Subsection (2) of section thirty-eight of the Customs and Inland Revenue Act, 1881, as amended by subsection (1) of section eleven of the Customs and Inland Revenue Act, 1889, is hereby further amended, as follows:—
"Notwithstanding the provisions of the said section eleven the charge under the said 1162 section thirty-eight shall not extend to money received under a policy of assurance effected by any person dying on or after the ninth day of April, nineteen hundred and fifty-seven, on his life, if he shall have made no payment in or towards keeping up such policy during the five years immediately preceding his death".[Sir P. Spens.]
§ Brought up, and read the First time.
§ Sir Patrick Spens (Kensington, South)
I beg to move, That the Clause be read a Second time.
We turn now to a much narrower and very different subject, namely, the law relating to gifts, which we discussed to some extent upon Clause 35. This Clause seeks to get rid of an anomaly which came to light in a case decided by Mr. Justice Harman as recently as March of this year. Most hon. Members have probably believed up to this moment that any gift made by a donor to a donee would not be included in the donor's estate for Estate Duty purposes if the gift were made five years before the date of death of the donor, but there appears to be an anomaly in regard to one type of gift, and one type of gift only as far as I know. That type of gift is a fully-paid-up policy of insurance on the donor's own life.
In the case which came before Mr. Justice Harman the facts were interesting. A father took out a policy on his own life in 1912 and it becomes fully paid in 1916. At that time he made an absolute assignment and gift of it to trustees for his son, and from 1916 until he died in 1952 he had no interest in the policy or the policy moneys. He paid no premiums as it had become fully paid up in 1916. It was the absolute property of the son.
But when he died in 1952 the Revenue claimed that the policy moneys which became payable on his death had to be included in his estate and duty paid on them by the son, because, by the combined effect of Section 38 of the 1881 Act and Section 11 of the Act of 1889, policy moneys were chargeable with Estate Duty on the death of the donoras moneys received under a policy effected by a person on his life where the policy is kept up by him only for the benefit of the donee.Mr. Justice Harman, in the case in question, the case of Hodge, said:There is no doubt that the plaintiff here is a donee. There is no doubt that nobody paid any premiums except the assured himself. Equally there is no doubt that no premium has 1163 been paid, or was payable, since 1916. It comes as a shock that a policy which has been fully paid for over forty years and has therefore not needed any keeping up during the whole of that time and in respect of which there has been nothing to do but wait for the death of the assured, should now attract duty, although no beneficial interest in it passed from anybody to anybody else on his death. It has belonged absolutely to the plaintiff since 1938, twelve years before his father's death. It is a striking fact that duty should be executable under those circumstances.I think everybody will realise that this is one of the known exceptions to the general rule that if a donor lives for five years after he has made a complete gift of property, then it is not included in his estate. Under those circumstances I am moving this Motion in order to get rid of that anomaly.
§ The Financial Secretary to the Treasury (Mr. J. Enoch Powell)
The case of Hodge deceased in the High Court, to which my right hon. and learned Friend has referred, certainly discloses a position in the law which it is impossible to defend, that Estate Duty should be paid on a policy fully paid up more than five years before the relevant death by the person to whom it is assigned. It is the more difficult to defend that position in that if the policy were fully paid up before assignment then, although all the other circumstances were exactly the same, Estate Duty would not be payable.
My right hon. Friend therefore recognises that this position at law calls for review. However, the law has not yet been settled, since the case to which my right hon. and learned Friend referred has gone to Appeal. The Committee would agree that it is unwise to venture to set about amending the law until one knows what it is. On the other hand, I accept that the state of affairs disclosed, if it be confirmed on appeal, from the judgment of Mr. Justice Harman, calls for amendment.
§ Mr. G. R. Mitchison (Kettering)
Broadly, I agree. This is a branch of the law in which, as was argued in the leading case in which the hon. Member for Walsall, South (Sir H. d'AvigdorGoldsmid) defeated the Inland Revenue, the law proceeds by jumps. It is therefore one law of the flock of "kangaroos" which, I understand, the Financial Secretary keeps in the Treasury. It is obvious that we had better wait to see what is 1164 the result of the appeal and then the matter might be carefully considered, not only in regard to that case, but to the possibility of making too wide a change where a change appears to be required.
§ 6.45 p.m.
§ Sir P. Spens
I was not aware when I put down this Clause that the case was going to the Court of Appeal. Although the House of Commons has interfered before now with a case heard in the first instance, even though it is on its way to the Court of Appeal or to another place, it is not usual for the House to legislate until the decision of the court is known. Under those circumstances, I do not feel that I can object to the suggestion of my hon. Friend that we wait to see what is the decision of the Court of Appeal. But it is on the understanding that, if the Court of Appeal confirms the decision of Mr. Justice Harman, an opportunity will be taken to put the matter right.
§ Mr. Hector Hughes
What is to happen in the event of the Court of Appeal confirming the lower court after the Finance Bill is passed? Is the Minister giving an undertaking to introduce substantive legislation?
§ Mr. Powell
I think this is a matter which would be recognised as suitable to be dealt with in the Finance Bill.
§ Sir P. Spens
In view of the confirmation given by my hon. Friend, I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.