HC Deb 22 June 1948 vol 452 cc1274-81
Lieut.-Commander Braithwaite

I beg to move, in page 55, line 41, to leave out Clause 73.

Hon. Members will recollect that when we were in Committee, this was Clause 70 and it was not reached until 5.15 a.m., which might decently be described as a late hour, and not an hour at which a very complicated matter was very easy to consider. The Solicitor-General will remember that I said at the time that we should like to give the matter more consideration between then and now. That is the purpose of this Amendment. The chief point about the Clause is that where there is a gift of life insurance policy, together with the necessary money to keep up the premiums, such a gift must be disregarded for the purposes of Estate Duty, and that operates however long a period the gift may have been made before death. The Amendment which I moved during the Committee stage sought to bring such gifts into the purview of others which are described as inter vivos by making them valid if made five years prior to death, during the life of the insured person.

The right hon. and learned Gentleman, who was good enough to reply on that occasion, briefly because the sitting had been very long and the Committee was somewhat exhausted, produced an argument which I have since submitted to legal opinion of considerable eminence, and the view has been expressed that the right hon. and learned Gentleman's opinion is untenable. He talked then about evasion of Death Duties, but I am informed that the case which he quoted was not in fact an example of evasion at all. It is generally agreed that if you give money away five years before your death, there is no reason why Estate Duty should be charged upon such a gift, and we feel that this should apply to an insurance policy just as much as to anything else. There can only be evasion if the gift is not genuine; but surely that does not arise here, because in such cases both the insurance policy and the money to keep up the premium payments upon it are given away by the person concerned.

I am entirely unable to see how any question of evasion arises in this case, any more than in other cases which come under the inter vivos arrangement. The example the right hon. and learned Gentleman gave was how Estate Duty could be evaded by a somewhat subtle arrangement between husband and wife. I suggest that that is not applicable to the argument he advanced then. In the first place, I am informed that, so far as the arrangements which the Solicitor-General described on that occasion can be understood, the insurance policy did not succeed in escaping Death Duties in any way. In the second place, it is entirely unnecessary, because a husband can always take out a policy on his wife's life, and the wife on her husband's, and there is no question of Estate Duty on either of them.

Mr. Donovan

Will the hon. and gallant Gentleman quote the authority for the last statement he has made?

Lieut.-Commander Braithwaite

The authority? My own humble opinion—nothing more.

Mr. Donovan

It is quite wrong.

Lieut.-Commander Braithwaite

I do not know whether the hon. and learned Member for East Leicester (Mr. Donovan) was present at the previous very brief Debate. I then gave notice that I would raise the matter again, and I have considered it since. If I am wrong, then the Solicitor-General, I hope, is as well informed as the hon. and learned Gentleman. It may be wrong or it may not be, but that is the view which I was submitting to the right hon. and learned Gentleman. If it is a mistaken view, of course he will tell me. It may be that the Solicitor-General has some other argument which he did not deploy on the previous occasion, but I feel that the reasons he put forward then for treating life insurance gifts differently from other gifts, do not carry the necessary conviction, and I hope that he, like myself, has reconsidered the matter and that he has come to a different conclusion from that to which he came on that occasion.

Sir H. Lucas-Tooth

This is a somewhat technical but quite important point. The policy of the law is that if a man insures his life and pays premiums on that, the policy moneys when they come to be paid, although they cannot be paid to him after his death, nevertheless are deemed to be part of his estate for Estate Duty purposes. That is the broad policy of the law; it is well settled and we do not complain of that at all. In the Barclay's Bank case which gave rise to this new Clause, it was decided that if a person, instead of paying premiums him- self, simply arranged to pay money or any sum of the capital to trustees and they paid the premiums for him, then Death Duties would be avoided. That case showed a serious loophole in the law and this Clause, as I see it, is to stop that loophole. I have no complaint about that at all, and neither has anyone else on this side of the House.

Our complaint is that the Clause goes too far. Suppose that a man insures his life, pays premiums for some time, and then assigns the policy to a son and the son then continues to pay the premiums on the insured person. The policy moneys will belong to the son, and there will be no question, at any rate if five years elapse after the assignment date. I think that is agreed and no one on either side would complain of that. Alternatively, if a man makes a gift of capital to his son, then assuming he survives for five years no Estate Duty will be payable on that gift of capital. But suppose the man does both; that is, not only assigns a policy of insurance to his son but gives him a gift of capital as well, then the effect of doing both these things will be, under this Clause as at present drafted, to attract Estate Duty to the gift of the policy money.

I do not really think that is the intention of the Government, but that is the effect of the Clause as at present drafted, for the premiums would then be paid by virtue, or in consequence, of a settlement out of property indirectly provided by the father—by the deceased person. It will be seen that the word "settlement" is defined in Subsection (4) as including any disposition, agreement or arrangement, so that if the father has already given an insurance policy on his own life to his son, it will be virtually impossible for him to make any further gift whatever to his son, for such gift will necessarily enable the son to keep down the premiums, whether that is the intention or not. I do not believe for a moment that that is the intention of the Government. It is too late at this time to suggest an appropriate Amendment to the Clause, but I think the Government should look at the matter again and that the Clause should be amended so as to provide that only where the deceased person has either retained the interest himself in the settlement or has imposed an obligation on the owner or a third party to keep down the premium should the general part of the Clause be affected. If the Government could make that Amendment, it would be agreeable to both sides of the House.

There is another small point. Subsection (3) provides that the Section shall be deemed to have effect as respects persons dying on or after 7th April. 1948. There will be cases where the policy has been assigned before that date and, indeed, there may be no further premiums to be paid on that policy at all and the owner of the policy may have either sold or mortgaged the policy money. It seems to me that it is quite unfair to bring back, by virtue of this Clause, a provision whereby the fact of a person's death after the introduction of this Bill retrospectively reduces much of which had already accrued before the Bill was published. I should have thought that the proper provision here would have been to limit the operation of the Clause to settlements made after the date of the introduction of the Bill. If that Amendment could be made, it would cover the case that the Government have in mind and avoid the unfairness which I have sought to point out.

The Solicitor-General

I think hon. Members opposite appreciate the general purpose of the Clause, and the point made is that it goes too far. It is designed, however, to prevent what is considered to be a loophole which was disclosed in the decision in the Barclay's Bank v. Attorney-General case in 1944. The hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) described the method which could be used, and it was the method that was used. There were two policies assigned by the testator to trustees. They were policies on his life and he had transferred to the trustees certain income-yielding investments out of which a premium had to be paid. The result was that it was held that in those circumstances the policy was not wholly kept up by the testator for the benefit of the donee. The further result was that the full Estate Duty did not accrue. That was the scheme evolved, and it was to prevent that scheme and others, that this Clause was devised.

Sir H. Lucas-Tooth

I am not sure whether the right hon. and learned Gentleman is being quite fair to certain people involved in that case. There was no suggestion that Barclay's Bank was involved in such a scheme.

11. p.m.

The Solicitor-General

I did not intend to use any disparaging language: I deliberately intended not to use the names of the persons involved in the case, which would reflect upon them. I will withdraw the word "scheme" and substitute the word "method," or something like that, which will not necessarily imply disparagement. There is a method by which one can avoid payment of Estate Duty, and the Clause is designed to avoid that being attempted.

The case has been cited of a father who had given his son more than five years past a death policy the premiums on which the son had paid. That would be excluded by the proviso, provided that the Commissioners of Inland Revenue were satisfied that in these circumstances there was no reciprocal arrangement. If hon. Members will look at the proviso between line 10 and line 18, they will see that where the premium is paid not from property which originates from the testator but from some outside source—in the case the hon. Member for South Hendon (Sir H. Lucas-Tooth) had in mind it was paid by the son out of the son's own resources—that would be a case which would be excluded by the proviso, subject always to the Commissioners of Inland Revenue being satisfied that there was not a, scheme—I use the word in the disparaging sense—for the purpose, that it was not a scheme which formed part of a reciprocal arrangement between the deceased and others. Therefore, I do not think the Clause goes further than the intention we had in mind.

Sir H. Lucas-Tooth

Would the right hon. and learned Gentleman deal with the case in which the father makes provision for the son out of which the son does make the payments? The father may hand over a lump sum some 20 years before his death, and may have no further interest in the matter whatever. Notwithstanding what the right hon. and learned Gentleman says, the Clause would be effective because, although there is no scheme, the son does pay the premiums out of money provided by the father. Will the right hon. and learned Gentleman also deal with the other point I raised in connection with Subsection (3)?

The Solicitor-General

If the son pays the premiums out of money supplied by the father, is it unreasonable that it should be held in that case that it falls within the Customs and Revenue Act, 1889, Section II, as capital put up by the father? I say it is not unreasonable in that case to hold that the policy is kept up by the father. I suggest that in a case where the father, via the son, pays the premium, it is not unreasonable to say that he keeps it up.

Mr. O. Poole

I think the Solicitor-General has rather missed the point. A man decides to hand over a portion of his estate to his son. In doing so he hands over a capital sum of money and also a life insurance policy. The value of that policy is simply the paid-up value at the time. Instead of cashing the policy for, say, £5,000, he hands over the policy as part of the lump sum handed over in the ordinary way of gift. We are assuming for this purpose that the man lives more than the statutory period of five years.

When the son receives that policy, there are three actions he can take: he can leave the policy to mature without paying a further premium; he can cash the policy and take the paid-up value; or, and this is the one we are concerned about, he can continue to pay the premiums. The point my hon. Friend made was that he does pay the premiums from money his father handed over to him. There is no condition that he should do so, no reciprocal arrangement—he just uses a part of the money for his own benefit in keeping up the premium. The Solicitor-General indicated that that would not fall because of the proviso. But if one looks at the words of the proviso, it would be held, and the Solicitor-General cannot argue in that case that the money is being kept by the father for the benefit of the father. The premiums are being kept up by the son out of money given by the father for any purpose the son likes.

The Solicitor-General

If, more than five years before death, the father were to hand over a policy and also some money or securities with which he parts absolutely, if he makes a present of it to his son, that is not property which in any sense belongs to the father; and, therefore, if the son pays the premiums out of that property which his father has given him absolutely, this proviso takes it out, because the premiums do not originate from anything which is the property of the father.

Mr. Poole

I am sure the right hon. and learned Gentleman means that, but it seems to us that that is specifically excluded by Subsection (4, a). The words there are very wide. The words the expression 'settlement' includes any disposition, trust, covenant, agreement of arrangement would seem to us to be far and away beyond the rather narrow interpretation the Solicitor-General puts upon the proviso.

Lieut.-Commander Braithwaite

I hope the words will be studied by the Solicitor-General before any decision is given in the courts in the matter. However, to save the time that would be occupied by passing through the Division Lobby, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.