Clause 20.—(SETTLEMENTS.) (Hansard, 15 July 1958)

§ The Solicitor-General (Sir Harry Hylton-Foster)
I beg to move, in page 14, line 30, to leave out from "thereof" to "to" in line 31.
The Amendment removes words which, on further consideration, we think add nothing to the Clause.

§ The Solicitor-General
I beg to move, in page 15, line 3, to leave out "any" and insert "no".
I think that it would be convenient if we discussed at the same time the Amendment in page 15, line 4, to leave out from "been" to "and" in line 6 and insert: exercised after the fifteenth day of April, nineteen hundred and fifty-eight, or is or can become exercisable after the fifth day of April, nineteen hundred and fifty-nine or such later date as the Commissioners of Inland Revenue may in any particular case allow".

The Chairman (Sir Charles Mac-Andrew)
Yes.

§ The Solicitor-General
The Amendment seeks to change the terms of the let-out that is in the Bill as it stands. It works in two ways. It closes a gap which was left by the Bill as drawn, and it serves to meet some criticisms voiced in Committee by my hon. Friends, in particular my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) and my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke).
The let-out arose in this way. The Committee will remember that subsection (4) of the Clause as it stands let the settlement made before Budget day out of the operation of this Clause if the offending power, if I may use that expression, was released or disclaimed within three months of the passing of the Act. But that did not deal with the kind of villain who might choose before the expiry of that time limit to exercise the power in favour of the settlor. If one takes the Saunders type of settlement, a settled fund of £25,000 with the provision that £100 must at all times remain within the settlement, it may be that before the time limit under this let-out had been reached the power had been exercised to pay out £24,000 of the £25,000 to the 1041 settlor and the offending power thereafter released or disclaimed. It is necessary to close such a gap, and that is the point with which the Amendment deals.
My hon. Friends have complained that the time limit allowed for the let-out was too short. For the reasons that they stated, which I do not wish to repeat, we ventured to express sympathy with that view. It would be going a little further than my normal optimism to hope that my hon. and gallant Friend the Member for Cheltenham would be pleased to see what we have done, but I hope he will nonetheless look favourably upon it, because the time will now be extended to 5th April, 1959, for the exercise of this let-out and power will be given to the Commissioners of Inland Revenue to allow even longer in a particular case. In order to avoid misunderstanding, I should explain how the Commissioners of Inland Revenue will view their duty in respect of this discretion to allow extra time. It is intended to be used only in cases where the parties have themselves taken all reasonable steps to secure the extinction of the power by 5th April and their failure to do so is due to circumstances beyond their control. The fact that a person was unaware of the conditions of the let-out will not be regarded as the reason for extending the time limit. I say that so that there may be no misunderstanding about it.
The other point dealt with by the Amendment is one raised by my hon. and learned Friend the Member for Darwen. He took the point that the words "release or disclaimer" were not apt to deal with the case where one had to go to the court to extinguish the power. We are obliged to my hon. and learned Friend for emphasising the point, and we have met it by the Amendment.

§ Mr. G. R. Mitchison (Kettering)
As I understand, this is a rather long extension, from three months to a year from the date of the introduction of the Bill. I suppose that that is to allow for delay in the Chancery Courts, but I find it a little difficult to understand why such a long extension is required. I did not know that the Chancery Courts had enough work at present to justify that amount of time.
There is this other point. We were told by the right hon. and learned 1042 Gentleman what the Commissioners of Inland Revenue would do in allowing an extension of time. The words of the Bill are completely unlimited, and I really fail to see why the simple explanation which the right hon. and learned Gentleman gave us orally could not have been put into the Bill, which contains many explanations far more complicated than that would have been.

Major W. Hicks Beach (Cheltenham)
As my right hon. and learned Friend the Solicitor-General referred to what I have said in Committee, I should like to thank him for the concession made on behalf of the taxpayer. I must confess that I entirely agree that a limitation to six months would have given plenty of time. There is, indeed, an Amendment on the Paper in my name suggesting six months. However, this Clause will work from a practical point of view, whereas as originally drawn it was so unworkable that the kindest thing one could say about it was that it must have been drawn by someone who had never been in practice. We are grateful to my right hon. and learned Friend.

§ Mr. Mitchison
Since we are in Committee, and since the hon. and gallant Gentleman the Member for Cheltenham (Major Hicks Beach), who was responsible for originating the change, wanted only six months, and since six months seems plenty of time and nobody but the Government, in their wisdom, wants a year, will not the Government reconsider the matter and go a little way to meet the convenience of the parties concerned? Will they not go back to six months?

§ The Solicitor-General
I do not think the hon. and learned Member for Kettering (Mr. Mitchison) need now have any anxiety. Owing to the fact that the offending power cannot be exercised during the interregnum, it really does not matter how long one allows. I know that the office of my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) must be wonderfully conducted, but one has heard of offices in his branch of the profession which are at the moment a little understaffed through no fault of theirs. Lay clients will not necessarily be aware of what we are enacting in this rather technical respect, and I dare say that there may have to be some searching 1043 through the files of provincial solicitors' offices to find out which of the settlements require purging. No harm can be done because the fang of the settlement has been drawn and it cannot sting during its surviving life.

§ Mr. Frederick Mulley (Sheffield, Park)
I should like the Solicitor-General to give us a little more information about the exercise of the discretion by the Commissioners of Inland Revenue. I understand that it is seriously thought that they will take the view, under this Clause and the suggested new Clause, that if there is a hypothetical possibility of the settlor marrying one of the objects of the discretion, that will operate so as to take away the escape which is permitted. We may have the absurdity that the settlor's wife may at the moment be one of the objects of the discretionary trust.
Under these provisions, there will be a means of escape provided that she disclaims benefit within the period set out here; but, in the case of a possible nephew being included and a nephew's spouse, it is hypothetically possible that the settlor might in the future marry the ex-wife of his nephew. In those circumstances, as I understand it, if the Revenue is to take a very strict view as to the future possibility of marriage between an object of the trust and the settlor, these people will not be able to take advantage of the extended period because the trustees will have no power at all to strike out from a trust an object which is already written into the trust.
I know that this may, to some extent, anticipate an Amendment in the name of the hon. and gallant Member for Cheltenham (Major Hicks Beach), but since that may not be called, I wonder whether, arising out of this Amendment, the right hon. and learned Gentleman could give us some idea of what view the Commissioners of Inland Revenue will take about the remote but nonetheless real possibility of marriage between a settlor and certain of the objects of the discretionary Clause.

§ The Solicitor-General
I am obliged to the hon. Gentleman, and I think I understand the point he is making. I do not understand how it can conceivably arise on this Amendment. I was talking about the discretion conferred upon the Commissioners of Inland Revenue to ex 1044 tend the time in this matter, the time, as it were, for purging the offending power out of a settlement. I was speaking of no other discretion. On the kind of topic—I suspect that it is out of order—to which the hon. Gentleman was addressing himself, I would say that the Commissioners would be bound by the law, which, if I recollect aright, is to be found in the case of Tennant, a decision of Mr. Justice Lawrence in 1942.

§ The Solicitor-General
I beg to move, in page 15, line 8, to leave out from "consideration" to the end of line 9, and to insert: or benefit in connection with the fulfilment of the condition set out in paragraph (a) of this subsection; or if, in the case of a settlement to which subsection (1) of the said section four hundred and four applies by virtue of subsection (1) of this section. the settlement was entered into in connection with any judicial separation or any agreement between spouses to live separate and apart or with the dissolution or annulment of a marriage". This Amendment is designed to remove the difficulty my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) spoke about in Committee, namely, that consideration might be a difficult topic here. All one wants to do is to maintain that the settlor does not get back, as a consideration for the giving up of the power—in that guise, as it were—some funds out of the settlement. We have maintained that position in the Amendment, but we have gone on to make a special let-out for agreements of a certain kind, really in response to representations which came largely, I think, from the Law Society. The kinds of agreements which persons whose marriages have broken down enter into on judicial separation or divorce or, indeed, just a separation agreement, are very often framed in a way quite remote from any element of tax avoidance in terms whereby the husband protects himself from having to pay maintenance payments more than he can afford if his income goes down. We have, therefore, put into 1045 the Bill a let-out for agreements of that kind.