Amendment proposed (5th December), in page 21, line 8, at the end, to insert:
(3) Subsections (2) and (3) of Section eighteen of this Act shall apply in relation to a settlement or the exercise of a power of appointment prohibited by this Section as they apply in relation to a transfer prohibited by this Act of a security "—[The Solicitor-General.]
§ Question again proposed, "That those words be there inserted."
§ Amendment agreed to.
§ Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
§ 3.49 p.m.
§ Sir Hugh Lucas-Tooth (Hendon, South)
I do not intend to keep the Committee long, because I understand that in all parts of the Committee there is a 770 desire to get on to Clause 31. I think, however, that there are some points of importance in this Clause which should be raised now, though it may be that they can be better answered at a later stage.
This Clause operates to do two distinct things. In the first place, it forbids the making of any deed of settlement or trust so as to confer any benefit on persons resident outside the scheduled territories; and, secondly, it forbids the exercise by deed, but not by will, of any power of appointment in favour of any person resident outside the scheduled territories. I doubt whether the importance of this Clause has been fully recognised. It is still true to say that a large part of the wealth of this country is held by trustees in trusts. It is not only the property of the wealthy, since there are very many small trusts, and I think the Chancellor of the Exchequer would be the last to deny the usefulness of trusts, if only in assisting him in the pursuit of his cheap money policy. Settlements are, of course, usually created by will, and the creation of a settlement by a will is not hit by this Clause, although the powers under such a settlement are hit.
771 Nevertheless, very many trusts are created by deed; as, for instance, in the ordinary case of a parent who wishes to hand over some of his property to his children. The common case is where, say, a father wishes to make a trust in favour of his son or daughter on marriage, and for that purpose to settle shares or Government stock, for the maintenance of the child and family. Normally, the trusts in such cases would be on the following lines. The income would go to the daughter and her husband—assuming the case of a daughter—for their lives That trust would not normally be affected by the provisions of this Clause, because the parties would be resident in this country After the death of the daughter and her husband, the property is normally given to the children of the marriage. There, again, they would not be affected by this Clause, because the children, not yet being born, could not be resident outside the scheduled territories at the time of the making of the settlement.
Trusts, in the event of there being no children, are very strangely affected by the Clause. Normally, the next trust, if there are no children of the marriage, is to such person or persons as the daughter by deed or will appoints Next in the event of the daughter failing to appoint, the trust funds go to the children or remoter issue of the settlor himself This Clause has a most astonishing effect on trusts of that sort. First, it would prevent a daughter from appointing a share of the funds, even by will, to any person who happened to be outside the scheduled territories at the date of the settlement. If the Solicitor-General will refer to Clause 29, (3, b), he will see that sucha person shall be deemed to have an interest in property if he has any beneficial interest therein, whether present or future, and whether vested or contingent, or falls within a limited class of persons in whose favour a discretion or power in respect of the property in exercise able.In the case of a settlement of the sort I have described, if it happened that any one of the settlor's own children happened to be residing outside the scheduled territories at the date of the making of the settlement, nothing thereafter could give that child any benefit in the trust fund It is an extraordinary and arbitrary result, and I do not think it can be avoided by any general provision which might be 772 made under Clause 31. The second startling result is that the Clause would prevent any issue of the settlor, any child OT grandchild, from taking a benefit in default of an appointment by the first life tenant. It frequently happens that the daughter or other child of the settlor to whom the money is given in the first place fails, sometimes by negligence, sometimes deliberately, to exercise her power of appointment if she has no children As I see it, if she failed, and if it happened that the settlor left four or five other children and grandchildren, one of whom happened to be a child in arms aged one year, living with its nurse in Switzerland, for instance, at the date of the settlement, these words would operate to deprive that child from taking any benefit under the settlement. I think that is quite an anomalous result. I do not think it is intended by the Government, and I not think it can be avoided in any general way The only way out would be that when any settlement is to be made in future, it should be specifically submitted to the Treasury, or other appropriate authority, for vetting. I suspect that if we were to get a forecast of the increased number of civil servants who would be involved in that case, it would shock the Committee.
There are similar anomalies which will arise in respect of the operation of the Clause with regard to its provisions about powers of appointment. Take, for instance, the case of a testator who leaves his property to his wife for her life and then to such of his issue as she may, by deed or will appoint—a very common form When he dies, his wife takes the life interest, and she can either part with her life interest by appointing to her children whenever she likes, or she can appoint between them by her will. If it happens that one of the children of the testator is resident outside the scheduled territories—he may be living in America—it will be impossible for the testator's wife to make an appointment to him or her as long as she is alive. She is forbidden under the second provision of this Clause from making an appointment by deed, and however hard up that child may be, whatever may be the desirability of providing him or her with funds in order to start off in business, the wife cannot by deed make an appointment, because that is an offence under this Clause. I submit that these are real anomalies which do not 773 appear to have been considered, and I ask that we should receive an explanation as to how they may be avoided either at this stage of the Bill, or, if these matters have not been considered, at a later stage.
§ Mr. John Foster (Northwich)
I wish to ask the Solicitor-General or the Chancellor of the Exchequer whether this Clause could be explained against the background of what is allowed to be transferred administratively at the moment. I understand that in America, for instance, money left by will is allowed to be transferred by administrative concession I think the policy behind this Clause is not very deal unless the Chancellor explains the ad ministrative concessions about the transfer of money by will. The matter will probably not come under Clause 31 and it will not come under Clause 37. Another point I should like to raise is that this Clause depends largely on the policy to be pursued by the Treasury on the question of who is resident and who is non-resident That arises on Clause 41, but it is of great importance in relation to a number of the Clauses. When we come to it, perhaps we could have an explanation, or it may be that the explanation lies here in this Clause in relation to the question raised by my hon Friend the Member for South Hendon (Sir H Lucas-Tooth).
I would also like to ask whether the Solicitor-General can briefly tell us what kind of abuses the prohibition against settlement is designed to meet. My right hon. Friend the Member for West Bristol (Mr. Stanley), when speaking on the previous Clause, asked whether the point was not covered sufficiently by the prohibition against payments, and whether the object of the Clause was to prevent retaliatory legislation in other countries. I gather that, in respect of wills, there was a threat of retaliatory legislation by other countries. They said "If people of this country are not to inherit under English wills we shall not allow English people to inherit under ours." Is the object of this Clause to prevent settlements at the outset to people, say, in Ruritania; because, if that is so, no settlement may be allowed there in favour of British people I do not see why the prohibition on payments transferred should not be sufficient without making a prohibition on the settlement, which may, as my hon Friend pointed out, result in considerable anomalies.
The Solicitor-Genera) (Sir Frank Soskice)
The hon Member for Northwich (Mr. J. Foster) asked me to explain the view that will be taken of the word "resident" The hon. Gentleman will know that in the Finance Acts, the expression occurs often, and the meaning here is understood to be the meaning well-known in the banking and stock-broking world. In the preparation of the Bill pains were at first taken to try to define the word "resident," but the attempt was abandoned, because it is difficult to put into words what is ordinarily well understood by the banking and stockbroking world as the meaning of the word "resident" In regard to any particular individual, it is reasonably easy to say whether he is resident or not, but doubts may arise in some cases and that is why power is taken under Clause 41 (2). to make a declaration With regard to residence it is very difficult, a priori, to lay down a general definition An attempt was made and it failed, and we thought it better to leave it to the ordinary understanding of that term by the City of London and by solicitors and other persons concerned with that kind of property.
With regard to the question of whether this prohibition is intended to prevent retaliatory legislation, the prime object is to prevent the export of assets. Money is already controlled, but the control would be incomplete if one could, by settlements other than wills, transfer money's worth in exactly the same way as one could—apart from the control—transfer money. Obviously, if we want a control which enables us to have a say when capital sums are transferred in and out of the country, we should complete that by enabling ourselves to control what is the equivalent of money—shares and any other type of property which are ordinarily transferred by settlement In Subsection (1) of this Clause the word used is "property"
§ Mr. J. Foster
I wonder whether [...] hon. and learned Gentleman realises [...] gifts are not prohibited; and is it a fact that this applies only to property and not to gifts?
The answer to that is that settlements are ordinarily instruments which are used to take assets such as shares and other types of property, out of the country. Normally, that is not 775 done by cut-and-out gifts but under the terms of some sort of settlement. That is why control is limited to settlements.
§ Mr. Oliver Stanley (Bristol, West)
Is the hon. and learned Gentleman suggesting that if I choose to give an American shares, there are no provisions in any part of this Bill to prevent the export of that type of property?
I did not say that there were no provisions in any other parts of the Bill. It is this particular Clause which deals with settlements. That is why there is the definition of "settlement" in Subsection 3 (a) of this Clause, and the definition is wide. It includes everything which one wants to bring under control, such as:any disposition, covenant, agreement or arrangement whereby the property becomes subject to a trust, or (in the case of a resettlement) to a different trust.It, as I say, is a wide definition and the term "property" includes every settlement.
With regard to the question on the subject of wills, again, this provision was not designed to prevent retaliatory legislation by other countries. But it was thought reasonable that a person should be entitled to dispose of his assets by will and that is why wills are exempt. It was thought to be going too far to prevent the disposal, in the settlement, of assets by will. The prime object is to create a concession for persons anxious to make provision by will, with regard to their assets. In reply to the points made by the hon. Member for South Hendon (Sir H. Lucas-Tooth), I think the answer to his arguments is largely to be found in the actual phrasing used in the Bill. I am not prepared to say that if we view every possible settlement we may not find the Clause bringing about anomalous results. It is unavoidable, but there is the saving provision that the Treasury can give permission to create a particular settlement.
§ Sir H. Lucas-Tooth
Can the concession be made retrospective? When a settlement is made no one knows who will ultimately become entitled under it. People will not seek to make provision in advance, when the ultimate trust can only become known in time. Will power be given to a person to go to the Treasury 776 in 20 or 30 years time and say, "This is what happens under the settlement, and this is an anomaly which was never contemplated?" Will permission be given to validate that settlement retrospectively?
I do not think such permission can be given retrospectively in relation to the making of a settlement. Nevertheless the Clause is only to invalidate a settlement quo ad a particular person outside the scheduled territories getting an interest It remains perfectly valid except for that. Subsection (2) states that a settlement shall not be invalid by reason of being prohibitedexcept so far as it purports to confer any interest on any person who, at the time of the settlement or the exercise of the power, is resident outside the scheduled areas.It is only invalidated to a certain extent—the extent to which it infringes against the prohibition. I agree that in respect of any person who, at the date when the settlement is made, is resident outside the scheduled areas the settlement, in so far as it creates an interest for that person, is invalidated. That may lead in particular cases to anomalous results, but as the hon. Gentleman himself saw, it is almost impossible to create a Clause which will avoid such anomalous results.
It is not shocking. In a particular case, if permission is asked for at the time of the desire to create a settlement, exception may be made, and, as the hon. Gentleman has pointed out, the person is not then resident outside the jurisdiction at the time the settlement is made. That is the obvious answer to the interjection which has just been made. But where it can be said with regard to a particular, beneficiary that at the time when the settlement is made, he is outside the scheduled territories and the settlement purports to create an interest in respect of that beneficiary, it is invalid. In the vast majority of cases this should work reasonably well. In cases where there is difficulty, obviously a dispensation could be made, but one must have everything within the net of control and obviously it is impossible to provide for every case. All that can be done is to draft a general Clause, containing the exception in the case of a settlement under a will and powers of appointment by will. This has been done, 777 and it is hoped that it will be administered as far as possible so as not to cause hard ship.
§ Mr. J. Foster
May I ask the Solicitor-General two questions? He seemed to indicate that the exception with regard to wills would allow the actual transfer but, if I may say so with respect, more than that is needed. Either now or later the Government should reaffirm—if that is their intention—the principle that the transfer of money and property left by will will be allowed. This Clause as it stands, does not allow such transfer. The second point is that I believe that the invalidation of that part of a settlement which applies to a person outside the scheduled territories is new. Although I have not checked this, I believe that under the present regulation it is only an offence and does not make the settlement invalid. Perhaps the Solicitor-General could deal with this? However, the first point is the more important. Is it intended to continue the principle that money left by will to a beneficiary outside the scheduled territories, may actually be transferred?
As I have already said where the settlement is made by will the question does not arise—
§ Mr. J. Foster indicated dissent.
If the hon. Gentleman will look at the Clause more closely he will see that it says:… no person … shall settle any property, otherwise than by will. …
§ Mr. J. Foster
But although it allows a settlement by will, it does not allow the transfer. That is the point I am making Is it the intention to allow the transfer of money and property left validly under this provision? At the moment it is permitted.
At the moment it is, and such dispensations as are necessary to give effect to that principle will be made
§ Mr. Leslie Hale (Oldham)
The hon. Gentleman the Member for South Hendon (Sir H Lucas-Tooth) raised a very pertinent point with reference to the exercise of powers of settlement or appointment given by testamentary disposition. It there could be added to that—and this would in no way detract from the Measure 778 —words to include under testamentary disposition an exercise of power of settlement given by will, it would meet the point raised by the hon. Member It would be completely within the terms of the Measure as explained by the Solicitor-General and would relieve the solicitor drafting the will from the responsibility for a disposition which might be exercised in the future, and come within the terms of this Clause
We have listened to the points which have been submitted, and to the last argument adduced by my hon. Friend the Member for Oldham (Mr. Hale), and we will certainly consider the position and look at the definition again to see whether we can improve it in order to assist in dealing with the point? made.
§ 4.15 p.m.
§ Mr. Henry Strauss (Combined English Universities)
I am very glad that the hon. and learned Gentleman has promised to give further consideration to the matters raised, and I ask him to bear in mind at the same time the point which I raised about the exercise of the power of appointment. He has informed the Committee that the object he has in mind is to prevent the transfer of property outside the scheduled territories. As he will see from the example I gave when this matter was last before the Committee, this Hill, as it stands, prohibits the exercise of the power of appointment, even when the property is already outside the scheduled territories. My example was that of an American trust and the power of appointment of an American resident here in Great Britain and to be exercised as between two American citizens themselves resident in the United States. The hon. and learned Gentleman was good enough to say that in such a case the permission of the Treasury would at once be given, and I am sure that that is so, but I ask him to consider whether he wishes that to be done either by an individual licence on each occasion or a general licence under the Clause to which we shall come later, or whether it would not be much better to have some sort of Amendment in the present Clause permitting the exercise of a power of appointment when there is no transfer of any kind from within the scheduled territories to a place outside.
The hon. and learned Gentleman must remember Clause 779 31. One has to draw a line between what is done by exemption order, and what is actually introduced in the context. What he has said would, I think, be more appropriate to an exemption order under Clause 31, but I ask the Committee to say that it would be unwise to start embodying this sort of exception in the actual terms of the Bill.
§ Question put, and agreed to
§ Clause, as amended, ordered to stand part of the Bill.