
Mainwaring, W. H. Robinson, W. A. (St. Helens) Westwood, J.
Marshall, F. Sanders, W. S. Whiteley, W. (Blaydon)
Maxton, J. Sexton, T. M. Williams, T. (Don Valley)
Messer, F. Shinwell, E. Wilmot, John
Milner, Major J. Silverman, S. S. Woods, G. S. (Finsbury)
Montague, F. Simpson, F. B. Young, Sir R. (Newton)
Morrison, Rt. Hon. H. (Hackney, S.) Smith, Ben (Rotherhithe)
Morrison, R. C. (Tottenham, N.) Smith, E. (Stoke) TELLERS FOB THE AYES.—
Naylor, T. E. Smith, T. (Normanton) Mr. Groves and Mr. Mathers.
Noel-Baker, P. J. Sorensen, R. W.
Acland-Troyte, Lt.-Col. G. J. Despencer-Robertson, Major J. A. F. Mabane, W. (Huddersfield)
Adams, S. V. T. (Leeds, W.) Dorman Smith, Col. Rt. Hon. Sir R. H. MacAndrew, Colonel Sir C. G.
Amery, Rt. Hon. L. C. M. S. Drewe, C. MacDonald, Rt. Hon. M. (Ross)
Anstruther-Gray, W. J. Dugdale, Captain T. L. Macdonald. Capt. P. (Isle of Wight)
Aske, Sir R. W. Duggan, H. J. Macmillan, H. (Stockton-on-Tees)
Assheton, R. Duncan, J. A. L. Maitland, Sir Adam
Balfour, Capt. H. H. (Isle of Thanet) Edmondson, Major Sir J. Makins, Brigadier-General Sir Ernest
Barrie, Sir C. C. Ellis, Sir G. Mander, G. le M.
Beamish, Rear-Admiral T. P. H. Elliston, Capt. G. S. Margesson, Capt. Rt. Han. H. D. R.
Beauchamp, Sir B. C. Emrys-Evans, P. V. Mason, Lt.-Col. Hon. G. K. M.
Beaumont, Hon. R. E. B. (Portsm'h) Entwistle, Sir C. F. Maxwell, Hon. S. A.
Bennett, Sir E. N. Erskine-Hill, A. G. Meller, Sir R. J. (Mitcham)
Bird, Sir R. B. Evans, D. O. (Cardigan) Mellor, Sir J. S. P. (Tamworth)
Boothby, R. J. G. Fildes, Sir H. Mills, Sir F. (Leyton, E.)
Boulton, W. W. Fremantle, Sir F. E. Mills, Major J. D. (New Forest)
Bower, Comdr. R. T. Furness, S. N. Mitcheson, Sir G. G.
Bracken, B. George, Megan Lloyd (Anglesey) Moore, Lieut.-Col. Sir T. C. R.
Brass, Sir W. Gilmour, Lt.-Col. Rt. Hon. Sir J. Moore-Brabazon, Lt.-Col. J. T. C.
Brisooe, Capt. R. G. Gower, Sir R. V. Moreing, A. C.
Broadbridge, Sir G. T. Graham, Captain A. C. (Wirral) Morgan, R. H. (Worcester, Stourbridge)
Brocklebank, Sir Edmund Granville, E. L. Morris, O. T. (Cardiff, E.)
Brooke, H. (Lewisham, W.) Grattan-Doyle, Sir N, Morrison, G. A. (Scottish Univ's.)
Brown, Brig.-Gen. H. C. (Newbury) Greene, W. P. C. (Worcester) Munro, P.
Browne, A. C. (Belfast, W.) Gridley, Sir A. B. Neven-Spence, Major B. H. H.
Bull, B. B. Griffith, F. Kingsley (M'ddl'sbro, W.) Nicholson, G. (Farnham)
Bullock, Capt. M. Grimston, R. V. Nicolson, Hon. H. G.
Burgin, Rt. Hon. E. L. Gritten, W. G. Howard O'Connor, Sir Terence J.
Butcher, H. W. Guinness, T. L. E. B. Orr-Ewing, I. L.
Campbell, Sir E. T. Gunston, Capt. Sir D. W. Peake, O.
Cartland, J. R. H. Hannah, I. C. Peat, C. U.
Carver, Major W. H. Hannon, Sir P. J. H. Perkins, W. R. D.
Cary, R. A. Harbord, Sir A. Pickthorn, K. W. M.
Cazalet, Capt. V. A, (Chippenham) Haslam, Sir J. (Bolton) Pilkington, R.
Channon, H. Heilgers, Captain F. F. A. Ponsenby, Col. C. E.
Chapman, A. (Rutherglen) Hely-Hutchinson, M. R. Pownall, Lt.-Col. Sir Assheton
Chapman, Sir S. (Edinburgh, S) Heneage, Lieut.-Colonel A. P. Procter, Major H. A.
Chorlton, A. E. L. Hepburn, P. G. T. Buchan- Radford, E. A.
Christie. J. A. Hepworth, J. Ramsden, Sir E.
Clarke, Colonel R. S. (E. Grinstead) Higgs, W. F. Rankin, Sir R.
Clarry, Sir Reginald Holdsworth, H. Reed, Sir H. S. (Aylesbury)
Cobb, Captain E. C. (Preston) Holmes, J. S. Roberts, W. (Cumberland, N.)
Colfox, Major Sir W. P. Hudson, Capt. A. U. M. (Hack., N.) Ropner, Colonel L.
Colman, N. C. D. Hunloke, H. P. Rosbotham, Sir T.
Colville, Rt. Hon. John Hunter, T. Ross Taylor, W. (Woodbridge)
Conant, Captain R. J. E. Hurd, Sir P. A. Royds, Admiral Sir P. M. R.
Cook, Sir T. R. A. M. (Norfolk, N.) Jarvis, Sir J. J. Ruggles-Brise, Colonel Sir E. A.
Cooke, J. D. (Hammersmith, S.) Jones, Sir H. Haydn (Merioneth) Russell, S. H. M. (Darwen)
Cooper, Rt. Hn. T. M. (E'nburgh, W.) Jonas, L. (Swansea W.) Salmon, Sir I.
Courthope, Col. Rt. Hon. Sir G. L. Kerr, Colonel C. I. (Montrose) Salt, E. W.
Craven-Ellis, W. Kerr, H. W. (Oldham) Samuel, M. R. A.
Croft, Brig-Gen. Sir H. Page Kerr, Sir John Graham (Sco'sh Univ's.) Sandeman, Sir N. S.
Crookshank, Capt. Rt. Hon. H. F. C. Lamb, Sir J. Q. Sanderson, Sir F. B.
Cross, R. H. Lambert, Rt. Hon. G. Schuster, Sir G. E.
Crowder, J. F. E. Law, R. K. (Hull, S.W.) Seely, Sir H. M.
Cruddas, Col. B. Leech, Sir J. W. Selley, H. R.
Culverwell, C. T. Lees-Jonas, J, Shaw, Captain W. T. (Forfar)
Davison, Sir W. H. Leighton, Major B. E, P. Shepperson, Sir E. W.
De Chair, S. S. Levy, T. Simon, Rt. Hon. Sir J. A.
Denman, Hon. R. D. Liddall, W. S. Smith, Sir R. W. (Aberdeen)
Denville, Alfred Lloyd, G. W. Smithers, Sir W.
Snadden, W. MCN. Taylor, Vice-Adm. E. A. (Padd., S.) Wedderburn, H. J. S.
Somervell, Rt. Hon. Sir Donald Thomas, J. P. L. Whiteley, Major J. P. (Buckingham)
Somerville, Sir A. A. (Windsor) Thomson, Sir J. D. W. Williams, Sir H. G. (Croydon, S.)
Spears, Brigadier-General E. L. Thorneycroft, G. E. P. Willoughby de Eresby, Lord
Spens. W. P. Titchfield, Marquess of Wilson, Lt.-Col. Sir A. T. (Hitchin)
Stanley, Rt. Hon. Oliver (W'm'l'd) Tryon, Major Rt. Hon. G. C. Winterton, Rt. Hon. Earl
Stewart, J. Henderson (Fife, E.) Tufnell, Lieut.-Commander R. L. Wright, Wing-Commander J. A. C.
Strauss, H. G. (Norwich) Wakefield, W. W. York, C.
Strickland, Captain W. F. Wallace, Capt. Rt. Hon. Euan Young, A. S. L. (Partick)
Stuart, Hon. J. (Moray and Nairn) Ward, Irene M. B. (Wallsend)
Sueter, Rear-Admiral Sir M. F. Wardlaw-Milne, Sir J. S. TELLERS FOR THE NOES.—
Tasker, Sir R. I. Waterhouse, Captain C. Lieut.-Colonel Harvie Watt and
Tate, Mavis C. Webbe, Sir W. Harold Captain McEwen.

Question, "That the Clause stand part of the Bill," put, and agreed to.

Bill to be read the Third time To-morrow.