The proviso to section four of the Finance Act, 1894 (which exempts from aggregation property in which the deceased never had an interest) shall be amended by the addition of the words, at the end:
Where the deceased has provided a life annuity for his widow, whether terminable or not on the event of her remarriage, or an annuity for the benefit of any person dependent on him for the period of dependency after his death, by virtue of the arrangements of a retirement benefits scheme to which he has contributed, the annuity shall be deemed to be property passing on the death of the deceased in which he never had an interest notwithstanding that the annuity so provided may be payable to the deceased during his life after the date of his retirement. For the purpose of this section a retirement benefit scheme shall have the same meaning as it has for the purpose of sections nineteen to twenty-three of the Finance Act, 1947."—[Mr. Maudling.]
§ Brought up, and read the First time.1574
§ This Clause, again, relates to only a fairly small point, but I hope that on this occasion I shall find the Solicitor-General a little more in harmony with the point of view I am trying to put forward, on the matter of principle, at any rate, and that this time, if he makes some sort of concession, he will be able to come the whole way with me.
§ The intention of the Clause is to deal with what appears to be an anomaly that has arisen in the levying of Estate Duty upon dependants' pensions. In certain circumstances, when a man dies and leaves an annuity to his wife, the value of that annuity is aggregated with his estate for Death Duty purposes; in other circumstances, it is not aggregated. In one case it pays Estate Duty, and in another case it does not. It is entirely a matter of accident whether the duty is payable or not.
§ The distinction, as I understand it, is this Suppose that a man joins a pension fund 1575 and wants to provide a pension of £200 a year for himself on retirement and £100 a year for his widow after his death. He can do it in one of two ways, either by providing himself with a pension, with a different and separate pension to follow to his wife, or he can provide himself with a pension which subsequently is transferred to his wife, perhaps at the lower rate.
§ The Committee will see that the distinction between those two methods, although valid in law, is meaningless in practice. But there is a very great difference, from the point of view of Death Duty, in which method is adopted. If the second method is adopted—if the man provides for himself a pension and that same pension subsequently is transferred to his wife—then the capital value of the wife's pension at the time of his death is aggregated with his estate. It therefore has to pay Estate Duty and also, if the estate is large enough, a higher rate of Estate Duty falls upon the rest of the man's estate.
§ If on the other hand, instead of arranging one pension for himself to be transferred subsequently to his wife, he had arranged for two separate pensions—first, one for himself, and then a contingent and separate pension, in which he never had any interest, for his wife—then that second pension would not be aggregated, and the Estate Duty which became payable would be very much less. The effect of this Clause would be that in neither case would the widow's pension be liable to be aggregated with the deceased's estate for the purposes of Estate Duty. But it is confined to pensions and annuities arising under a regular retirement benefit scheme.
§ The purpose of confining the Clause to pensions arising under a recognised scheme is because that is a branch of retirement provision over which the Income Tax authorities already have considerable control. The Inland Revenue exercise a large amount of control over retirement pension funds and retirement benefit schemes, and are therefore able to prevent any abuses. Because it is confined to schemes of that kind, and because no Estate Duty is payable on estates of less than £2,000, it seems to me that the sum involved in granting the concession asked for in this new Clause cannot be very large.1576
§ My argument is that the law has now reached a position where a man may make a provision for himself on retirement and subsequently for his wife or dependants in two different ways, which in practice are the same but in law are distinct, and it is entirely dependent on the accident of which method he chooses or which method is adopted by the pension fund of which he is a member as to the amount of Estate Duty likely to be levied on the widow's pension when he dies. In this new Clause I suggest that in neither case in future should the value of the widow's pension be aggregated for Estate Duty purposes. That would clear up an anomaly which exists—I understand that quite a number of examples are arising—and would do so with no substantial cost to the Exchequer.
§ The Solicitor-General
I agree with the hon. Member for Barnet (Mr. Maudling) that there is an apparent anomaly in this matter, that if one provides for two pensions one does not have to pay Estate Duty whereas if one provides for a pension payable to oneself, and, after one's death, to one's wife, it is aggregated. If the Clause were accepted as it stood, that is to say, if the pension, when it was payable to the husband and was not aggregated because of the £2,000 limit, there would be great scope for tax evasion. That is perfectly obvious.
Therefore, if we accepted any Clause of this kind in order to remove the anomaly it could not be in its present form, and there would have to be safeguards against the evasion which it would make possible. It is obvious to the Committee that with the £2,000 exemption, it would be quite easy, in various ways which it is not probably in the public interest to discuss in too much detail, to avoid having to pay Estate Duty. There is the point which the hon. Member has made that one does broadly the same thing by arranging for two pensions instead of one.
Even if the proposal in the Clause were accompanied by some anti-tax provision, I think that it is premature. As the Committee know, there is to be appointed a committee under the chairmanship of Mr. Millard Tucker, which is to investigate from the Income Tax point of view the question of the law with regard to pensions. The position of those who 1577 enjoy pensions under pension schemes has to be considered, but it cannot be considered in isolation. Those who are self-employed, etc., and who cannot come within the pension schemes, must obviously be taken into account in any consideration of that sort. Although that Committee is to deal with the matter from the Income Tax point of view, its findings will no doubt have implications and repercussions upon the Estate Duty aspect.
Therefore, although I quite recognise that there is somewhat of an anomaly, that there is a problem which sooner or later will require to be dealt with, I propose to ask the Committee not to accept this Clause on the ground that it is premature and that it cannot be accepted as it stands for the reason I have given, namely, that it would be very easy to avoid tax if it were accepted. In any case, if one did try to include some kind of anti-evasion measure, it would be premature to accept the proposal before the Millard Tucker Committee has reported, so that the full implications, not only on Income Tax but also in regard to Estate Duty, can be considered.
§ Mr. Manningham-Buller
The Solicitor-General has made an interesting proposal. I am not quite clear from what he said whether this problem falls inside or outside the terms of reference of the Millard Tucker Committee. I rather gathered from what he said that as this matter related to liability to Estate Duty it did not really come within their terms of reference. On the other hand, there may be some doubt as to the precise sphere which those terms of reference cover. Do I understand that the right hon. and learned Gentleman is to write to the Committee and ask them to give special consideration to this anomaly? If that is done I feel sure that the Millard Tucker Committee would do their best to respond to the invitation. I feel sure also that if that is done it will go a long way towards satisfying my hon. Friend the Member for Barnet (Mr. Maudling).
I should also like to know whether the Millard Tucker Committee have begun their task. I suppose it is quite impossible to foretell when we shall see the fruits of their labours and such answer as they may give to this problem which 1578 is now before us. The effect of the right hon. and learned Gentleman's answer depends to a large degree upon the answer to my question: can the Millard Tucker Committee give consideration to this question? If they can I think we should welcome their consideration of it and their views upon it.
But it really is not much good asking this Committee to pass from this question, to leave it open for what may be a considerable period, and then find that the Millard Tucker Committee have not considered it because they took the view that it was outside their terms of reference. To ask us to pass from consideration of this question with that possible result would not be satisfactory. I hope that the Solicitor-General will make it clear whether or not the Millard Tucker Committee can, or will be asked to, give special consideration to this anomaly.
§ Mr. Ellis Smith
There is some interest outside in the workings of the Millard Tucker Committee, and it would be helpful if we could be given some idea when their Report is expected.
§ The Solicitor-General
The Millard Tucker Committee—that is to say the new Committee which is to concern itself with pensions and, in particular, with pensions provisions—has not yet begun its work and of course, it is impossible to say when its Report will be to hand. I thought I made myself clear. I do not say that this matter of Estate Duty in its impact upon pensions is within the scope of terms of reference of that Committee. The Committee will deal with the matter from the Income Tax point of view. I was trying to say that when its recommendations with regard to the Income Tax aspect of this problem of pensions are to hand no doubt those recommendations will have their reflection upon the Estate Duty position. That is why I suggested that it was rather premature to accept a Clause upon this matter before it had been investigated by that Committee from the Income Tax point of view.
Apart from that, a fatal objection to this Clause, as I indicated, is that it does not contain any tax evasion provision. If the Clause were accepted in this form, it would be possible to evade Estate Duty on a fairly large scale.
§ 8.30 p.m.
§ Mr. Manningham-Buller
The Solicitor-General said that we should have the advantage of the views of the Millard Tucker Committee on the Income Tax aspects and then we could make our reflections upon the Estate Duty aspects. Would it not be of great value to have the reflections of the Millard Tucker Committee on the Estate Duty aspects as well as on Income Tax? Could not they be asked to give consideration to that in relation to pensions? That would appear to be a very small increase in the field they would have to cover and, as the two are related to some extent, it would be much better for them to cover the whole of the field rather than just one part, leaving another part uncovered. That is why I asked the Solicitor-General a question to which he has not yet replied: Will he ask the Millard Tucker Committee to give consideration to this question concerning Estate Duty?
§ The Solicitor-General
The proposal is that it should deal with the Income Tax aspect, and that is a very large question in itself. To say that it would simply mean slightly adding to the burden of the Committee if they were asked to deal with Estate Duty aspect is incorrect. It would very largely increase the work of the Committee. If they are to deal with the Income Tax aspect, it would be a pity to start legislating on this matter, even though it is not strictly within their terms of reference, before the findings of that Committee are to hand. This matter depends upon the Act of 1894 which has been a workable provision for the last 56 years.
§ Mr. Maudling
I am a little disappointed that the Solicitor-General cannot accept this new Clause. It will be a long time before the Millard Tucker Committee produces their recommendations and, meantime, examples of this anomaly arise from time to time. I gather that the Solicitor-General agrees that there is an anomaly here, but I see the point about the possibility of evasion, certainly as the Clause is drafted. In those circumstances, I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.