HC Deb 19 June 1950 vol 476 cc961-7

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. Manningham-Buller

I want to ask the Solicitor-General one or two questions about this Clause. First of all, will he give an assurance that the Clause as it now stands, or rather the position as it is now set out in Part II of the Fourth Schedule, does not affect the general provisions relating to gifts inter vivos made more than five years before the death of the donor? The provisions of the Clause are a little complicated, and I should like to receive a clear assurance from the right hon. and learned Gentleman to the effect which I have indicated.

The second point which I draw to his attention is this. Lines 31 and 32 on page 29 of the Bill refer to disposition or determination. What exactly is meant by a determination? Views on that question have differed somewhat in the past, and the right hon. and learned Gentleman will find that in 1947 the view then expressed in Green's "Death Duties" of that year was that, where the life tenant has acquired the reversion or an annuitant has acquired a property subject to his annuity, and his life interest merges in the absolute interest, that merger constitutes a determination. That was the opinion expressed in Green's "Death Duties," second edition, but when one goes to the 1949 edition, one finds precisely the opposite view expressed. It is there stated that, where a life tenant acquires the reversion, or an annuitant acquires a property charged with an annuity, the official view is that the merger does not constitute a determination within the meaning of Section 43 of the Finance Act, 1940. The property in question is therefore liable to Estate Duty on the death of the former life tenant only as part of his estate or under some fresh disposition.

Is that the view of the right hon. and learned Gentleman in consequence of the Amendments made by this Clause? Does this Clause, in fact, go further than merely deal with the avoidance devices revealed in the St. Aubyn case? The words which we find in heavy black type in Part II of the Fourth Schedule: no disposition of any interest expectant upon or subject to that interest, would rather appear to my mind to suggest that, in fact, this Clause does go a little way beyond the mere avoidance devices.

I have put two points to the right hon. and learned Gentleman. The first is the requirement of a clear assurance that the Amendments do not in any way limit or affect the existing rule as to gifts inter vivos, and the second is a request to him to say whether or not this Clause, as amended, would bring the merger of a life tenant's interest with that of the reversion within its scope as constituting a determination.

8.15 p.m.

The Solicitor-General

I think I can give the hon. and learned Gentleman both the assurances for which he asked. The new Schedule which is introduced by subsection (1) of Clause 34 does simply stop up the loopholes in Section 43 of the Finance Act, 1940, disclosed by the first of the two St. Aubyn cases. The hon. and learned Gentleman knows that there were two St. Aubyn cases, and this deals with the loopholes disclosed in the first. It does not in any way affect the general provisions governing gifts inter vivos made within five years before the death of the donor. All that the Clause does, is to dispose of a life interest and join together a reservation of a benefit in the case in which, for the purpose of avoiding Estate Duty, they have been artificially put asunder or separated; it simply stops up a possible evasion that can be effected by the separation of the two.

The hon. and learned Gentleman asks in what way we use the word "determination" in Section 43 of the Finance Act, 1940, and points out that there are two different interpretations in Green's "Death Duties." The second of these is to the effect that where a life tenant and the remainder man join their interest together, there is no determination, but a merger. I can tell the hon. and learned Gentleman that that is the view which the Revenue authorities hold quite definitely after very careful consideration by counsel who specialise in these matters, and that their view is that, where the life tenant surrenders his life interest to the remainder man, under Section 43 there is a merger of the life interest, which is enlarged into the remainder man's interest. There is no determination, but simply a merger. That is the case where the life tenant surrenders his interest to the remainder man.

I can say generally that subsection (1) of the Clause does no more than stop up the gap left by the first St. Aubyn Case, and substitutes a statutory definition by reference to Section 59 of the Finance Act, 1940, for the rather indeterminate words which appear in various cases on this subject. That is all it is, and I think these answers which I have given amount to a complete affirmation of the two propositions which the hon. and learned Gentleman made.

Mr. Joynson-Hicks

I think we must congratulate the Solicitor-General on his audacity in being so certain as to his interpretation being correct. I would not for one moment dream of suggesting to the Committee that I understand it at all myself. It is miles past my comprehension, but for the right hon. and learned Gentleman to be able to assure the Committee that he understands the meaning of all that sentence of 12 lines which is contained in subsection (2) of the Clause, which itself is then explained by subsection (3), is a bold action on his part. In so far as we may accept that position—and I certainly do—it is eminently satisfactory.

I do not think any of us would object to applying it to the St. Aubyn loophole, but can the Solicitor-General also assure us that it does not in fact touch the question of resettlement? It may be that that was implied in what he said, but it seems to me that there may be a considerable amount of doubt in the minds of members of the legal profession whether or not the Clause does in fact cover resettlement. May we have an assurance from the right hon. and learned Gentleman that this ambiguity will have no effect?

Sir William Darling (Edinburgh South)

You are particularly fortunate, Major Milner, in being at one with the last three speakers in that you have some qualifications in the profession of the law. I represent the large body which is less well informed concerning the operation of Estate Duty under Clause 34. It has already been remarked in this Debate that these Clauses are, in the main, unintelligible to lawyers, and completely unintelligible to other hon. Members. Clause 34 seems to bear out that somewhat challengeable assertion.

We have heard the exchange of compliments between my hon. and learned Friend who spoke for the Opposition, the right hon. and learned Solicitor-General and the hon. Member for Chichester (Mr. Joynson-Hicks), but what I want to know are really much more relevant matters, because they concern the common people who have some interest and curiosity as to how they stand regarding taxation. I want to know whether under Clause 34 more or less Estate Duty will be paid. If more, how much more; if less, how much less? These are very relevant questions, not to lawyers, but to persons who have estates. I understand from the successful welfare State organisations that there is an increasing number of persons who have estates, though they are not yet in the scope of what is called Estate Duty.

I want to know whether Clause 34 is going to encourage the accumulation of an estate in the future—not an undesirable thing from the point of view of the common weal—or whether it is going to discourage it. Is it going to stimulate savings or is it going to be a "dis-stimulation" of savings? These are very important questions in which, I understand, the Chancellor has taken the deepest and most profound concern.

I am discouraged by the Solicitor-General when he uses words which are inelegant in regard to this Clause. He talks about "stopping up loopholes." It may be a legalistic phrase, but it is inelegant. One closes loopholes; one does not stop them up. One stops up rat holes. It shows that sometimes right hon. and learned Gentlemen lapse into inelegancies of expression which call for criticism from persons less qualified and perhaps less justified to make such observations. I am quite sure that the Chancellor and his colleagues would want the common people, for whom they have a great regard—as was demonstrated last Saturday when the right hon. and learned Gentleman marched with 50,000 of them, after a very hard week—to understand what Clause 34 means to them. Does it encourage them to save, or does it take more from them. What justification is there in a people's Budget for Clause 34? When the right hon. and learned Gentleman answers the legal questions, we ought also to receive that answer on behalf of the common man.

The Solicitor-General

With regard to the question of resettlement, it depends very much on the circumstances in which a resettlement is executed. Ordinarily speaking, the Clause draws no distinction between a settlement and a resettlement. Both are settlements, and the question is, what is their effect in relation to the matter in the particular case? The question has been put before. We do not think there is any general answer which can be given; it depends upon the particular type of resettlement.

I both sympathise with and accept the rebuke from the hon. Member for Edinburgh, South (Sir W. Darling). He desired me to say what the Clause does. It does not increase anybody's liability at all. It does what I may refer to as the first St. Aubyn case showed to be necessary. If a life interest was disposed of in certain circumstances, the matter could be got round by having not one but two dispositions. Clause 34, in effect, says that a person shall. no longer be able to use the device of having two dispositions instead of one That is all it does. I hesitate to be rebuked again; I said "stop up a gap," and it was the hon. Member for Chichester (Mr. Joynson-Hicks) who used the word "loophole."

Mr. Joynson-Hicks

Following the example that had been set.

The Solicitor-General

Whatever the appropriate word may be, I am quite sure the hon. Gentleman knows what I mean. Subsection (2) does a slightly different thing. If one parts with a life interest and reserves a benefit for oneself, the property in which the life interest subsists passes on the death, and Estate Duty is attracted. It has been held in various cases decided on the subject that that does not apply unless—and I now use words used in those cases—the reservation is referable to the parting with the life interest. That is the rather loose wording which was of necessity used in those cases. It was a rather indefinite conception which they were endeavouring to reproduce.

All we are trying to do in subsection (2) is to try to substitute for that indefinite language a statutory definition. We seek to introduce some clarity into the question concerning when a gift is referable to the parting with a life interest. In order to do that, we import into this particular Clause a definition of associated operations which appear in Section 59 of the Finance Act, 1940. We say that when the reservation of the gift is affected by a transaction which is associated, in terms of the statutory definition with the parting with the life interest, then the property in which the life interest consists passes on the death, and Estate Duty is payable. I am afraid that has not made it much clearer, but that is what the Clause does. It does not impose any extra charge on anybody.

Sir W. Darling

The right hon. and learned Gentleman has done his best to make it intelligible to the common man, and the fault is not his if the common man does not understand.

Mr. Selwyn Lloyd

I take it that according to subsection (4) the Clause is to some extent retrospective.

The Solicitor-General

The whole of the tax code which appears in Section 43 onwards of the Finance Act, 1940, is in similar form. It relates not to a death after the Act, but to a parting with the life interest before the Act. We are trying to make a slight Amendment in the operation of that code.

Clause ordered to stand part of the Bill.