§ Mr. John Hall (Wycombe)I beg to move, in page 29, line 3, to leave out subsections (1) to (9) and to insert:
(1) Where property comprised in a gift inter vivos is deemed for purposes of Estate Duty to pass on the death of the donor and such property was not a sum of money in sterling then, whether or not the property was settled by the gift, the enactments relating to Estate Duty in respect of gifts inter vivos shall have effect as if the property comprised in the gift had been a sum of money in sterling equal in amount to the principal value at the date of the gift of the property actually comprised therein.
§ The Solicitor-General (Sir Harry Hylton-Foster)I am sorry to interrupt, but I wondered whether it would be for the convenience of the Committee to consider at the same time the other Amendment in the name of my hon. Friend the Member for Wycombe (Mr. John Hall), in page 32, line 1, to leave out subsections (12) and (13) and to insert:
(12) Where any property is deemed to pass on a death by virtue of section forty-three of the Finance Act, 1940, by reason of a disposition or determination of an interest limited to cease on the death within the meaning of that section then for the purposes of duty chargeable on the death the property in which the interest subsisted shall be taken to have been a sum of money in sterling equal in amount to the principal value at the date of such disposition or determination of the property in which such interest subsisted.If my hon. Friend thought that to be the right course, I think it would be to the advantage of the Committee.
§ The Temporary ChairmanVery well.
§ Mr. HallThe effect of the two Amendments is twofold. First of all, they ensure that gifts are valued at the date of the gift and expressed in terms of cash and, secondly, they reduce the rather complicated Clause, with its fifteen subsections, to a simpler Clause with only six subsections. In view of the length and complication of existing fiscal legislation, that second effect alone should attract support from both sides of the 738 Committee. I have left subsection (10) in the Clause, although I very much doubt whether this is necessary. In any event, this subsection adds some complications which I hope will be discussed later. If it were omitted the Clause would be even shorter.
The purpose of Clause 35 is to prevent the avoidance of Estate Duty, achieved mainly by the operation of what used to be called "the disappearing trick". The Clause as it stands also has the effect, whether intentional or not, of remedying an existing injustice whereby a donee who is given property is assessed on the value of that property at the date of the death of the donor, if that donor dies within the five-year period, even though the original property the subject of the gift may long since have been sold at a figure much below the value at which that property is finally assessed. The Clause remedies that, provided, of course, that the amount which is obtained for the property sold remains in cash. If it is reinvested, he is assessed on the value of the property or shares in which he has reinvested.
What the Clause does not do is to remedy anomalies which result from the differentiation of treatment between gifts of cash and gifts of property—a differentiation which leads to some difficulty and, in some cases, I suggest, to injustice. Let me give some examples. If the donee is a recipient of cash, then there is no doubt, once that gift is completed, that, should he later become liable to Estate Duty on the gift, the Estate Duty will be assessed upon the amount of the cash. There is no doubt about that. The amount is easily ascertainable. If, through wise investment, he has managed during the intervening period to treble or even quadruple the value of that gift in his hands, that makes no difference at all; he is still assessed on the value of the cash at the date of the gift.
If, however, the donor decided that rather than disturb an existing shareholding or a holding in a company, private or otherwise, he would make a gift of shares; and if later the donee sold 739 those shares, reinvested the proceeds and, through the same wise speculation, trebled or quadrupled the amount, he would this time be assessed on the value of the shares or property held in his hands at the date of the death of the donor. There is a tremendous difference in treatment between the two types of gift.
For example, if the donor decides that he will give my right hon. Friend the Chancellor a sum of money which enables him to purchase a house, then at the death of the donor my right hon. Friend will be assessed on the gift of the cash only; but if, instead of that, a house to the exact value is transferred into the name of my right hon. Friend, then should that house increase in value, as house property tends to increase in value these days, my right hon. Friend will find himself assessed at the greater value of that house.
These seem to me to be anomalies, and my Amendments are designed to put them right. As I understand the basis of duty on gifts, it is to ensure that a donor or testator shall not divest himself of part of his property by gifts and thus evade Estate Duty, and the attempt which the Treasury makes is to try to arrive at what would have been the value of such a gift had it remained in the hands of the donor and been in his hands at the date of his death.
That seems to rest upon a false assumption, that a donee will treat a gift in exactly the same way as a donor would have treated it had it remained in his possession. In fact, two people handling the same asset may produce quite different results. A donee might, in fact, by investment or speculation or development, be able vastly to increase the value of a gift, whereas, had it remained in the hands of the original donor and formed part of his estate at the date of the death, the value might have been very different. I suggest, therefore, that the assumption on which this form of legislation is based is false.
5.30 p. m.
The Amendments have the merit, I suggest, first, of simplifying the existing law on the subject; secondly, of ensuring that both donor and donee know the value of the gift which the one is prepared to make and the other prepared—indeed, no doubt. happy—to accept at the date 740 of the gift; thirdly, of removing the uncertainty which occurs from time to time in deciding whether a gift is, in fact, in cash, in kind or in property; and, lastly, of removing the unfair effect of discrimination in treatment for estate duty purposes between gifts of cash and gifts of property to which I referred.
The valuation of gifts as at the date of gift is not a difficult matter. It can be carried out in the manner envisaged by subsection (14) of the existing Clause. The suggestion I put is not dissimilar from the system of gift tax which exists in America, which, I understand, does not give rise to any particular difficulty. I am confident that the Amendments will achieve the aim which my right hon. Friend has in mind, of stopping a particular type of tax evasion, whilst at the same time, ensuring greater equity of treatment in the cases to which I have referred, which, if Clause 35 remains in its present form, will continue to exist.
§ The Solicitor-GeneralI am grateful to my hon. Friend the Member for Wycombe (Mr. John Hall) for the concise and clear way in which he has moved his Amendment. I greatly agree with him in wishing that the Clause were not so turgid in appearance, and one would welcome any method of dealing with the problem which produced the increased simplicity to which he refers. On that ground alone, therefore, I hope that he will be expecting us to have sound reasons for not adopting the method he has suggested, which would lead to such an increase in simplicity.
In our view, the real ground which makes it impossible to adopt my hon. Friend's suggestion is that it would produce a great increase in hardship—hardship which does arise now in some cases under the existing law, but which would greatly be increased by it. I hope that I can make the point quite shortly. My hon. Friend and the Committee will understand that the essential reason for a difference of treatment between an absolute gift of money and a gift of another kind of property is that money loses its identity forthwith; even if it is reinvested, it usually passes through a bank account and gets in an unidentifiable state. On the other hand, one is able to deal justly with other forms of property if one can identify it through 741 its various transformations down to the point where it is converted into cash.
The difficulty about my hon. Friend's proposal for valuation at the date of the gift throughout instead of at the date of the death of the donor arises in cases where the donee keeps the gift down to the date of the death of the donor and the value of the property given depreciates. That is the case to which I did not understand my hon. Friend to be referring, but which does, by its very nature, create the difficulty. The point is the same for both Amendments which we are discussing. There is a pair of dates to be considered. In relation to the first Amendment it is the date of the gift on the one hand and the date of the death of the donor on the other, and, in relation to the second one, it is the gap between the disposition or determination of the life interest on the one hand and the death of the tenant for life on the other. The gap may, of course, be anything up to five years. During the five years, the property may depreciate very materially in value in the hands of the donee. We have to deal with Estate Duty where, in appropriate instances, the rate of Duty goes up to as much as 80 per cent., and that, of course, would mean that quite a modest depreciation in the value of the property would altogether take away any kind of benefit in the gift from the donee, if one chose to take the value of the property at the date of the gift, as my hon. Friend suggests. This, primarily, was the reason for our feeling that we could not adopt this method.
I do not want to revive the dead racehorse; the Committee is, no doubt, weary already of hearing about it, but perhaps I may just take one instance. Let us suppose that the racehorse dies while in the possession of the donee, so that it has no prospect whatever of winning any more races, at least in this world. In that case, according to my hon. Friend's suggestion, the value on which the duty would have to be paid would be the value of the horse when it was alive at the time of the gift. It might be a little harsh on the racehorse owner, after the horse had left this world for some time, to have to pay on that value.
§ Mr. MitchisonMay I remind the right hon. and learned Gentleman that the race- 742 horse in question never lived, except in the imagination of certain Scottish judges?
§ The Solicitor-GeneralI am obliged to the hon. and learned Gentleman for that information. I am sorry to prolong the life of the imaginary racehorse. It happens to provide a convenient instance of one of the difficulties I would ask my hon. friends to consider. There may be difficulties as to valuation in a case where a donor has reserved to himself a benefit at the time of making the gift, so that one might have to go back a long time in relation to valuation. There is yet another difficulty. One has to be aware of things which rather clever people may do in this context. If one thinks of the case of a very closely controlled company, the shares in which are held in very few hands, if a gift of shares were made it might not be impossible, under the system of valuation at the date of the gift, for a rather careful selection of dates to be made in relation to the market value of the shares.
We have, for those reasons, not thought fit to adopt the method suggested by my hon. Friend. I hope I have made plain to him what are the difficulties as against what is obviously a most attractive suggestion from the point of view of simplicity, but it is one which, after consideration, we felt it right not to adopt.
§ Mr. Frederick Mulley (Sheffield, Park)There is very little which needs to be added to the very lucid reply of the right hon. and learned Solicitor-General. I would make the observation that it is open to any donor at any time to do what the hon. Member for Wycombe (Mr. John Hall) desires, namely, to express his gift in terms of cash. If he wishes, he can readily sell the shares, for instance, and then pay over the cash to the donee. Many of the difficulties can be avoided in that way.
We all know, of course, that the main purpose of many of these dispositions is not to give a straight cash payment or its equivalent, but to give property in a form which can rapidly increase in value by share manipulation or something of that kind. The right hon. and learned Gentleman has, I think, shown that the suggestion contained in the Amendment would give rise to even more abuses than the Estate Duty law is open to now.
§ Mr. John HallI thank my right hon. and learned Friend for his answer, but it does not entirely convince me. To take one of the arguments he put, I fully appreciate that the problem of depreciation has been a weakness—that an asset might depreciate in value during the five-year period—but donor and donee, knowing the value of the gift being made and received and knowing what would be their liability, would have to take that risk. If it was thought to be a very difficult point to overcome, perhaps one might introduce a Clause giving them an option to decide whether they would take the value at the date of the gift or the value at the date of the death.
The hon. Member for Sheffield, Park (Mr. Mulley) referred to the possibility of manipulation in shares, by which he meant, I take it, that it would be possible to make a gift of shares, in a controlled company, I presume—it would be difficult otherwise—
§ Mr. MulleyWhat I had in mind was that the hon. Member's Amendment would have the effect of taking away the provision in the Clause to tax bonus shares and of reversing the judgment in the Attorney-General v. Oldham.
§ Mr. HallIt does not do anything of the kind, because the shares would be valued at the date of the gift and account would be taken of the value of the assets of the company in which those shares were based. In any case, any manipulation of shares, which, generally speaking, could take place only in a controlled company by passing into that company assets by way of a gift, would be caught by the Finance Act, 1940. I do not, therefore, think that that is a very trenchant argument against the Amendment. However, in view of the objections which have been raised by my hon. and learned Friend the Solicitor-General, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ The Solicitor-GeneralI beg to move, in page 29, line 41, at the end, to insert:
A donee shall be treated for the purposes of this subsection as divesting himself voluntarily and without consideration, of any interest in property which merges or is extinguished in another interest held or acquired by him in the same property.744 This Amendment is to deal with a form of disappearing trick which might become a convenient way of disposing of real property without risk of incurring Estate Duty on it. The Committee will recall the scheme of the Clause, that is, that where the donee has ceased to possess the property originally given to him, the charge will fall on the property which he has received in substitution for the property originally given. The Clause as it stands does not deal with what could be done with a leasehold interest.It is easiest for me to quote two instances. Suppose that the donor gives the donee a leasehold interest and the donee then buys the reversion to the lease. The leasehold interest would disappear because it would merge in the reversion and there would be no substituted property on which any charge could be made. It may be—I should not like myself to attempt the argument—that that is already caught by subsection (3), but it does not seem desirable to leave the loophole.
The other instance would be the other way round. Suppose that the donor sells to the donee the reversion and keeps to himself a long lease—perhaps a very long lease leaving just one day in the reversion—and then gives the long lease to the donee. Once again, the long lease would merge and disappear and there would be no substitute property on which the charge could be made. The object, therefore, of adding these words is to deal with the matter by treating the donee in those circumstances as though he voluntarily divested himself of the leasehold interest or made a gift of it. That will bring what is required in justice into charge.
§ Amendment agreed to.
§ Sir Patrick Spens (Kensington, South)I beg to move, in page 31, line 30, after "property", to insert:
which is by virtue of any of the foregoing provisions of this section to be treated as".
§ The Temporary ChairmanI think it would be convenient to discuss at the same time the right hon. and learned Member's second Amendment, in line 32, at the end, to insert:
except in so far as it directly or indirectly represents or is derived from property originally comprised in the gift in which the deceased never had an interest".
§ Sir P. SpensI should like to deal with the second Amendment first. The other is supplementary to it. When I read subsection (10), I was staggered at its apparent generality. It is not attached in any way whatever to the Clause and it does not deal solely with the matters dealt with by the Clause. It is in absolute, general terms:
For purposes of aggregation, any property comprised in a gift inter vivos made by the deceased shall be deemed to be property in which the deceased had an interest.For a long time there has been, I understand, a distinction between gifts of property which belonged to a man, in which he has had an interest and which he gives away, and gifts of property in which he never has had an interest and which he has provided in some way for somebody else. The most common of all is probably policies under the Married Women's Property Act for one's widow under which the husband has never had, and cannot have, an interest; and there are other examples, including gifts of property under a power of appointment in which the appointer has never had any sort of interest in the property.5.45 p. m.
As subsection (10) is worded, it appears to me that there would be the gravest danger that those items of property which I cannot imagine were intended to be caught would, in fact, be caught. This would be a major reversal of the law up to date. If the Clause is not amended, that would be the result. In those circumstances, I propose the exception suggested in the Amendment, which would preserve the existing law and, I believe, the intention.
§ The Solicitor-GeneralIt was necessary to have some provision about aggregation in the Clause, because the Clause will put the charge on varieties of property in which the deceased never had an interest—for instance, the substituted property that the donee gets in substitution for what he was originally given or the bonus shares issued. It was, as my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens) has said, never the intention to gather into aggregation objects of property which would not have been the subject matter of aggregation apart from the operations of the Clause.
746 We were aware that the Clause went too wide in that it made aggregable any other property comprised in gifts which was not already aggregable and we were in the course of preparing an Amendment to put the matter right when my right hon. and learned Friend and others put their two Amendments on the Paper. They seem to us admirably to meet what is required and we should like to accept them.
§ Amendment agreed to.
§
Further Amendment made: In line 32, at end insert:
except in so far as it directly or indirectly represents or is derived from property originally comprised in the gift in which the deceased never had an interest".—[Sir P. Spens.]
§ The Solicitor-GeneralI beg to move, in page 33, line 2, at the end, to insert:
(15) Any reference in this section to property comprised in a gift being deemed to pass on a death shall be construed as referring to the conditions under which property so comprised is to be deemed to pass on the death being satisfied, apart from questions as to the identity or existence of the property at the death; and any reference to property being deemed to pass on a death by virtue of section forty-three of the Finance Act, 1940, shall be similarly construed.What has happened here is tiresomely technical. In subsection (1), there is a reference to property whichis deemed for purposes of estate duty to pass on the death of the donorand there is a parallel reference to deeming to pass on death in subsections (8) and (12).Some ingenious person has raised a doubt whether property which no longer exists can in law be deemed to pass. I would have been prepared to argue that it obviously would pass under the Clause, but it does not seem wise to leave the matter in doubt. For that reason, it has been thought fit to add this new subsection, which puts the matter beyond doubt by making it clear that references to deeming to pass on a death shall be construed without reference to questions of identity or existence of the property but only with reference to satisfaction of the conditions, for example, the death of the donor within the five-year period, which make the gift chargeable.
§ Amendment agreed to.
747§ Sir P. SpensI beg to move, in page 33, line 3, to leave out from "shall" to the end of the Clause and to add:
apply only to gifts made and dispositions effected or determinations suffered after the ninth day of April, nineteen hundred and fifty-seven".
§ The Temporary ChairmanIt would be convenient to discuss with this Amendment the right hon. and learned Gentleman's Amendment in line 3, leave out from "effect" to end of Clause and add:
in relation to any death occurring after the commencement of this Act, except that it shall not apply in relation to gifts made, and dispositions and determinations effected or suffered prior to the ninth day of April, nineteen hundred and fifty-seventhe Amendment in the name of the hon. Member for Basingstoke (Mr. Freeth), in line 6, at end add:unless the donee ceased to have the possession and enjoyment of any of the property comprised in any such gift before the first day of July, nineteen hundred and fifty-seven".and the Amendment in the name of the hon. Member for Wycombe (Mr. John Hall), in line 6, at end add:Provided that subsection (4) of this section shall not extend to any share or debenture issued or any right granted before the thirtieth day of April, one thousand nine hundred and fifty-seven.
§ Sir P. SpensIt is with the agreement and permission of my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) that I move the Amendment in his name, and the names of other of my hon. and right hon. Friends. This is a much wider and in some ways much more controversial subject than anything we have dealt with up to date.
Subsection (15) as worded at present provides that:
This section shall have effect only in the case of a death occurring after it comes into force; but on a death so occuring it shall apply in relation to gifts made, and dispositions or determinations effected or suffered, at any time.These words are regarded as importing retrospective legislation affecting past gifts and dispositions.It is quite true that the Clause comes into force only in respect of a death after the Bill has been passed, but that is the death of the donor, and what we have in mind, and what we are so deeply con- 748 cerned about, is the situation of the donees. We know that the object of the Clause is to deal with the mysterious racehorse, but on the other hand there is no doubt at all that donees may have received gifts during a period of five years prior to the death of the donor and may have perfectly properly, legitimately and honestly dealt with those gifts believing they were free to deal with them in any way whatsoever they thought fit.
The effect of the Clause is that on the death of the donor within the five years the property given or its equivalent is deemed still to exist and has to be aggregated with other property of the donor, and the unfortunate donee, as is so often forgotten, is the person who has to produce the Estate Duty. If the donee is a person who has been given a sum of money or the equivalent of a sum of money and has quite properly disposed of it that donee will not have the wherewithal to meet that charge for Estate Duty. Until this Bill was published that donee and thousands of donees throughout the country perfectly properly and honestly dealt with the gifts in the way they thought fit to deal with them. Therefore, if this Clause passes as it stands we impose—I am not going to say retrospectively—but we impose a very serious obligation on a number of people who may not have the wherewithal to meet Estate Duty at all.
It is true that to some extent—and the Committee will appreciate it—I have based my speech on the case where the donee has parted with the subject matter of the gift. There may be instances where the donee still retains the subject matter of the gift. I understand that in that event it is thought that it is not unfair that the donor and donee should remake their arrangements so as to take into account that now the gift has to be included in the donor's estate and that Estate Duty has to be produced in respect of it by someone. I do not believe that even that can be done without a great deal of unfairness to donors and donees, and in my view the right way is to carry out the exception in the way in which I have put it in the Amendment:
… that it shall not apply in relation to gifts made, and dispositions and determinations effected or suffered prior to the ninth day of April, nineteen hundred and fifty-seven.
§ The Chancellor of the Exchequer (Mr. Peter Thorneycroft)I think it may be convenient if I say what my approach to this matter is. The position, as I understand it, is as follows. Under the present law, Estate Duty is charged on gifts made within a period of five years before the donor's death at the value at the date of death and on the property as originally given, and on nothing else.
There are various anomalies in that law which the Clause seeks to put right. A debenture may be redeemed, or bonus shares which are not charged may have been issued and the value of the parent shares will correspondingly have fallen, or the security may be sold and the money reinvested less successfully, or alternatively the security may be sold and the money reinvested more successfully. That state of affairs has been used in part for deliberate but legal avoidance of tax, and in part it has had fortuitous and anomalous results for donees who have received gifts of this kind.
The proposal in the Clause is as follows. First, it applies a charge on the substituted property at the date of death where the donee has parted with the gift. Secondly, where he has parted with the gift for cash the charge is on the cash. Thirdly, an express charge is placed on the bonus share to deal with that side of the problem.
It is said that if we do this it may be retrospective. I cannot accept that it is retrospective in any ordinary sense of the term. It applies only to deaths occurring in the future, and every testator is, ex hypothesi, alive at the present time. I certainly cannot admit the tax principle which allows people to be protected against changes in the tax law after the making of their wills or settlements. I do not, however, want to argue about the precise meaning of the word "retrospective", as my right hon. and learned Friend did not either.
The criticism here is that the rules are being changed half way through the game and that a number of donees may be prejudiced. It is certainly true that this case differs from many cases of change in the tax law in as much as it affects property in the hands and under the control of the donee and he may have acted on the assumption of the law as it was. It is true that if the solicitor 750 was competent—and we presume all solicitors are—he may have warned him, and that if he was wise and prudent he may have acted in an appropriate way. But not all men are wise and prudent, and, perhaps, not all men get the same advice. Hardship could arise for anyone who thought in good faith that duty would not be charged and who had actually spent the money.
The Amendment suggests that we should exclude all gifts made before the Budget. I think that that goes too far. It includes, for example, the case where the event which would have removed the property or liability has not happened—the bonus shares have not been issued, the security has not been redeemed, or the shares have not been sold. In such circumstances, no one would be prejudiced since nothing would have happened and no action would have been taken.
6.0 p. m.
Nevertheless, I think that some easement is reasonable where the action has already been taken, especially as we are concerned here with much more than tax avoidance, because this is a Clause which amends the law on gifts inter vivos quite apart from that question of avoidance. The proposal that we have in mind and would propose to table on Report is that where before the publication of the Finance Bill—and I choose that date because that was the date on which everybody knew what was to happen—the donee has parted with the property or received the bonus shares, as the case may be, he should have the option to be treated under the old law or under the new. I cannot simply say that in such circumstances the old law would apply, because some people may have parted with shares and these shares may subsequently have risen and they would certainly prefer, and I see no reason why they should not, to be treated under the new law. It seems to me that an arrangement of that kind does justice in this particular case.
The arrangement ensures that anyone whose position could have been prejudiced, who had acted or was in a position to act under the old law as it was, has the opportunity of being dealt with under that law. I emphasise that I am not laying down a new tax principle but I am trying to deal with this problem on 751 its merits. Nor must I be taken as establishing a precedent to be followed in any future legislation against tax avoidance. I say this deliberately because the subject of avoidance of death duties is one to which I may have to turn on another occasion. The Clause, however, is more than a tax avoidance measure. It is a general provision which applies whether or not there has been avoidance, and I feel that in those circumstances it is right to err, if anything, on the side of generosity.
§ Mr. Eric Fletcher (Islington, East)The Chancellor has made a very important pronouncement. The Amendment has given rise to a good deal of controversy both in the Press and elsewhere. Speaking for myself, I think that we shall find, when we have had a chance of studying the text, that the Chancellor's statement, without going anything like the length desired by the right hon. and learned Member for Kensington, South (Sir P. Spens), has at any rate gone far enough to meet any cases in which there might possibly be a legitimate grievance.
When this matter was first raised in the Chancellor's Budget speech and was later elaborated on Second Reading of the Finance Bill, it was obvious that the Chancellor would find himself in a dilemma. I am glad that the right hon. and learned Member for Kensington, South did not attempt to press too far any argument based on the alleged evils of retrospective legislation. As the Chancellor knows perfectly well, there are a great many precedents for making provisions in the Finance Bill of a retrospective or quasi-retrospective order. It has now become recognised by both parties, on both sides of the Committee, and I think in the professions and by the public, that circumstances exist, have existed in the past and are likely to exist in the future in which the ingenuity of taxpayers is such that they will resort to astute devices which are so flagrantly of a nature calculated to avoid tax that public opinion will expect the Chancellor of the day to correct them as soon as possible.
Tax avoidance, after all, is no new thing in this country. It was going on long before the Norman Conquest, when it was customary to make gifts of land to pseudo-monasteries in order to avoid tax. 752 There is nothing particularly novel about it; but when it is particularly reprehensible it must be corrected by extreme measures. It is because of that that, when cases like the "disappearing trick" arise, it is the duty of the State to take steps to counteract them. As the Chancellor said, in a sense all legislation affecting Estate Duty must inherently have an element of retrospection about it, because Estate Duty only applies to the estate of persons who are going to die at a future date. Anyone who makes a will or a settlement does so knowing perfectly well that the rates of Estate Duty, its incidence, and the details of Estate Duty law may well change from year to year.
It is true to say that the possibility of defeating the five-year provision by selecting for gifts inter vivos stocks due for early redemption has developed in recent months to such an extent that most people were convinced that sooner or later, and probably sooner, the Chancellor would have to stop it. I think, therefore, that the real answer to objections to retrospective legislation of this kind is that people must not merely be taken to know the law as it stands but also must be taken to understand the possibilities of its being changed at an early date. [HON. MEMBERS: "No."] I do not think that I am saying anything very different from what the Chancellor said. He made a considered statement and I am making an impromptu reply.
I do not want to pursue that point because, in a sense, in view of the Chancellor's statement, a debate on the relative virtues or vices of retrospective legislation has become academic for the moment. I should like to study the Chancellor's statement and see the Amendment that he proposes to put on the Order Paper for the Report stage. I merely take this opportunity, as one who has expressed an opinion on this matter before, that it seems to me, speaking immediately after the Chancellor has made his statement, that the right hon. Gentleman has adopted a very sensible attitude. He has not accepted the Amendment of the right hon. and learned Member, but it seems to me that he has gone far enough to remove any case of real hardship which might arise in the case of trustees who, bona fide and legitimately, had parted with gifts given to them for a particular purpose, and in 753 circumstances in which it would be difficult for them to recover those gifts.
I would hope that we shall find the Chancellor's Amendment, while removing possible cases of hardship, will do nothing to endanger the principle that those who have resorted to this device on a large scale, and in circumstances in which the donee has not parted with the property and in which there has been no hardship, will not be able to benefit from the purely anomalous nature of the law as it has stood in the past.
Major W. Hicks Beach (Cheltenham)I join in saying that this is a very important statement or concession made by the Chancellor. Those who have studied the law in this matter have found it difficult enough to understand when they have had it in print in books in front of them. I confess that I find it difficult to express an opinion on my right hon. Friend's statement without seeing on the Order Paper what exactly he proposes to do. Prima facie it seems a very sensible and reasonable concession. It will certainly save a great number of people from hardship. I have investigated this matter very closely and I had intended to give my right hon. Friend two or three examples in practice of where hardship would have arisen. In view of this concession, I need not worry the Committee with those details. I thank my right hon. Friend, and I shall study his statement with very great care.
§ Mr. MitchisonThe existing law in this matter is rather difficult and leads to distinctions which are not easy to understand. The last case reported turned on the following point. A sum of money was given and that was the only gift. It was given to trustees who were authorised to invest it in a particular company, which appeared to be a family company of some kind. They did so invest the money on the very day on which they received it. The gift was a gift of money and not a gift of shares, and was, therefore, treated differently from the way in which it would have been treated had it been a gift of shares.
Yet again, if we take the bonus shares, it is fairly clear that a result not altogether dissimilar to that of a bonus issue might be reached by splitting existing shares, but, as I understand the law at present, the effect would be a different one. At 754 any rate, it is generally thought to be different. Therefore, we are dealing with a state of affairs which, perhaps necessarily, is very complicated at present and, I am sure the right hon. Gentleman will agree, will not necessarily be simplified by his own Clause. That is no criticism of the Clause. Therefore, I agree very much with my hon. Friend that I, too, should like to see exactly what is proposed.
I may have misunderstood the right hon. Gentleman, but, if I understood him rightly, it comes to this. Supposing a gift of shares has been made or, if we are to deal with the imaginary racehorse, a racehorse in foal. The shares produce bonus shares after the date of this Finance Bill becoming law or the racehorse foals. In that case, the foal and the bonus shares will be treated under the existing law.
I am bound to say—and I say it with some hesitation because one wants to see exactly what is coming—that if, as the right hon. Gentleman told us, the disappearing trick was being practised on quite a large scale—and I think that the balance of evidence is that this was so—then what he proposes will enure for the benefit of a large number of highly undeserving cases; people who have handed over bonds with a date of maturity calculated a little time ahead of the date when this Bill becomes law. Of course, they will not have foreseen that, but it is likely that they may have handed over two or three-year bonds with every confidence, characteristic of the aged donor, that they will be able to manage for at least another two or three years in this world, and that by then, the bonds will have been redeemed.
6.15 p. m.
It may be said that that case is fanciful, but this is a provision designed for one or two purposes, and one is certainly to avoid the disappearing trick. It seems to me that the right hon. Gentleman will have to consider, and we too in due course will have to consider, the question of balance. I am not convinced that in the form the right hon. and learned Gentleman put it forward, though no doubt it would be right in some cases, the balance of right it would do would be greater than the balance of wrong it might encourage, and that is obviously a very difficult 755 thing for any of us to estimate. I might even say that the Inland Revenue may be in a better position.
My present impression, and I say it with great caution and some hesitation, is that we may be going too far, on the right hon. and learned Gentleman's suggestions, in the direction of protecting unfortunate donees at the expense of failing to deal with an abuse which appears to have been going on for some time, which was only too easy, and which really ought to be dealt with very firmly. Therefore, on this side of the Committee we shall wait to see what the Chancellor produces, and we hope that the Clause will be as tightly drawn as possible, having regard to the considerations I have put before the Committee.
§ Sir P. SpensI want to thank my right hon. Friend the Chancellor for the forecast of the concession which he has given the Committee this afternoon. As far as I could follow it, the concession meets the case of those whom I have particularly in my own mind, and I believe that a great many perfectly innocent donees will be fully protected by the new Clause when we see it.
What the hon. and learned Member for Kettering (Mr. Mitchison) has said is that he is preserving his position so that, when the time comes, he can criticise the new Clause adversely if he thinks fit, but I cannot believe that the Committee will usefully use its time to debate the matter further until we see the new Clause on the Notice Paper. If that is the opinion of the Committee, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.
§ Mr. HoughtonWe on these benches would have been prepared to support Clause 35 as it stands now in the Bill. It is a long Clause, of 15 subsections, designed to plug two notorious leaks in Estate Duty legislation in regard to gifts inter vivos and the determination of limited interests. The Clause also gives what would technically be called marginal relief to gifts inter vivos of slightly over £500, which would have been exempt from Estate Duty had they not exceeded 756 £500. That is the kind of tapering provision that is usually applied where a line is drawn between exemption and liability, and we are familiar with this difficulty in all taxation legislation.
The Chancellor has made a statement, the full significance of which will not be clear to us until we see exactly what he is proposing to do. There is no doubt, however, tha the following decision of the Attorney-General v. Oldham in 1940 on bonus shares, there has been a good deal of deliberate evasion. Clearly, if bonus shares issued with shares included in the property transferred are exempt from Estate Duty on the death of the donor, in the case of family businesses especially, this has been very susceptible of exploitation. The Solicitor-General, when dealing with an earlier Amendment, referred to the course of events which is within the control of a small number of proprietors of family businesses.
Whenever Estate Duty legislation is altered an argument begins as to whether it is retrospective legislation or not. The same argument has been raging through these proposals. Some say this is retrospective legislation and should be objected to in principle. Others say that it is not retrospective legislation because this same difficulty is encountered every time we amend the law of Estate Duty. After all, if we were to allow all arrangements already made by a testator to stand in the light of the existing law until the date of his death, the amendment of the law would not be fully effective in some cases for many years to come.
There is, we acknowledge, an important distinction in this case. Usually, a change in the law concerns only the testator, and it was within his power to take account of the change and to rearrange his affairs. In this case, certain property will have gone to another party. As the right hon. and learned Member for Kensington, South (Sir P. Spens) pointed out, some donees who have received the property may have done something with it believing that they would be exempted from tax on the bonus shares which the property brought them, and there may be difficulty in meeting the Estate Duty when the day comes. However, the testator is still alive, and in these cases he still has the power to make any adjustment necessary having regard to the change in the law.
757 I agree that in some cases he may have disposed of so much of his property in this way and given such bounty to a member of his family that he has virtually impoverished himself to ensure that when he dies death duties will make little havoc of his estate. The Committee will see the difficulties of checking abuses of this kind when they have to give freedom to existing arrangements to continue notwithstanding the desire of the Committee to bring that sort of thing to an end.
I see that in the course of much correspondence and comment in the legal journals on these proposals, some have suggested that testators must surely have been advised of the risks they were running in making arrangements of this kind. It may be disputed whether legal advisers are entitled to anticipate changes in the law. The truth of the matter is that nearly everyone knows what he is doing when he does this sort of thing. However, if he has not a twinge of conscience and if his mind is absolutely free from doubt or difficulty about the matter, one could sympathise with any difficulties which may result, but I do not think it can be denied that in the bulk of cases testators know precisely what they are doing and donees often know the risks that attach to their receiving substantial capital gains on the assumption that no Estate Duty will eventually be payable.
In a letter to The Times, of 23rd May, Mr. Milton Grundy, referring to the case of the "disappearing" racehorse, said that it was never a decision of the courts. Precisely. It was by analogy, and I understand that the Estate Duty Office took a decision to treat certain transactions by that analogy though the position was never really free from doubt and was not tested specifically in the courts. Surely there was enough legal doubt overhanging that sort of transaction to lead no one to act upon the certainty that short-term securities with an early date of redemption would be left for ever free of Estate Duty.
§ Mr. John HallI agree that there has always been some doubt as to the possible future of that kind of "disappearing trick" and that any solicitor or accountant advising his client must, I should have thought, have warned him about the possibility of a change in legislation. But that does not apply to bonus shares. Ever since 1940 it has been held that they do 758 not form part of the original gift. Therefore, anybody wishing to make arrangements of that kind did so in the belief that they were acting legally and making arrangements in accordance with the law at that time.
§ Mr. HoughtonI agree with the hon. Gentleman.
In his letter to The Times, Mr. Milton Grundy distinguished between the two. As regards bonus shares, he referred to the decision in the case of the Attorney-General v. Oldham of 1940, which established the case law in the matter. The proposal in Clause 35 in that respect is not to clarify the law or to remove anomalies, as may be supposed to be the case in relation to the "disappearing trick", but is intended to check abuse. That is clearly the intention.
Bonus shares have now become a customary way of distributing capital gains out of the resources of companies and they not only escape duty when bonus shares are issued after the gift of shares in the cases about which we are talking, but, of course, they escape Income Tax and Surtax as well. The bonus share, the capital gain, is the most profitable form of distribution of profits known in this country today.
§ Mr. Denzil Freeth (Basingstoke)Will the hon. Gentleman agree that the distribution of bonus shares does not, in fact, add to the wealth of the person who receives them, and the very fact that we have to have this Clause to tax them is purely because if we do not tax them the value of the original holding decreases in strict proportion to the issue of bonus shares? It is an issue of paper.
§ Mr. HoughtonThat is the classical argument that we always hear from the Tory benches on the question of bonus shares, but there are very few cases within my knowledge where the value of the asset is not greater in total after the issue of the bonus shares than it was previously.
I feel that hon. Members on both sides of the Committee must question what it is that the Clause seeks to do and how far we shall be justified in relaxing its conditions. However, I will not anticipate the Chancellor's proposals, which we shall have an opportunity to debate later. As we do not know precisely what 759 the Chancellor proposes, the Clause, as we have it before us, must remain part of the Bill, and we can support that and reserve our position on whatever concession the right hon. Gentleman may propose later on.
This is really a postscript to something that I was saying earlier about this wide and grave evil of tax avoidance. Right hon. and hon. Gentlemen opposite, in the main, represent the moneyed classes and the propertied people in Britain, and they will always do their best to defend their property. If they can find a way of doing it under the law, they will pursue it to the bitter end.
6.30 p. m.
If death duties are too high, the House of Commons ought to pronounce on that allegation. If the Legislature has said that they are not too high, then it is anti-social for those who are affected by the law to seek to lighten their individual burden by devices which they know full well to be an attempt to evade the full rigour of the taxation imposed by Parliament. If that is not a moral issue, I do not know what is. Certainly, we are here engaged in putting a check on the moral delinquency of right hon. and hon. Gentlemen opposite and their friends in the country. That is why we on these benches can support the Motion.
§ Mr. John Peyton (Yeovil)It is impossible to allow that last tirade to go without comment. I propose to make my comments extraordinarily brief and to show that the tirade was too ridiculous to merit a long answer. Both my right hon. Friend the Chancellor and my right hon. and learned Friend the Solicitor-General did a great deal to disarm the critics of this horrible looking Clause. The Solicitor-General very graciously and very wisely admitted that this was really a revolting Clause. It is a long and ugly thing. It is inserted in yet another rather prolix financial Measure.
Whatever our views and whatever measures of taxation we see fit to impose on an over-taxed nation, it is high time for us all to be anxious about the extreme complexity of our fiscal legislation. I dare say that it may be asking the Chancellor to do too much, that the Augean stables of our tax legislation have gone beyond cleansing, but, if he does not 760 admit defeat, I hope that the Chancellor will assume the mantle of Hercules before next year and try to do something about it.
§ Mr. MulleyI sense a rather unseemly haste on the part of the Chancellor and hon. Gentlemen opposite to get rid of the subject of Estate Duty. I regret that, because it is very rarely that we on these benches have an opportunity of discussing this very important part of our fiscal system. That is because the nature of the rules of the House of Commons is such that a back bencher can put down Amendments to the Finance Bill only if he wishes to reduce the charge. Obviously, if one is concerned with some of the practices of avoiding Estate Duty, it is pointless to put down Amendments, because they would not be in order and could not be debated.
We have, therefore, to await occasions such as this when the Chancellor himself introduces an Amendment which raises this very difficult subject. The indignation of the hon. Member for Yeovil (Mr. Peyton) of the mild censure of my hon. Friend the Member for Sowerby (Mr. Houghton) indicated that my hon. Friend had scored a bull. There is no doubt that there is a fundamental difference between the two sides of the Committee in their approach to taxes on inheritance.
The party opposite, now putting out this idea of an "Opportunity State," very much wants to reduce the amount of death duties, but certainly does not wish to put other taxation in its place, as would necessarily be the case since we treat taxes on capital death duties as part of the annual revenue. It has always been a great surprise to me that the Chancellor's forecast each year of how many people will die in the ensuing year and what rate of taxes their estates will attract is singularly accurate, very much more accurate in many cases than some of the other forecasts on what one would have supposed to be less difficult calculations.
We should make it clear that we have been concerned for a long time about the increasing tendency to avoid the full impact of death duties. The Clause deals with two of the loopholes. We should have liked to raise these matters in preceding years, because it has been known for a long time that these things 761 have been happening and that there has been a great increase in the last four or five years. While I fully accept that it is open to every citizen so to arrange his tax affairs as to attract the lowest amount of tax, he cannot expect, having made what he regards as a tidy arrangement, that the law will stand still until the donor conveniently dies.
When we are talking of hard cases, the hardest case of all is that of a donor who makes a gift and who fails by a few hours to survive the five-year period. We all know that in these matters hard cases make bad law and I hope that the Chancellor will bear that very much in mind when he frames this new proposal about the date on which the Clause is to operate.
There are other matters to which the Chancellor should give attention. In this Clause we deal with Section 43 of the Finance Act, 1940, and in some respects the position of that Section will be more clear if the Clause becomes law. There is still a very substantial loophole arising from that Section, arising not as much from law as from the practice of the Estate Duty Office. If a life tenant sells his life interest to the reversioner the five-year period has to be overcome for there to be no tax involved. On the other hand, if the life tenant buys a reversion, then the Estate Duty ruling is that there is not a determination within the meaning of Section 43. It is held that the life interest is merged with the reversion and, even if the life tenant dies the following day, that part of his estate does not attract duty. Obviously, where a person has only one property, it is not easy to operate that manipulation, but someone with funds outside that settled estate can operate it and it is a very frequently used device.
The Chancellor should try to deal with all those loopholes, because, while perfectly legal, most of them arise from matters of practice rather than from matters of settled law. If one or two people take advantage of them, and thus pay less taxes, the general burden of taxation is to that extent increased.
On a future occasion the Chancellor should give considerable thought to discretionary trusts. There is a very great increase in the practice of settling money up to seventy or eighty years and it has 762 been suggested that even one hundred years can, by very careful drafting, be achieved, and the money goes on and on without the payment of duty. I do not want to go into detail tonight, but before we leave the Clause we ought to draw the very real distinction between the part of the Clause dealing with what is commonly called the disappearing trick and the part which is aimed mainly to deal with bonus shares and matters of that sort.
I hope that when it comes to dealing with retrospection the Chancellor will also draw a distinction, because no one will defend the "disappearing trick". As has been said, it has largely arisen out of an analogy drawn from the remarks of the learned judge in a Scottish case, what is known as the Strathcona case. There has never been a case concerning Estate Duty on a racehorse which broke its neck. It therefore arises purely upon Estate Duty practice.
Although the person concerned may feel it hard if the practice changes as a result of a Clause such as that which we are now debating, the practice of the Estate Duty Office can change by a judicial decision. We are surely not going to say that the courts should not reverse a previous decision because, if they do so, it will create hardship for people who have settled their affairs and made arrangements in accordance with the law as they understood it to be.
An example of this was the case of Sneddon v. The Lord Advocate. This was also a Scottish case. The Estate Duty Office must either be indebted to or embarrassed by this Scottish litigation. That case completely changed the practice of the Estate Duty Office in its calculation of duty in this class of case. Whatever we may do here it is quite possible for the courts, in interpreting the various Acts of Parliament, to change what we now regard as settled law.
As for the "disappearing trick", I do not think that any legal adviser of any standing would say, "We are absolutely all right. There cannot be any possible question as the law now stands of your getting into difficulty if you buy Treasury shares and they expire before the donor dies." I do not think that anyone would advise that with certainty.
On the other hand, as my hon. Friend the Member for Sowerby (Mr. Houghton) 763 argued—and he quoted a letter from The Times to the same effect—there was some distinction in regard to bonus shares because since 1940 we had the decision in the Oldham case: For that reason it may be possible to draw a distinction between the two parts of the Clause, and no doubt when the Chancellor is considering the form of his change he will bear that in mind.
We have heard much about the hardship that will arise from the taxation of bonus shares as proposed by the Clause. I am always suspicious when people say that something will upset other people who have arranged their affairs. The phrase "arranged their affairs" rather suggests that they have been carefully arranged with a view to tax avoidance. It is always possible for a donor who feels that the shares he wants to give may go up or down to make a present of cash.
Surely there is a great injustice in the respective methods of dealing with a gift of shares as distinct from a gift of real property, such as a house. In the latter case the person who has received the house has to pay duty on any capital gain that the property undergoes in the period between the gift and the death of the donor, but in the case of the inflation of his share values the recipient of the shares does not have a similar increase to pay.
It is all very well to say that when shares are valued at the date of the gift that value takes full account of the reserves of the company. It may be so sometimes, in the case of private companies, although I rather doubt it, but it is certainly never true in the case of public companies quoted on the Stock Exchange. If a bonus issue is made of one for one it is rare for the new market price to be half what it was before the bonus issue was made. If it is, it rarely stays there for long.
I was looking today at the figures in the Tate and Lyle shares which were the subject of the case of the Attorney-General v. Oldham, upon which the present law about bonus shares is founded. In that case there was a slight drop after the bonus issue was made, but it was more than made up eighteen months after the gift.
764 6.45 p. m.
I feel that a great deal of exaggeration is found in the arguments of people who object to the very reasonable proposals which the Government are now making. Behind their particular objection is the general objection to taxes on wealth and inheritance. I hope that the Chancellor will repeat the very severe warning that he gave in his earlier observations; indeed, I hope that his warning will be even more severe, not only to the Committee but outside the House, because Conservative Chancellors, although always giving these warnings, seem to give way if they receive a little back bench pressure. If the people who are avoiding this or any other tax want a clear indication of what should happen to those who avoid tax I would refer them to the speech of Mr. Neville Chamberlain in 1937, when he was Chancellor of the Exchequer. It is worth reading a brief quotation from that speech because it deals completely with this point. Mr. Chamberlain said:
My second proposal is intended to strengthen certain provisions with regard to tax avoidance in the last Finance Act. It may be recollected that on the Report stage of the Bill, when I made a concession about a provision which as retrospective in character, I gave what I described at the time as a fair warning that similar latitude should not be expected in the future and that, if people persisted in devising these ingenious contrivances for defeating the intentions of the Legislature, they must not expect that they would escape retrospective legislation."—[OFFICIAL REPORT, 20th April. 1937; Vol. 322, c. 1610.]That is exactly what the Chancellor has done again today. But I have no doubt that both now and on future occasions, when the Governments attempt to take action to deal with the avoidance of taxes, a little pressure from the benches behind them will prevent them making their action effective at once. We reserve our views about the Chancellor's new proposals until we see them. I hope that they will be narrow rather than wide in their scope and that we shall not have too much reason to criticise them.
§ Mr. Denzil FreethI will not keep the Committee for more than a few moments. I think that the point of the morality of the retrospective action which Mr. Neville Chamberlain took in 1937 should be dealt with completely, once and for all. I rise now only because the hon. 765 Member for Sheffield, Park (Mr. Mulley) quoted substantially from Mr. Chamberlain's Budget speech of 1937. If we continue further with the quotation which the hon. Member made we shall find that after the last sentence which he quoted, namely:
if people persisted in devising these ingenious contrivances for defeating the intentions of the Legislature, they must not expect that they would escape retrospective legislation.he went on to say:In some quarters that warning was disregarded, and no sooner was the Finance Act upon the Statute Book than some highly artificial arrangements for circumventing its provisions were adopted in connection with particular kinds of one-man companies known as investment companies. I propose to take power to defeat that evasion. In order to enforce my warning of last year, I propose to make the remedies effective for purposes of Sur-tax for the year 1935–1936."—[OFFICIAL REPORT, 20th April, 1937; Vol. 322, c. 1610–1611.]When the Committee stage of the 1937 Finance Bill was debated Sir John Simon had become Chancellor, and it was he who replied to the debate on the question whether or not this action was retrospective in its effect. On 9th June, 1937, Sir John Simon quoted from a speech made by Mr. Neville Chamberlain on 1st July, 1936. On that occasion what Mr. Chamberlain said—a year before his retrospective legislation—was:I would wish to make it quite clear that I do not consider that, in the future, people will be entitled, if they find new methods of avoiding taxation of a similar character to those which are dealt with in this Bill,"—that is, the 1936 Finance Bill—to say that they are protected by anything I do now from retrospective legislation. I give them fair warning, and after that fair warning I think that they will have no reason to complain if retrospective legislation should be found necessary in this particular class of case."—[OFFICIAL REPORT, 1st July, 1936; Vol. 314, c. 442–3.]That was what Mr. Chamberlain said in 1936, and during the Committee stage of the 1937 Finance Bill Sir John Simon went out of his way to say:I would point out that this is a very special case … Ample notice was given by the Chancellor."—[OFFICIAL REPORT, 9th June, 1937; Vol. 324, c. 1916.]In other words, there is no parallel whatever between any action which my right hon. Friend may take in this Finance Bill and the action taken in the 1937 Finance Act. The parallel does not exist. My right hon. Friend may be right or wrong, but there is no parallel.
§ Mr. MulleyI was not suggesting that the two things should be comparable. I was merely saying that I did not think that in future notice need be given before taxation avoidance was dealt with. I hope that the very similar words used by the Chancellor today—that was what made me press the quotation upon the Committee—will not also be treated in the future as were Mr. Chamberlain's words.
§ Mr. Denzil FreethOne always hopes that people will obey the law, but I believe that there is nothing whatever wrong in so arranging—I use the word to which the hon. Member referred—one's affairs that one attracts thereby the minimum of tax.
I was talking to an American friend the other day and I asked him how he got on with the Federal Treasury about the question of Income Tax. He said that the Federal Treasury officials were most helpful: they always pointed out to him how he could pay the least possible tax upon his income. He asked whether the British Treasury was as helpful and generously-minded as his own. Of course, it is painfully obvious that the British Treasury is not.
When people arrange their affairs so as to attract the least possible Income Tax or death duties, or whatever tax it may be, I think it quite wrong that, when those dispositions have been made, the Government should proceed to take legislative action against such provisions, made in strict accordance with the existing law.
I think I am right in saying that in the 1947 Finance Act the right hon. Member for Bishop Auckland (Mr. Dalton)—who increased from three to five years the length of time during which a gift inter vivos had to be made before the death of the donor—went out of his way—I hope I am not putting the right hon. Gentleman in an awkward position with his party by saying this—to make certain that gifts made before 10th April, 1943, did not come under the new law. In other words, the right hon. Gentleman went out of his way to make arrangements about gifts which had been made with the idea that they would totally cease to be part of the estate of the donor three years before the date on which the right hon. Gentleman opened his Budget. That is to say, three years was the time 767 which, in 1943, a person needed in order completely to get rid of any of his property. In his Budget, the right hon. Gentleman did not attempt to bring those people into the new length of time.
§ Mr. Hugh Dalton (Bishop Auckland)My recollection is—I have not checked it, because I did not know that this point would be raised—that I did not regard this provision as laying down any principle regarding retrospection in general. As it seemed to me, it was simply a fair and just way of determining when the new period of five years, as compared with the old period of three, should begin to operate. I am grateful to the hon. Gentleman if he thinks that my decision was right, but I do not think that it bears directly on the general question which we are discussing.
§ Mr. Denzil FreethI think it bears on this Clause in this way. The point is; which is the right and just point of time from which a new provision should be made to operate.
I happen to believe that the point of time in the Clause as it is at present drafted, namely the death of the donor, is a thoroughly unjust point of time to take. It perpetuates the difference between the gift which has been made, and which has disappeared by a person who happens to die in the time between now and, I suppose, the end of July when this Bill will become an Act, and the gift made, which has disappeared, by a donor who happens to die, let us say, on August Bank Holiday when the Finance Bill has probably received the Royal Assent.
Similarly, it appears to me that there are distinct disadvantages in taking the date of the gift, because if we take that date and say that any gift which is made after, for example, 1st April comes under the new Bill, and any gift made before that comes under the existing law, we are issuing an open invitation to everyone who made a gift before 1st April immediately to take all possible steps to ensure that that gift disappears. In fact we should be encouraging people to do exactly what the Clause is designed to stop.
I believe that the suggestion of my right hon. Friend, couched in the general terms in which he put it, and without 768 committing myself fully to its approval, is fixing the right and just point of time just as the right hon. Member for Bishop Auckland fixed it so happily in 1946.
§ Question put and agreed to.
§ Clause, as amended, ordered to stand part of the Bill.
§ Clause 36 ordered to stand part of the Bill.