New Clause.—(AMENDMENT OF FINANCE ACT. 1946.) (Hansard, 18 June 1951)

Major Hicks-Beach (Cheltenham)
I beg to move, "That the Clause be read a Second time."
This Clause seeks to do one very simple thing—to amend Section 46 of the Finance Act, 1946, to ensure that that Section carries out what I believe was the wish of Parliament at that time. That Section did a very admirable thing, and it had the full support of both sides of the House. It gave full exemption from Duty to all estates of under £2,000, but, under the present law of aggregation, which has been fully discussed on the previous new Clause, and also owing to the present position of the law in regard to the death of the surviving spouse under a settlement, that is not, in fact, what happens.
I do not propose to deal again with the aggregation point, which has been fully dealt with by the Committee, but I should like to explain what is the position on the death of a surviving spouse who has an interest in a settlement, whether created by a will or by actual settlement deeds. Where a man or woman settles property on his or her death on the wife or husband, as the case may be, for life and then to some other person, the duty is payable only once, on the death of the husband or wife.
I want to quote some examples to show how these two parts of the law work out in practice in one particular case, as far as Section 46 of the 1946 Act is concerned. This is a case which has actually arisen in practice, and I think the Attorney-General will be fully aware of the facts. The position was that Mrs. A. died, leaving £1,400. One would assume that her estate would be exempt from duty. She left it to her second husband for life, and then to her daughter by her first marriage. Duty was not payable on 58 the death of Mrs. A., because the estate was under £2,000.
On the death of her second husband, it was found that he had estate worth £9,000, and this man was the stepfather of the daughter who was to receive her mother's £1,400. As Section 46 of the 1946 Act operates, the two sums have to be aggregated, so that this unfortunate lady, who was expecting to receive the £1,400, which had already been exempted on her mother's death, became liable for some £52 in Estate Duty. 4.45 p.m.
The curious thing is that if Mrs. A. had died worth £2,001 she would have been liable to only £1 in duty. In fact, the estate could have claimed the marginal relief and the liability for duty would have been only £1. In this particular case, this girl has been penalised because her mother left too little; that is what it would amount to. It is a curious thing, as I think the Attorney-General would agree, and a curious philosophy for any Government which penalises people if they leave too little money.
It may be said against me that when the maximum estate which was exempted from duty was limited to £100 this point was never raised. I entirely accept that, and I cannot understand why it was not raised. It may also be said against me that this is just a pure anomaly, and that under the complicated Estate Duty law anomalies are bound to exist. I entirely accept that, but, though they do exist, there is no reason at all why anomalies of this nature which are harming people should not be brought to the attention of the Government, nor can I see any reason why the appropriate Act should not be amended. I have set out to do this by means of this Clause. It is a small point, but it will help people with small estates, and, in my submission, it will be carrying out what was the intention of Parliament when it raised the exemption limit to £2,000.

§ Mr. Hylton-Foster (York)
I do not wish to place upon the Attorney-General the burden of repeating his defence of the principle of aggregation which he put forward on the last new Clause. Having read what the right hon. and learned Gentleman said, and entirely accepting 59 the principle that the duty cannot properly be regarded as a tax on acquisition, I notice that the right hon. and learned Gentleman said that there is no reason in principle why we should not on the right occasion debate something which constitutes a departure from the principle of the legislation. I would say with respect that, when we encounter a real injustice and anomaly, that is the case in which we are justified in making that departure.
If I rightly understand the law, what happens is that if the settled fund exceeds £2,000, even by £1, or even 10s., whatever the loss to the Revenue involved, nothing is to be paid on the death of the second spouse. If, on the other hand, the settled fund is less than £2,000, then, on the death of the second spouse, the beneficiary has got to pay the duty, and the amount of duty which he has to pay has nothing whatsoever to do with the amount of the fund which the beneficiary receives.
It has nothing whatever to do with the amount of the fund in the first instance, and it does seem to me to be an extraordinary thing that, if the country, through the medium of the Revenue, can afford to forgo the duty on an estate up to £2,000, then, in such circumstances, it should not be necessary, for the protection of the Revenue, to bring that estate back into liability for duty on the death of the second spouse. I ask the right hon. and learned Gentleman urgently if he will not regard this as a case of an exceptional anomaly which requires clearing up.

§ The Attorney-General
Certainly, the situation is an anomalous one, as both the hon. Gentlemen have said, but the anomaly does not spring from the altering of the exemption limit from £100 to £2,000. It has always existed, and the only way of curing that anomalous situation is to change the situation in a sense in which it will be far less favourable to the taxpayer than it is today.
May I indicate what I mean? It has always been the situation, and, when the limit was £100, it was so then as it is today, because that is the result which follows from the operation of the existing legislation. Let us take, as an example, an estate of £2,001, upon which, on the death 60 of the first spouse, £1 in duty is paid. The way the legislation works is this. The £1 paid in duty franks upon the death of the second spouse a wholly disproportionate amount of duty which would otherwise be payable on the death of that second spouse. Supposing, as I have said, this estate of £2,001 upon which £1 duty has been paid passes on the death of the wife to the husband, and that the husband, the tenant for life, dies at a later period, the result of the existing legislation is that the £1 paid on the wife's death means that no duty is payable at all on the husband's death in relation to the whole of her estate.
Supposing the husband's estate is large enough to attract, say, a fairly high rate of duty, so that, on his death, his estate, when aggregated with the wife's estate, attracts duty at the rate of 50 per cent., the result of the payment of £1, and of £1 only, upon the death of the wife, means that no less than £1,000, that is to say, 50 per cent. of her estate, goes duty free on his death. Such a position, I think the whole Committee will agree, is one which is extremely difficult to defend. That situation has always existed, and it is a situation which has been much criticised in the past. Proposals have been made that it should be altered in the sense that the £1 duty payable on the wife's death should only frank £1 of duty on the husband's death.
There is an anomaly there, but that is the sensible way of curing it, and not to say, as hon. Members opposite want to say, that the uncovenanted benefit is to be made still larger, in other words, that the illogicality is to be made still more illogical. That would be the sensible way of doing it, and, obviously, it would be a change greatly to the disadvantage of the individual taxpayer. What hon. Members opposite are really saying is that here is a benefit which cannot be justified by any reasonably logical standards, and yet they want to make that benefit still larger than it is. We feel it would be going a great deal too far to do that. Any changes to be made should be something like commensurate with the scheme of the tax but this unreasonable benefit should not be increased as hon. Members opposite propose.
Therefore, while we are perfectly content to leave the legislation as it is— 61 in other words, not to change it to the disadvantage of the taxpayer—we cannot see that there is any logical justification for giving the taxpayer a still greater advantage which cannot be fitted into any intelligible system of tax.

Major Hicks-Beach
I beg to ask leave to withdraw the Motion.