RELIEFS OF PERSONS RESIDENT ABROAD (Hansard, 2 May 1944)

§ Mr. Benson (Chesterfield)
Could we have an explanation of this not very lucid Resolution?

§ The Attorney-General (Sir Donald Somervell)
Suppose a man has, as often happens, only part of his income liable to United Kingdom Income Tax. Should he have a personal allowance, and, if so, how much? Let me take a concrete case. A man has an income of £1,200 a year, of which £400 is in this country, and, therefore, liable to United Kingdom Income Tax, while £800 is outside this country. Provision has been made in past Finance Acts that, not in all cases but if the owner is a British subject or comes within certain other categories which are set out in Section 24 of the Finance Act, 1920, he shall be given a proportion of the allowance. In the case I have put, one-third of the man's income is liable to United Kingdom Income Tax, and it was Intended, under Section 24 of the 192o Act, that he should have one-third of the allowance. That was done by suggesting in the Section this sort of sum. His total income is £1,200 a year. Suppose that it was all in this country, and all subject to taxation: he would pay £501. Let him pay one-third of that amount. The effect is to give him one-third of his personal allowance of £140.
A case came before the courts recently where the part of the income which was outside the United Kingdom was in the Dominions, and it was decided in the courts that, under Section 24—unintentionally, as I think is quite plain—in making the calculation as to what would have been the tax payable if all the income had been here, you would have to take into account that he had to pay 4s. in the £ Dominion Income Tax. It is clear that that was not intended, and that the House had inadvertently brought in part of the Income Tax code with regard to relief against double taxation, which is not applicable to this particular type of calculation. This in no way interferes with the provisions which exist to see that taxation is not paid twice over in respect of Dominion and United Kingdom Income Tax. It is a small, technical point, but the decision of the court would lead to great complications and great unfairness as between a British subject resident, say, in the United States and another resident in the Dominions. We thought that that ought to be put right.

§ Mr. Benson
I thank the Attorney-General for his explanation. I am not sure that it is clear yet.

§ The Attorney-General
It is very difficult to explain without a blackboard.

§ Mr. Benson
I know that it is very difficult. I am not sure that if the Attorney-General had a blackboard it would help.

§ The Attorney-General
It would. The calculation has always, until this recent case, been made on the basis which I have explained, and no one has challenged it. If a third of a man's income is here, you give him only one-third of the allowances. Only in the recent case in the Court of Appeal was it suggested that the words used resulted in a man getting more than one-third of the allowances to which he was entitled, although he had only one-third of his income here. It is the purpose of this Resolution to make the law as it has been administered ever since it was put on the Statute Book, without complaint from anybody until this case arose.

§ Mr. Benson
Is it the position that hitherto the Section has not operated?

§ The Attorney-General
In 192o the Finance Act provided that a British subject who had one-third of his income here and two-thirds abroad should get one-third of the allowances. It had been administered on that basis until the other day, when it was decided—quite rightly, of course—that the words used in the Section produced a different result in a case where part of the income outside the United Kingdom was in a Dominion and liable to Dominion Income Tax. It is said that in that case the man would get more than one-third of the allowances—a greater relief. That is certainly not what the Inland Revenue and the Chancellor intended at the time, and we think that the way the sum has been done up to now is the right way, and that this decision would produce not only complexities, but unfairness as between a person with part of his income in the Dominions and another with part of his income in the United States. The question is a little complicated.