HC Deb 21 June 1948 vol 452 cc1005-9

(1) Where, either before or after an assessment to contribution is made, but in any case before such an assessment has become final, application is made to the Special Commissioners for relief under this section, and the Special Commissioners are satisfied—

  1. (a) that in consequence of a death occurring before the end of the year 1947–48 death duties became payable in respect of any assets, and
  2. (b) that investment income affecting, whether directly or indirectly, the amount of any contribution arose from the assets, and
  3. (c) that the amount of that income exceeded what it would have been if all death duties payable in consequence of the death had been paid immediately on the occurrence of the death or other event whereby the duties became payable,
the amount of the said income shall in ascertaining aggregate investment income for the purposes of this Part of this Act be treated as reduced by such amount as the Special Commissioners may determine to be appropriate to offset the excess.

(2) In this section the expression "death duties," means estate duty, succession duty or legacy duty.—[The Solicitor-General.]

Brought up, and read the First time

The Solicitor-General

I beg to move, "That the Clause be read a Second time."

This Clause is designed to give relief from liability to Contribution in the following circumstances. Let us imagine a case where, before the end of the year 1947–48, a death took place and, in consequence, Death Duties—Estate Duty—became payable in respect of the passing on of the estate after the death. It may be for one reason or another that the Death Duties are not paid for a considerable time after the death has taken place. For example, on that part of the estate which consists of real estate, Death Duties will not be paid until a year after death. In the case of duty in regard to personal estate, probate will not have been granted and the result will be that the Estate Duty may not be paid for a considerable time after the death takes place. But the trustees will earmark a certain of the corpus of the estate in order that in due course when the amount of the Estate Duty is ascertained and becomes payable they can release that portion of the estate they have earmarked and, having released it, can pay the Estate Duty out of that part. In the meantime the part of the estate they have earmarked will be producing income and that income, but for the Clause we now seek to introduce, would attract liability to Contribution as it would be investment income.

We do not think it fair that there should be a liability to Contribution in respect of income which arises from a part of the estate which has been earmarked as already belonging to the Government in a sense in that in due course it will have to be released and paid over. What we seek to do in this Clause is to see that the amount of Contribution which is payable shall be reduced by the amount attributable to the income arising from that part of the estate so earmarked. In other words, we say that the trustees have set aside a part of the estate as ultimately to be paid to the Government and the income that arises until that part is paid over shall not attract Contribution. The conditions which the Clause envisages are that there is a death before the end of the year 1947–48 resulting in Death Duties being payable, and that investment income arises from the estate which is left and which is more than it would be if Death Duties were paid at the moment when the death takes place. We give the Special Commissioners power to reduce the Contribution by writing off that part which is attributable to that part of the estate.

Mr. Turton (Thirsk and Malton)

Is not this Clause rather narrow in its effect? It is restricted in paragraph (a) to the case of a death which occurs before the end of the financial year 1947–48. I should have thought that cases under Subsection (7) of Clause 47 where the individual dies before the final assessment is made, should be allowable before the same sort of relief is given by this Clause. I cannot see how the right hon. and learned Gentleman can distinguish between the cases of the man who dies before 5th April, and the man who dies between 6th April and the date of the final assessment. It depends on the personal representatives, who have to collect the income and to pay Death Duties out of the capital and income. In that case I should think it would have been fair to allow them to have deducted from the income that notional part of the income represented by payment of Death Duties as in the case of the new Clause. I am sorry the right hon. and learned Gentleman has restricted it so unduly in paragraph (a) and I hope he will reconsider the matter and perhaps enlarge the provisions, either here or in another place.

6.15 p.m.

Mr. Pitman

While welcoming this new Clause, we regret that it is so limited. To a certain extent the Solicitor-General has misled the House in assuming that all trusts must pay out the whole of their income. In most cases it is a discretionary figure which is paid out and may bear no relation whatever to the income of the year in question. If he is prepared to meet an anomaly in the special type of case covered by this new Clause, why will the right hon. Gentleman not meet it in other related cases? He must recognise that in the case he is citing, the Inland Revenue will collect interest from the estate between the date of death and the date of probate and payment. The income to which these people are entitled is the difference between the return on the earmarked investments and the interest charged by the Inland Revenue on the arrears of Death Duties that have not been paid.

Moreover this new Clause clearly is an admission by the Solicitor-General of a principle which ought to be applied widely, if at all. The correct method of applying that principle is to allow the trustees, where they have made a distribution in excess of what is the strict income for the year in question, to be chargeable only on that income and not on the higher income they may have distributed by reason of arrears in the past, or in anticipation of the future. The clear intention of the Bill is that the Contribution should be levied on the capital and not on the income for that year. Clearly no question of payment of income which has accumulated in the past ought to create the presumption that there is additional capital, because there is no such additional capital. It really represents income of a previous year, and not income of the greater amount of capital which is wrongly supposed to exist by reason of the larger payment.

The Solicitor-General

The hon. Member for Thirsk and Malton (Mr. Turton) suggested that we should move the date of death so as to include a death occuring after 1947–48. That would not have any effect because it is only the income of 1947–48 which attracts Contribution. All we can deal with in this Clause is income which arises during that year from the earmarked part of the estate. Ex hypothesi we must assume that death has taken place before the end of that year, or there will be no income from the earmarked portion of the estate which attracts Contribution. In reply to the hon. Member for Bath (Mr. Pitman), there are ample provisions in Clause 60 for writing back, as it were, income paid in 1947–48 which is properly attributable to an earlier year—for example, accumulated arrears on preference dividends and so on. We cannot go further than we have done in Clause 60 to deal with the kind of thing which the hon. Member has in mind.

Clause read a Second time, and added to the Bill.