ESTATE DUTIES (WAR DAMAGE). (Hansard, 12 November 1942)

§ Dr. Russell Thomas (Southampton)
The subject that I wish to raise may 158 appear very dull, but it is a very important one for people in towns who have suffered damage to their property from enemy action. I will try to make it clear in this way. Suppose that I die and my estate goes to my executors, and it consists of two elements, first, my realisable belongings at my death and, second, two or three houses which have been completely destroyed by enemy action. The value of the second element is only ascertainable by the War Damage Commission at an indeterminate future date. It may be in several years' time. Admittedly no Death Duties would be paid on the value payment which we hope some day will come.

Dr. Thomas
The Death Duties authorities do not charge on the future, indeterminate value payment of the houses, but they take advantage of the fact to raise the rate of Death Duties payable on my actual belongings at the time of my death. That is the general principle I have in mind, and I will give an actual example from my own constituency. Two sisters in my constituency owned two properties, which were both completely destroyed. The sisters themselves actually lived in leasehold property. They had very little means of their own, and they had been accustomed to making their living by a business on their leasehold premises and from the rent from these two properties. Unfortunately, on account of the loss of these properties one of the sisters had to seek relief from the public assistance committee. Eventually she fell ill and died, and she left her estate to her sister. It was found that the estate, so far as her realisable belongings were concerned, amounted to £348, and even that included £128 which the Death Duties authorities said was the site value of her property which actually probably at the present time was not worth anything much at all. The Death Duties authorities, however, taking advantage of the situation, added the value of the two bombed houses, which they said were worth £1,500. How they arrived at this I am not clear. That, 159 however, was added to the actual realisable belongings of the deceased, and the consequence was that instead of paying 1 per cent. in Death Duties on the £348, the sister had to pay 3 per cent. That was because the Death Duties authorities aggregated the value of her belongings and the money which was payable at some indeterminate date. The solicitors in this case took a very strong line and said they were not willing to pay, and the matter was left in the air.
I shall quote another case, one about which I have been told by a firm of solicitors in the City of London. They wrote to me and said they had a case in which the Inland Revenue were seeking, by including the estimated value of a bombed house, to raise the rate of Estate Duty by 1 per cent., and they said it seemed to them most inequitable to charge additional Death Duties on the realisable belongings because there was a value payment to be received at some indeterminate future time. They said that, moreover, there was no reason for making any estimate of the present value of the value payment, in view of the complete uncertainty as to when it would be paid. They also ventured a legal opinion in this regard, and said that in their view the value payment was property to which Section 5 (3) of the Finance Act, 1894, applied and did not have to be accounted for until its value was ascertained.
Now let me quote a parallel case. I do not say it is exactly the same, but it is similar. I really ought not to remind the Financial Secretary of this, because he might bring it into line with the value payment I have just talked about, but I will take that risk. I die and leave my total estate to my son, and I am also the remainder man of the estate of my uncle in which my aunt has a life interest. If my aunt dies prior to my death the estate comes to me intact—assuming I have not dissipated it in my life-time. It is aggregated with my own estate, but it has a present value, and I could realise on it. In spite of that, it is not assessed at my death if my aunt is still alive. It is only assessed when my aunt dies, and my son has to pay the duties, not now, but at a future date. Why the value payments I have referred to should not be put in complete line with that I do not know. It seems to me that the cases are almost parallel.
160 The Financial Secretary will no doubt argue that thousands of properties have been bombed and thousands of people have died and that thousands of these cases have been settled already. But because there have been thousands of cases which I consider are wrong and inequitable, that does not mean that they should continue. It will be argued that people are only too pleased to pay now and that they would rather stump up than that it should hang over them until some unknown time. I do not believe that. One of my constituents was very clear on that matter, and I am sure that other people feel much the same about it although they have paid and would not be so unwise as to fight the Treasury. Another argument which my right hon. and gallant Friend will probably use is that the capital payment to be made after the war for destroyed houses must be earmarked for rebuilding those houses and must not be used for paying Estate Duties. This is no argument at all, because, although the money to be paid over must be applied to the rebuilding of the houses, anybody who owns two or three houses will not have the slightest difficulty in getting accommodation at a bank to pay the remaining duty if he has not already got it. I tried five times in the last Session to bring this matter up, but the Business was exempted or the Rule was suspended, and I was unsuccessful. It is curious that on 26th October a firm of solicitors wrote to me thus: We may say that in the case we have in hand the revenue have dropped their claim to have an estimate of the value payment brought in for the purposes of aggregation, but they are careful to say that the concession applies to the present instance only. Whether that has been extended since, I do not know. I trust that the Financial Secretary will be able to satisfy me and the large number of people who have suffered under this inequity. If any private individual treated me in this sort of way and I was not discussing His Majesty's Treasury, I should find another, sharper word to use. I will leave it to the imagination of hon. Members. I hope that this matter will now be put on a more equitable basis. No one appreciates more than I do how important it is to withdraw purchasing power from the population in order to meet the expenditure of the war, but there is a level below which we should not go in order 161 to obtain money. We should not look to these unfortunate people who are often only small property owners, who have suffered considerable losses, who have had considerable sorrow and who have had to turn to their friends for help.
The Treasury should not take advantage of the situation to charge these higher rates of Death Duties. I trust that my right hon. and gallant Friend will consider this matter, and that the concession stated in the letter from the solicitors which I have just read will apply in general to cases throughout the country.

§ The Financial Secretary to the Treasury (Captain Crookshank)
My hon. Friend is very optimistic if he thinks I am going to give away anything to-day. I must say that he is very persistent. He has reminded us of the five occasions on which he has tried to raise this question, and I must say that it is a little unusual at the beginning of a new Session to raise a matter of which complaint was made as long ago as 2nd July; but he feels that it is a very important matter, and he is therefore entitled to take advantage of any opportunity, only it is rather an unusual way of doing things. The point at issue, as I understand it, is not one which I can do anything about one way or the other, because the Inland Revenue authorities are there to administer the law as to Death Duties as passed by this House in successive Finance Acts. It is not a question of administrative arrangements. They have to carry out the law and to make the best assessments they can. It is usual for them to be agreed between the executors and the tax-gathering authorities, and if there is any dispute, there are well regulated methods of appealing against assessments for Death Duties. As my hon. Friend knows, there is a provision for an appeal to the High Court or, when the estate is below £10,000, to the county courts, so that it is not as if anyone were likely to do anything which was improper, seeing that the executor has the right of taking the case to the courts if necessary. Actually, my hon. Friend is the only Member of this House who has raised this question since July. I have made inquiries and cannot find that there has been any large number of complaints from anyone at all, and certainly he is the only Member of Parlia- 162 ment who has made any complaints. Therefore, it does not seem to me that this is a very widespread grievance, or an overmastering scandal about which we ought to legislate at some future time. Anyhow, at the moment nothing can be done.
The proposition is perfectly simple. What my right hon. Friend told the hon. Member in reply to his Question on 2nd July was that if a value payment is due to a person who dies then that value payment is added to the other property passing on the death of that person for the purpose of determining the rate at which Estate Duty is payable on the estate. It must be so. My hon. Friend rather toys, I think, with the idea that value payments should not come within the ambit of the Death Duties at all. I think what he really wants is to exclude value payments from the scope of Death Duties altogether.

§ Dr. Thomas
No.

§ Captain Crookshank
But, after all, the value payment is something to which the deceased is entitled at a future date. If the house had not been destroyed, there would have been no question that the value of it, together with the value of all other elements which go to make up the estate—cash, securities, land, trees, pictures, anything else yon like—would have been assessed for Death Duties. In this particular case the house itself has disappeared as a result of bombing. Therefore, you cannot put the value of the house as part of the estate passing, but, of course, a value payment, that is, the amount which arises under the War Damage Act, 1941, in respect of that property, is property which passes at death. Therefore, it has to be counted as part of the estate, and Death Duty has to be paid upon the whole estate with that element in it. Then my hon. Friend says, "How can you value it?"

§ Dr. Thomas
I am not suggesting that it should not be valued, but the whole amount should not be paid until the value payment is made after the war. Although other hon. Members have not raised this matter, very many of my constituents have done so.

§ Mr. Deputy-Speaker (Colonel Clifton Brown)
I think the hon. Gentleman is suggesting a definite alteration of the law.

§ Dr. Thomas
I am not clear under what Act this procedure is now going on, and my right hon. and gallant Friend has not made it clear to me. I am not suggesting any change in the law, but I would like to know under what Regulation or law this is now going on.

§ Captain Crookshank
My hon. Friend could quite well have found that out by writing to me, or asking me at any time since 2nd July. I do not know whether he wants me now to give a complete description of all the methods for collecting Death Duties, but there can be no question that the value payment is part of the estate, and even though it is not, at this moment, in cash form, it is in the form of something which will come in due course to that estate. If the question which the hon. Gentleman then propounds is, "How can you say what the value payment will be?" I quite agree that you cannot say, at this stage, for certain, what it will be. By and large, as I understand it, what is done, when claims are made, is that the claimants generally have some sort of idea of what they hope to get out of it. That may make a sufficiently rough and ready figure upon which to make the assessment.
The hon. Gentleman says, "Why therefore does the fact that this value payment which is to be paid after the war"—because that has to be counted into the whole body of the estate passing at death—"mean that in certain cases it raises the Death Duty upon the non-value-payment part of the estate to a higher level than it would be if it had not been taken into account?" I think that was his question. It is because the actual referènce is, I understand, to Section 4 of the Finance Act, 1894, which provides for the aggregation, for the purpose of determining the rate at which Estate Duty is payable, of all property passing on the death of the deceased, except property in which he never had an interest. It is clear that the 164 deceased person has, at the moment of his death, an interest in the value payment, and therefore it has to be aggregated under that Section of the Act of 1894. Of course, it does not necessarily and in every case mean that that higher rate of Estate Duty is payable because of this aggregation, for the reason that the Estate Duty itself goes up by certain steps. It is only when the amount added as a result of the prospective value payment brings it above a particular step that there is a rise of one, or two, or whatever per cent. it may be. If the amount was all within the same step, then there would be no increase on the amount payable on the non-value payment part of the estate.
For example, in the case that he gave, he said that the result of aggregation raised the Death Duty from 1 per cent. to 3 per cent. That was because it had risen from below £500 to over £1,000. The actual step of 3 per cent. is from £1,000 to £5,000, and if it had so happened that the remaining part of the estate in this case had been already over £1,000, the addition to which the hon. Member has referred would not have raised the rate, because of the gap from £1,000 to £5,000. The next step is from £5,000 to £10,000 and so on, into which it is not necessary to go. I am afraid that the fact still remains. It is always hard—I concede this to my hon. Friend—for anyone who suffers from aggregation. This is not the only case of aggregation, as hon. Gentlemen who may have been executors or trustees will know only too well. When these cases do arise they are very hard on the estate, that is admitted. On the other hand, that is what Parliament has determined, and we have no option but to carry out the wishes and instructions of Parliament in this as in all other matters.