HC Deb 17 July 1957 vol 573 cc1202-8
The Solicitor-General

I beg to move, in page 30, line 23, to leave out from "as" to "but" in line 26 and to insert: continuing to have the possession and enjoyment of that property, and the principal value aforesaid shall be taken as the principal value of that property as property comprised in the gift; This Amendment and a number of others are put forward to cure flaws which we have found in the Clause. Perhaps if I explain them in moving this Amendment, it will not be necessary to detain the House so much with the others. A good example is subsection (3)—the case where the donee of the gift voluntarily disposes of it during the life of the giver either by way of gift himself for something less than full consideration.

In that case, it is no good seeking to charge the substituted property, because it is either nil or less than full consideration, neither of which works rightly, and the method adopted by the Clause as it stands is to treat the donee as receiving a notional sum of money equal to the value of the property at the time of the alienation. That looks very attractive, but it misses a point, which is the flaw.

It is that there are certain forms of property which, in relation to Estate Duty, enjoy certain special exemptions or reliefs, so that the method adopted by the Clause as it now stands has the unintended result of depriving those forms of property of the special reliefs and exemptions. Accordingly, we have changed the form, and the effect of the Amendment is to remove the words creating a notional sum of money; and we have substituted a provision whereby the donee is deemed to continue in possession and enjoyment of the property, and which provides that the property is to be valued at the date of the alienation.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 31, line 21, to leave out from "donor" to "made" in line 24, and to insert: and deemed for purposes of estate duty to pass on his death. no deduction shall be". The Amendment is designed to get rid of the same concept of a notional sum of money, in this case in relation to subsection (5), and I have explained the reason why it is necessary in connection with the previous Amendment.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 32, line 11, to leave out from "gift" to "the" in line 14.

It would be of assistance if we could consider with this Amendment the two following Amendments in lines 16 and 18.

This is merely another series of Amendments to get rid of another enactment in relation to this notional sum of money, for the very reasons that applied in susection (3).

Amendment agreed to.

Further Amendments made: In line 16, leave out "of".

In line 18, at end insert: shall be treated as comprised in the gift (in addition to any other property so comprised) and as being of a principal value, as property so comprised, equal to its principal value at that time".—[The Solicitor-General.]

The Solicitor-General

I beg to move, in page 33, line 23, to leave out from "subsisted" to the second "the" in line 26.

Once again, it will be probably for the convenience of the House to take this and the two following Amendments in line 28 and line 31 together.

This is another case where it is necessary to get rid of the previously enacted notional sum of money for parallel reasons.

Amendment agreed to.

Further Amendments made: In line 28, leave out "of".

In line 31, at end insert: shall be treated as comprised in the property in which the interest subsisted (in addition to any other property so comprised) and as being of a principal value, as property so comprised, equal to its principal value at that time".—[The Solicitor-General.]

The Solicitor-General

I beg to move, in page 33, line 45, at the end to insert: (14) Where under any trust or power relating to settled property income arising from that property is accumulated, the accumulations shall not be treated for the purposes of subsection (8) or (12) of this section as derived from that property. This Amendment involves a different point. It was not desired to charge accumulations of income. At present, under subsection (8), the charge is imposed upon the property comprised in the settlement at the time of the death of the donor, except in so far as that property neither is nor represents that which is derived from the property originally comprised in the gift. There is a parallel exception relating to cases within Section 43 (12) of the Finance Act, 1940. The difficulty is that accumulation of income would be property derived from property originally comprised in the gift.

Amendment agreed to.

6.15 p.m.

The Solicitor-General

I beg to move, in page 34, line 4, at the end to insert: and any property which for the purpose of estate duty on a death falls by virtue of any provision of this section to be valued as at a time before that death shall, for the purposes of subsection (10) of section seven of the Finance Act, 1894 (which provides that the same property shall not be twice aggregated or twice charged on the same death), be treated as distinct from the same property falling to be valued as at some other time for purposes of duty on the same death". It is very difficult to explain this Amendment quickly. The relevant Section 7 (10) of the 1894 Act is designed to prevent double taxation. This difficulty did not arise while the Bill adopted the method of converting property into a notional sum of money, but now that property is allowed to remain, for instance, in the possession of the done or deemed to be, there is a difficulty, because the relevant subsection of the 1894 Act would apply in a case where there was no element of double taxation, unless some express provision were made.

It is much easier to explain this by reference to a concrete example. Suppose a father made two distinct gifts, one to his son of a house worth £5,000—and let us keep it at £5,000 value all the time to avoid complications. Suppose that a second gift of £4,000 is made to trustees for the benefit of the son and other members of the family. The duty should be on £9,000, the total sum of the two gifts. Suppose that before the father's death the son sells the house to the trustees of the settlement for £4,000. He has, in terms of subsection (3), voluntarily divested himself of the house for something less than full consideration. He is to be treated under the Amendment which has just been accepted as continuing to have possession and enjoyment of the house, to be valued at the date of the alienation, and the son's liability, apart from Section 7 (10) of the 1894 Act, is £5,000.

Suppose that the trustees were still owning the house at the father's death. The house is comprised in the settlement when it represents the £4,000 paid for it and the trustees' liability would be £4,000, apart from the relevant subsection of the 1894 Act, but, of course, it could be urged that if the relevant subsection of the 1894 Act applied as to £4,000, that is to say, four-fifths of its value, duty was being charged on the house more than once in respect of the same death. That obviously is not the result desired and, for that reason, we invite the House to enact the words which get rid of the difficulty.

Amendment agreed to.

Mr. Powell

I beg to move, in page 34, line 16, at the end to insert: except as provided by the following sub-section— (17) This section, except subsection (11), shall not apply to a gift made, or a disposition or determination effected or suffered, before the tenth day of April, nineteen hundred and fifty-seven, where—

  1. (a) if the deceased had died at the end of that month and this section had been expressed to apply to a death at that time, duty would by virtue of this section have been chargeable by reason of the gift, or of the disposition or determination on property not chargeable in accordance with the law then in force, or on a value determined as at a date earlier than under the law then in force; and
  2. (b) within twelve months of the death of the deceased or such longer period as the Commissioners of Inland Revenue may allow, the persons accountable for the duty chargeable by virtue of this section (or such of them as appear to the Commissioners to be materially interested) elect that it shall not apply to the gift or to the disposition or determination, and give notice in writing of their election to those Commissioners.
The Amendment fulfils the undertaking which was given by my right hon. Friend in Committee and it does it in the following way. It provides that where, at the time of the publication of the Bill, there was in the hands of a donee property which, under the law as it stood at that time, and, indeed, under the law as it will stand until the Royal Assent is given to this Bill, attracted no Estate Duty, those accountable for duty shall be able to exercise their option for benefit of the old law and not be treated under the new law. That is to say, property which at the time of the publication of the Bill was free of Estate Duty shall not be made subject to Estate Duty by this Bill if the person who would be accountable for the duty exercises an option to that effect.

The reason why an option is given as between the old law and the new law in such a case is that the object of the Amendment is to relieve and not impose an extra burden. There might be cases where the new law might result in less duty being leviable on the property at that time in the hands of the donee. It is not the object of the Amendment to deny the benefit of the new law in such cases: its object is to relieve those who might have been prejudiced by the operation of the new law.

Sir Patrick Spens (Kensington, South)

In thanking the Minister for what he has done, may I say that it took me a long time to discover that this Amendment contained the simple explanation which he has given to the Committee? Having studied paragraph (a) several times, I had come to the conclusion that it carried out what the Minister desired, although the true construction of the word "then", and the exact point of time inferred, made me scratch my head a lot. However, I am satisfied that the Amendment carries out what was intended, and I am much obliged to my hon. Friend.

Mr. E. Fletcher

I find myself in the same position as the right hon. and learned Gentleman in this sense, that I had to scratch my head several times before I understood what the Amendment was intended to do. I cannot say that I agree with the right hon. and learned Gentleman when he says that he is satisfied with the explanation given by the Minister. If he is satisfied with that explanation, it makes me more suspicious than I was originally. My suspicions are increased when I find that the hon. and gallant Gentleman the Member for Cheltenham (Major Hicks Beach) had an Amendment to the Chancellor's Amendment on the Notice Paper last week which has been withdrawn, so I gather that he is satisfied.

Major W. Hicks Beach (Cheltenham)indicated assent.

Mr. Fletcher

The fact that he and the right hon. and learned Gentleman are both so satisfied and happy about the Amendment should give us cause for some hesitation.

When this matter was considered during the Committee stage, the Chancellor, in response to the Amendment then proposed by the right hon. and learned Gentleman, indicated what he proposed to do. As a result, my hon. and learned Friend the Member for Kettering (Mr. Mitchison) and my hon. Friend the Member for Sunderland, North (Mr. Willey) and myself said that we would prefer to await the Amendment which the Chancellor promised to put down for the Report stage before saying whether we thought it went too far or not. I hope that before we part with the Amendment we shall have further explanation from the Minister, in the absence of which, it seems to me, it goes too far.

As I understand the position, it was pointed out to the right hon. and learned Gentleman that the retrospective effect of Clause 16 would create a hardship in cases where the donee of a gift inter vivos had parted with the gift. I think that he based his case upon the fact that it was only where the donee had parted with the subject matter of the gift that hardship would arise. That was the point taken by my hon. Friend, that if the donee of a gift had not parted with the gift then no hardship would arise, and there was no need to change the operation of the Clause as originally introduced. I would like the Minister to tell us whether, in his opinion, this Amendment applies only where the donee has parted with the gift or whether it applies equally when the donee retains the gift, the subject matter of the disposition.

Mr. Frederick Mulley (Sheffield, Park)

I share the difficulties that have been expressed about trying to understand this Amendment and, in particular, paragraph (a). The Financial Secretary will recall that when we debated this during the Committee stage we, on this side, tried to draw a distinction between two classes of gift that were aimed to be caught by the Clause.

There was, first, what the Chancellor accurately and dramatically described as the "disappearing trick". Secondly, there was the problem which the proposed Clause created in respect of bonus shares and matters of that kind. It was argued forcefully that there was a distinction between the two classes involved in this matter. No one was prepared to defend the disappearing trick—which was a purely legal but not very reputable device to avoid Estate Duty—and the bonus share device of avoiding Estate Duty, which, at least, had the sanction of several judicial decisions.

I am not clear from the form of paragraph (a) whether this will catch the disappearing trick in the sense that the gift of the shares, or Treasury bills, or whatever it is that is part of the operation, will be caught if the gift was made before 10th April, but which did not technically disappear until some time after that date. That is one point on which we need further clarification. To extend the concession to the disappearing trick procedure, which any legal advisers must have advised the persons concerned might result in legal difficulties, is going much too far.

Mr. Powell

With the leave of the House. I will confirm that this will only relieve that property, or amount of the value of that property which, at the date of the publication of the Bill, had actually become, under the law as it then stood, free of Estate Duty, either by the alienation of the gift, or qua bonus shares, or by virtue of a difference in valuation; but it will only apply where freedom from Estate Duty had actually been achieved by this date under the existing law.

Mr. E. Fletcher

Will the Minister say that it will apply equally, whether the donee retains the property or has parted with it?

Amendment agreed to.