§ 7.15 p.m.
§ Mr. Charles Fletcher-Cooke (Darwen)
I beg to move, in page 22, line 30, to leave out from the second "and" to the second "the" in line 31.
I understand, Mr. Blackburn, that it will probably be for the convenience of the Committee if we take with this Amendment a whole group of others that are purely drafting.
§ Mr. Fletcher-Cooke
We are dealing now with a matter on which we must congratulate the Government. It is the long-promised repeal, virtually, of the decision In re Hodge, and that is something for which the Government, in their care that people should not pay too much death duties, is to be much commended. The principle adopted is right in equity. It is that if the deceased had no interest or enjoyment in the life policy, his estate should not bear duty, except in so far as the premiums that he has been paying during the last five years before his death must be treated 1064 as gifts, under the usual rules relating to gifts.
That is provided for in subsection (2) of this Clause, and is obviously right, but this batch of Amendments is designed to cure what I think is an oversight. The draftsmen, when dealing with this very difficult and technical matter, omitted to provide for a state of affairs that is fairly common in which the life policy is not simply assigned to the future beneficiary by the holder, but the same sort of effect is achieved by means of settlement and through the interposition of trustees.
I shall not weary the Committee by going through the innumerable subsections and passages in which I and my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) have sought to rectify this ommission. All I will say, and I hope that at this stage it will be enough, is that these Amendments are designed to bring into conformity with Government policy the very frequent cases where the deceased had not merely assigned the benefit in the life policy to someone directly, but had done so to trustees in trust for beneficiaries.
§ The Solicitor-General
We are grateful to my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke). I think he is quite right. This 1065 Clause, in subsections (2) and (3), deals with the matter on a basis of policies assigned to a person—someone called the donee—and it is quite right that in many cases where the donor settles the policy on trust the donee will, in fact, be a trustee.
The pattern that we have at present would have one particularly unfortunate result. It is noted somewhere in this batch of Amendments that subsection (4, b) of the Clause as it stands would come into operation after the trustees resigned or fresh trustees were appointed, which is not the desired result in the context.
I confess that I should like to have time to consider the precise Amendments which are most desirable to attain the result that everybody would want, and if that course were acceptable to my hon. and learned Friend and to the Committee I wonder whether he would think it right, on my undertaking on behalf of the Government between now and Report to consider exactly what form of Amendment would be appropriate, to withdraw his Amendment and not to press the others which are under consideration.
§ Mr. Fletcher-Cooke
I am very grateful to my right hon. and learned Friend. Although a certain amount of drafting work has been done by myself and others, nevertheless we do not purport to have quite the expertise which is available to my right hon. and learned Friend. I therefore beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. David Price (Eastleigh)
I beg to move, in page 22, line 40, at the end to insert:This subsection shall not apply to any policies taken out under the Married Women's Property Act, 1882, or the Married Women's Policies of Assurance (Scotland) Act, 1880.We are very pleased that the Government have introduced this Clause to rectify the injustice in what is known as the Hodge case in another place, but we have considerable doubts whether this may not cut across the Married Women's Property Act, 1882, and the similar Scottish Act of 1880. I refer to Section 11 of the 1882 Act.
1066 We have considerable difficulty in understanding lines 35 to 40 of Clause 26. I think I know what formula the Government are trying to legislate for, but I cannot put any mathematical interpretation on the words which appear in the Bill, and I hope that my right hon. and learned Friend will take this opportunity to explain exactly what is meant by those words. I have consulted one or two of my hon. and learned Friends who said that they once knew what they meant, but at the time of asking they were unable to tell me in simple English what they meant.
I hope that my right hon. and learned Friend will regard this Amendment as being exploratory, both on the interpretation of the exact formula provided and also on this doubt, namely, that we are advised by some learned opinion outside the Committee that this Clause as drafted may militate against the Married Women's Property Act, 1882, which I am sure it is not the intention of my right hon. and learned Friend to interfere with.
§ Mr. Frederick Mulley (Sheffield, Park)
This point has also exercised us on this side of the Committee. I knew that the hon. Member for Eastleigh (Mr. D. Price) was a man of many parts and that, among other things, he was an economist and scientist, but I think we can now welcome him among the ranks of those who try to understand the legal niceties of Estate Duty. I am sure that in this new venture he will be as successful as in those other fields.
I am sure that many of us share the hon. Member's difficulties about the wording of the Clause in general and subsection (2) in particular, but I think perhaps these points might be better considered with the Clause as a whole. I should be grateful if the Solicitor-General would clear up this point about Section 11 of the Married Women's Property Act. My own view is that it is already covered by the Clause, but the obscurity of the Clause is such that I think there are grounds for real doubt in the matter, and I shall be glad if the right hon. and learned Gentleman will deal with this point and let us know how we stand under that Act.
§ The Solicitor-General
I will do my best. If I rightly understand my hon. 1067 Friend's difficulties, there is apparently a point of anxiety—we believe it to be misconceived—as to whether subsection (2) of the Clause will do something to Married Women's Property Act policies which it is in no sense intended to do. That is to say, it would interfere in some way with the present operation of the rules about aggregation in relation to those policies because they are specially privileged.
If that is the point which my hon. Friend has in mind in relation to Married Women's Property Act policies, I will give him an unhesitating answer that the subsection is designed not to interfere with the present operation of the rules of aggregation in that respect, and in our belief it does not.
If any hon. Member were anxious to urge reasons to the contrary we should listen with the greatest interest, not claiming any absolute infallibility, but unless the Committee desires it, I do not think I would at the moment state the reasons why we say that the subsection as drafted leaves the principles of aggregation applicable to that type of policy as they are now.
I do not know exactly what is my hon. Friend's point about Section 11 of the Married Women's Property Act, so that if I do not meet it straight and answer it properly I hope he will elaborate it. I do not know whether the hon. Member for Sheffield, Park (Mr. Mulley) can assist me.
§ Mr. Mulley
The point which concerns me, although I accept the Solicitor-General's view that Section 11 is not affected by this provision, is that under Section 11 as soon as a policy was taken out for the benefit of a wife and children it automatically vested in the beneficiaries, whether or not any premiums had been paid.
I think that the purpose of subsection (2) of this Clause is to deal with the other problem of the Hodge case where only the proportion of premiums which had been paid outside the five-year period would receive the benefit of this Clause. It is a proportional benefit in accordance with the way in which the premiums have been paid. As I understand, Section 11 of the Married Women's Property Act is affected, and it may be a matter of 1068 doubt as to whether the whole or part of Married Women's Property Act policies are covered. I think that is the point which was put to me as being a difficulty.
§ 7.30 p.m.
§ The Solicitor-General
I am obliged to the hon. Member for Sheffield, Park (Mr. Mulley). I understand the point, if that creates difficulty, but it is not really a danger. As the hon. Member said, the effect of taking out in the ordinary fashion a Married Women's Property Act policy and nominating a beneficiary is to create a trust in the beneficiary forthwith, so that it is at that moment of time when the policy is effected that the benefit is taken by the beneficiary.
What the Clause will do to that class of policy, in conjunction with other classes of policy, is to repeal the old provisions which were special to policies of insurance and did not relate to gifts of other kinds of property, and reduce the duty payable in respect of them, in effect, because, whereas in the past, while Section 11 of the Customs and Inland Revenue Act, 1889, was the governing factor, the duty would have been on the whole of the policy moneys provided, as it were, by premiums paid by the deceased, whenever he paid them, however long ago he paid them—as that calculation would be in relation to the case of Hodge—under subsection (2), the only payments of premium which will play a part in a gift in the case we have in mind are premiums paid by the deceased within the five years before his death.
I was asked for an explanation of the way in which the latter part of subsection (2) works. I think that we have become familiar in the House with the concept of what are called bricks in relation to pensions or the like. This is very like that concept of a brick. If the deceased pays a premium on the policy which he has given during the last five years of his life, each payment confers on the beneficiary an improved policy, and it is that idea which is expressed in the wordsthe payment shall be treated as a gift to the donee of rights"—one might say improved rights—under the policy".When one comes to deal with each brick of improvement created by the 1069 payment of the premium within five years of the death, one values it at a value equal to the proportion of the value of the policy which the amount of the premium paid by the deceasel at that point bears to the aggregate amount of all the relevant premiums. The answer to the question, What are the relevant premiums? is found in subsection (5), namely, in the ordinary case—I need not complicate it—the whole lot paid up to the maturity of the policy. It is merely the concept of the brick each time matching the appropriate proportion of the policy.
I am full of words in my endeavours to explain. If I have failed my hon. and learned Friend or any other hon. Member, I shall be glad to try again. Otherwise, I shall keep quiet now.
§ Mr. D. Price
In view of my right hon. and learned Friend's reply, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Fletcher-Cooke
I beg to move, in page 23, line 12, at the end to insert:Provided that if the benefits or any of them are receivable at a time before the death the value shall be taken to be or to include (as the case may be) the value of those benefits at the time when they are receivable.The point of this Amendment is a very small one. It is designed to insert into this scheme what one might call the modern view of the date of valuation for the purposes of the notional gift. Throughout the Clause, the premiums and certain other things are to be treated as a gift, in the rather elaborate way that my right hon. and learned Friend explained—I do not mean that his explanation was elaborate but that the matter itself is elaborate—and we understand from that and from our reading of the Clause that one has to deem and calculate certain matters as gifts.
Subsection (4, a) provides that the valuation shall take place as at the death. My Amendment is intended to import into this little code dealing with these policies the sort of consideration which we discussed in 1957 in connection with the "disappearing horse" provisions in the Act of that year. I think that the matter can be best and most vividly brought to the memory of the Committee in that way. The Amend- 1070 ment is designed to insert words by which the benefits receivable before death are to be valued, if possible, at the date of receipt rather than at the date of the death.
This works both ways, of course; it is not necessarily for the benefit of the taxpayer. The method of valuation at death rather than at the date for receipt very often works against the Exchequer, particularly if the taxpayer or potential taxpayer is cunningly advised upon the sort of asset that the settlement should buy. As we remember, one can buy disappearing assets which have no value at the date of the death.
In conformity with what is now Section 38 of the Finance Act, 1957, which dealt with that difficulty on the wider and more general matter of gifts, I have sought to insert here, as it were, a formula to apply that principle in that Section of the 1957 Act to this more limited class of gifts under these life policy transfers and settlements.
I hope I have said enough to make clear the object of the Amendment. As I say, it is only applying a policy which the House adopted in 1957 to the provisions in regard to these somewhat notional gifts which we hope to pass in 1959.
§ The Solicitor-General
I am very grateful to my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) for the short and succinct way in which he stated the point raised by the Amendment. It is, I suppose, concerned only with endowment policies. They would have to mature in the lifetime of the assured for the point to be of importance.
Frankly, we feel some doubt about whether my hon. and learned Friend's idea is right. The general rule, the modern general rule, is that for Estate Duty purposes one values at the date of the death when dealing with gifts inter vivos. To depart from it in this context would, so it seems to us, be very harsh on the taxpayer in certain instances which might arise.
The general rule is modified, it is true, by Section 38 of the 1957 Act, with its "disappearing horses", and so forth, but essentially in matters where the donee has disposed of the gift before the death, the exact principle is followed 1071 in paragraph (b) of subsection (4) of the Clause. In other words, the Clause adopts that principle in that particular case. But, apart from the case where the donee has disposed of the gift before the death of the donor, it is most dangerous, I suggest to the Committee, to adopt this suggestion.
The point is very often—one would think, in most cases—immaterial, because the policy provides for a sterling cash payment, and the nominal value of the sterling cash payment, subject to inflationary tendencies, buying power and so forth, would be the same both at maturity and at the death of the assured.
But suppose that the policy provided for a benefit other than cash—perhaps a stated amount of Government securities or an annuity. It would then seem right to follow the general rule and to value at the death, because the annuity at the time of maturity would be considerably more valuable in some cases than at the time of the death, and it would be harsh as against the donee not to value at the death at a time when the annuity may be considerably less in value than it was at the time of the maturity of the policy.
It is for that reason that we believe that the Clause as it stands proceeds on the right principles of valuation, and I should therefore feel obliged to ask the Committee not to accept the Amendment.
§ Mr. Fletcher-Cooke
I bow to the superior wisdom of my right hon. and learned Friend when he says that on the whole he thinks that the Clause as drafted would be of greater benefit to the taxpayer than it would be with my Amendment. As I have said, it was not entirely with an eye on the taxpayer that I introduced the Amendment, because I think that in moving these rather technical Amendments one should have regard to the general, logical and consistent position rather than always try to squeeze something out of the Exchequer.
I shall ask leave to withdraw the Amendment, but I would ask my right hon. and learned Friend to look again at the possibility of a certain amount of undesirable dodging which could arise in the case that he mentioned, namely, a policy that provided not for a cash payment nor even for an annuity but for a Government bond—for example, a Victory Bond. It may be possible so to arrange the maturity of a policy, given 1072 luck with one's dates, that that bond had disappeared or at any rate had changed its nature to such an extent that the taxpayer got away with it in the way that the disappearing or dying horse taxpayer used to get away with an uncovenanted benefit in the sense of an undeserved benefit. However, I do not want to argue that case further. I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ The Solicitor-General
I beg to move, in page 23, line 45, after "gift)" to insert:except subsection (11) (which provides for marginal relief in the case of gifts exceeding five hundred pounds)".Subsection (7) excludes Section 38 of the Finance Act, 1957, because in that Section we provided for the valuation of gifts in certain circumstances, namely, where the donee had parted with the gift before the death. This Clause adapts the principle of Section 38 to the topic of this Clause, namely, insurance policies. It was not desired to risk a conflict between the two sets of provisions and therefore, this Clause cut out the operation of Section 38 in relation to its own subject matter. However, that was rather too violent a surgical excision because one of the subsections of Section 38 conferred certain marginal relief in relation to certain small gifts—those just exceeding £500. It was not desired to exclude the marginal relief provision. For that reason we propose to cut down what we previously cut out by subtracting from the exclusion subsection (11) of the Section referred to.
§ Amendment agreed to.
§ 7.45 p.m.
§ Mr. Fletcher-Cooke
I beg to move, in page 23, line 46, at the end to insert:(8) Where a policy of life assurance is at the time of a death comprised in a settlement whereunder the deceased or any other person had an interest ceasing on the death, the policy shall not by reason of such interest be taken to pass on the death under section one of the Finance Act, 1894, or be deemed to be included in the property so passing by virtue either of paragraph (b) of subsection (1) of section two of that Act or of paragraph (c) of subsection (2) of section thirty-eight of the Customs and Inland Revenue Act, 1881.Would it be convenient also to take the Amendment in page 23, line 46, at the end to insert:(8) Where the last foregoing subsection has effect, any premium under the policy paid 1073 by the trustees of the settlement out of income to which, or out of property to any income of which, the deceased would, but for such payment, have been entitled shall be deemed to have been paid by the deceased by way of gift.
§ The Temporary Chairman (Major Sir William Anstruther-Gray)
That would be convenient.
§ Mr. Fletcher-Cooke
These Amendments will take a little longer than my other Amendments because the point is extremely difficult.
Hon. Members will know that under the Finance Act, 1894, duty is exigible either under Section 1—that is, property passing at the death—or under Section 2, subsections (a), (b), (c) or (d)—that is property deemed to pass. Tax that is exigible under one or other of those Sections cannot be exigible under both. In two recent cases in the House of Lords, one known as the Wrightson case and the other the Barber case, a settlement of the following type was considered. I shall simplify the facts considerably in both cases. A settlor—let us call him A—settled a life policy on his life and its proceeds on B for life with remainders over to C and D. In those circumstances, the House of Lords had to consider whether, on the death of A before B, any Estate Duty was leviable.
It was said that on the death of A, even though he had had no enjoyment from the policy personally and had had no intention of having and indeed could not have had any enjoyment, nevertheless the property must be deemed to pass on his death under Section 2 because the nature of the interest of B might be said to have changed at the moment that A died. There was a conflict of judicial opinion, but nevertheless it was held that no death duty was leviable because B already had an interest in possession while A was alive and, therefore, it could not be deemed to pass because B already had sufficient interest in possession, and when the dread event occurred it did not work a sufficient change in the nature of his interest to cause the taxman to come upon him.
That appears to be very splendid from the point of view of the taxpayer and hon. Members may wonder why I am 1074 quarrelling with it, but the reason why the House of Lords held that no Estate Duty was payable was, as I have said, that B's interest was already in possession. Let us vary the facts a little and see what would have happened if B had died before A. If during A's lifetime B dies, B has already an interest in possession because the House of Lords has said so. That means that on B's death, even though he had no enjoyment of that policy which did not mature until A died and the interest which he has in possession passing to C and D, nevertheless his estate would, by the very reasoning that excused him if he survived A, have to attract duty if he died first.
This was a result contemplated with horror by the Master of the Rolls in the case in the Court of Appeal, when he said that it was against all reason but nevertheless the arguments of counsel drove him to accept it. I hope I have said enough to show that in such a case—and there are many others; I have simplified the matter as much as I can—the very finding of the House of Lords would make it inevitable that there would not be a deemed passing under Section 2 but an actual passing under Section 1 of the 1894 Act and that tax would be leviable on the estate of B even though B never had any enjoyment whatever from that interest. That conflicts very much with the principle that has run through the Clause that death duties are not to be levied on the estates of people who have had no enjoyment from that interest except in so far as the five-year gift principle is an exception.
It may be said that in the case to which I have referred, there would be exemption under Section 5 (3) as subsequently amended, which states thatIn the case of settled property, where the interest of any person under the settlement fails or determines by reason of his death before it becomes an interest in possession, and subsequent limitations under the settlement continue to subsist, the property shall not be deemed to pass on his death by reason only of the failure or determination of that interest.That would not avail the taxpayer in this case, because, by the very nature of the House of Lords finding, B's interest is an interest in possession and it is not by reason of his death that it becomes 1075 one. Therefore, his executors and his estate would have to pay even though he had never had any enjoyment of that policy because he died before it matured. That is contrary to the generous spirit of the Clause.
If other examples are wanted by the Committee, I could give them. It would, however, trespass too much on the kind attention of hon. Members if I were to do so, because this is a matter which can be dealt with only by intensive quotations from the speeches of their Lordships in the Wrightson and Barber cases, and I am sure that nobody wants that.
§ The Solicitor-General
I sympathise greatly with my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke). I do not want to read anything from their Lordships, but I do not know how to deal with the two Amendments within any reasonable, sensible compass of time available to the Committee. Perhaps I might say by way of preface that we would like an opportunity to consider with great care everything that my hon. and learned Friend has said and to see whether anything which he has been saying could cause us in some way to change our present frame of mind that his Amendments would produce some strange results—I will explain them presently—and that in any event they are quite outside anything that the Clause is designed to do.
The Committee will appreciate that the whole operation of the Clause is designed to prevent gifts of policies of insurance being treated as they have been more harshly in relation to Estate Duty than gifts of other kinds of property. My hon. and learned Friend's Amendments would create a specially privileged position for gifts of policies of life assurance, making them more privileged than gifts of other kinds of property. It is not our intention in the Clause to seek to do anything of the kind, nor is it easy to understand why policies of insurance, if given, should be specially privileged more than gifts of other kinds of property.
The first of the two Amendments would exempt life interests in settled policies of assurance from Estate Duty under the three heads of claim named in the Amendment. Every one of those 1076 heads of claim is based on an enactment which relates not only to assurance policies, but to other forms of property too. My hon. and learned Friend's second Amendment would substitute a more limited claim to duy under the gifts inter vivos provision for the existing claim to duty. The Amendments would operate widely, because they would relate to policies which are settled on the deceased for life or on somebody else for the life of the deceased and would not even operate only on policies of the life of the deceased. They would apply also to policies on the life of another.
I do not know how to tackle this problem shortly. I must cite two specimen examples and resort, as usual, to those good companions A, B and C. For this purpose, however, one must have a sample of a settlement which creates a life interest for the settlor in a policy and one must have an instance where the settlement creates a life interest in another person and see how it works out. We believe that my hon. and learned Friend's Amendment would produce a wholly wrong result as to the first one and a very odd result with regard to the second one; but I need to explain it a little more elaborately.
This is my first specimen. The settlor is always A, the person with the life interest is B and the ultimate beneficiary is C. Suppose that A settles property, including policies of insurance, on his own life and on the life of his wife, B, on trust for himself for life and after his death to C absolutely. One needs, of course, the provision that premiums are to be paid out of the income or capital of the other property in the settlement.
§ Mr. Mitchison
May I make a suggestion to the right hon. and learned Gentleman? Does he insist on a knockout or would he not be satisfied with a win on points?
§ The Solicitor-General
I hate this as much as the hon. and learned Member does, if not even more. It is, however, a slight relief from the kind of cause célèbre which gets into the Press. Otherwise, Estate Duty is a slightly morbid topic. The trouble is that I am not certain whether I am addressing myself only to this Committee and I do not know how to abbreviate what I have to say in relation to matters outside. I 1077 will go along as swiftly as may be with the indulgence of the Committee, well understanding what agony it causes to my fellow Members in this place.
On the basis of the case I was putting, when A dies in the lifetime of B, duty at present would be on property passing to C on the death which includes the policies and, therefore, would be on the policy moneys payable on A's death and the surrender value of the policy on the life of B. In that case, the first of my hon. and learned Friend's two Amendments would exempt the policies, but not the other property settled, from a claim under Section 1 of the 1894 Act. It would substitute a claim for duty on the basis that the premiums were gifts from A to C.
Clearly, that is unhappy in its result, because it would mean that every policy ordinarily would be wholly exempt from duty. I say that because the gifts and premiums in any ordinary case would be wholly exempted by reason of their being gifts which are normal and reasonable under the terms of the Statute. I do not believe that is the result which my hon. Friend wants, and it is the result which his Amendment would have.
My second specimen, and it is not a long one to describe, is the reverse one, where the settlor settles policies on his life in trust on someone else for life. It is for instance, where A by his marriage settlement settles property, including policies on his life, in trust for his wife B for life and on her death for C absolutely. Once again I want the premiums OP the policies paid out of the income from the capital of the property settled.
I do not want to trouble the Committee in the least with quotations from their Lordships in the Wrightson case or the like, but the result we get there is that if on A's death during the lifetime of B, on the basis of the decision in the Wrightson case, there is to be no claim under Section 2 (1, d) of the Act because B's beneficial interest arose during A's lifetime and not on his death, then the corollary would be that B's beneficial interest arose during A's lifetime and there would be a claim where B dies during the lifetime of A.
Clearly, if we are going to have the kind of Amendment in that case which my hon. and learned Friend has selected, the first of these Amendments to exempt 1078 the policy from duty on the death of B during the lifetime of A, it would be only right to be consistent to have a parallel Amendment to Section 2 (1, d) in favour of the Revenue restoring a claim for duty on A's death during the lifetime of B. It is arguable whether one or the other is the right way about it, but it must be consistent. That is the view we take. On the other hand, in the case I am putting, his Amendment produces the absurd result of treating the claim on the death of B as one on the basis of a gift from B, the life tenant, to C, which is manifestly nonsense, with respect, because what is given is given by the settlor, not by the life tenant.
I am sorry to be so long and wholly inexplicable about it, but it is the nature of a subject matter which renders that necessary. It is for those reasons that I would submit to my hon. and learned Friend that the proposals in his Amendments would not really work satisfactorily, and the general idea raised by these Amendments is wholly outside the purpose of the Clause. It is for that reason that I could not advise the Committee to accept them.
§ Mr. Fletcher-Cooke
My right hon. and learned Friend has been much more severe with me on this than on the other Amendments, and if I ask leave to withdraw it, it will be only on the same basis of the others, namely, that I should like to study, in the quiet of one's closet, the examples he has given of the absurd results of the words which I have sought to put in. I have no doubt that they are very inadequate words, but, at the same time, I think it is fair to say, judging from his reply, that maybe his advisers did not really consider the matter, perhaps because they had not the opportunity.
I return to the point I made when I moved the Amendment, and the examples he has given, particularly his second example. What is the result of the Wrightson judgment when B dies before A? Is it not, as I have said, that that means that although B has never had any enjoyment, tax will he leviable on B's estate because, says the House of Lords, B has an interest in possession, and if B does have an interest in possession it must pass, under Section 1 of the Finance Act, 1894?
1079 I am sure that my right hon. and learned Friend and his advisers will consider that before the next stage. I will certainly undertake to consider the examples he has given and which we can read in HANSARD tomorrow, because I have no pride of authorship in these words, and it may be that they go far too wide, and that other words can be found to deal with the sort of hardship which I foresaw and which, I am sure he will agree, should not be allowed to occur and should be prevented. 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. Mulley
In view of the hour, I shall not detain the Committee for more than a few moments, but I think that it would be very agreeable of the Solicitor-General would tell us what is actually in the Clause, instead of telling us, as he has been obliged to do so far, what is not in it and what is not intended. I think that all of us will agree that the purpose of the Clause is one deserving of support, to reverse, as I understand it, the decision in the Hodge case and to place gifts of insurance policies on the same footing as gifts of other sorts of assets.
It is, as the right hon. and learned Gentleman has already said, a very complicated Clause, and I am wondering whether the drafting of so long a Clause to achieve what seems so simple a purpose may not cause various possibilities and loopholes to occur. I should certainly like an assurance from him that he will look very carefully at the point made by the hon. and learned Gentleman the Member for Darwen (Mr. Fletcher-Cooke), the possibility that a new form of disappearing horse trick may appear by the use of endowment policies in returns other than cash, and that the difficulty which we thought we had completely disposed of in the Finance Act, 1957, may occur.
Certainly, I was sufficiently impressed by the hon. and learned Member's argument to feel that it justifies some serious study by the Department before the next stage of the Bill. One appreciates the very great difficulty and complexity of these matters, but I think that there is some internal evidence that the Clause 1080 has perhaps been drafted rather quickly. The Chancellor himself has been obliged to rectify one error of drafting, and the Solicitor-General has also been good enough to undertake to meet the very substantial point which was raised by other Amendments, and to produce Amendments at the next stage.
So I should like from him, before we part from this Clause, the assurance that it does no more than put right the Hodge decision. Perhaps he can tell us briefly, exactly and simply what it is intended to do. In particular, I should like him to try to explain to me, if he will, what is meant by subsection (2). The words I find particularly difficult are:Where by way of gift a person pays a premium under a policy of assurance on his life in circumstances where the payment does not fall to be treated for estate duty purposes both as a gift and as one of money".I must confess that I have tried to discover what is meant by the wordsboth as a gift and as one of money",but so far the meaning has escaped me.
I should be glad if the right hon. and learned Gentleman would deal with that matter. In general, as he has had so much to say on things which are not in the Clause, I should like a precise explanation of what the Clause does, so that we may be assured that the possibilities of loopholes will not arise in future, as suggested from the other side of the Committee.
Major W. Hicks Beach (Cheltenham)
I want to be extremely brief, because it is quite apparent that the intention of this Clause is welcome to both sides of the Committee, the intention to overcome the gross injustice of the decision in re Hodge, but I still have a rather uneasy feeling that this Clause is rather loosely drafted, if I may say so. I hope very much, since we all agree with its intention, that my right hon. and learned Friend and his advisers will, before Report, take very careful note of the observations which have been made concerning the Clause. We welcome the principle, which must be fair to the taxpayer, and I would conclude by saying to my right hon. and learned Friend, that the Treasury draftsmen are not always right.
§ Mr. Fletcher-Cooke
I simply want to put a query concerning annuities, which I should be grateful if my right hon. and learned Friend the Solicitor- 1081 General would answer. My right hon. Friend the Chancellor of the Exchequer, in his Budget speech, said that the Finance Bill would include a Clausethe broad effect of which will be that gifted policies of insurance will be treated just like gifts of other kinds of property for Estate Duty purposes. This will apply both to life assurance policies and to policies providing annuities."—[OFFICIAL REPORT, 7th April, 1959; Vol. 603, c. 51–2]As I understand, Clause 26 (1) deals with the annuities which might fall into charge originally under the Customs and Inland Revenue Act, 1889, and which is now mentioned in Section 2 (1, c) of the Finance Act, 1894. There is also the possibility, and indeed the probability, of a charge on annuity under subsection (1, d) of the same Section. Indeed, it mentioned it, and there is the case of Adamson and others in 1934 where the charge was levied under paragraph (d). I should like to be assured that the desire to treat annuities as not being subject to charge, except for the usual gift which we have been discussing, really is comprehensive and there can be no danger that after we have parted with the Clause the Revenue will seek, under Section 2 (1, d) of the 1894 Act, to charge on an annuity which can no longer be charged under paragraph (c).
§ The Solicitor-General
On the last point he made, my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) will appreciate that nothing is sought to be done in this Clause about those provisions of statutes which deal with property, other than policies of insurance, in addition to policies of insurance. All we have sought to do is to get rid of those special provisions which cause gifts of policies of insurance, among gifts inter vivos, to be specially harshly treated. This provision relates to the type of claim that arises under Section 2 (1, c). I hope that that is the right answer to the question which my hon. and learned Friend has been immediately asking me. I must try, in more general terms and as succinctly as possible, to give an explanation of the Clause itself, in response to the invitation of the hon. Member for Sheffield, Park (Mr. Mulley).
The idea of course, is to repeal those provisions of the relevant statutes which treat policies more harshly than other objects of gifts and to apply to policies of insurance the ordinary inter vivos gift 1082 Rules—that is, the policies on the life of the donor—just as any other gift inter vivos stands to be treated. We do not find in the Clause what the rules about gifts inter vivos are, but the method adopted is to strike out provisions which are special to insurance policies and to set the right rules for defining and valuing a gift thereafter. That is the way the Clause works.
Subsection (1) repeals the provisions which are special to policies, and the provision in the Finance Act, 1948, which simply related to a manner in which the charge might be evaded, and will not be necessary now that Section 11 of the Customs and Inland Revenue Act. 1889, has gone. The point which the hon. Member for Sheffield, Park was asking about, on subsection (2), is this. There are two different cases to be considered. There is the case where the policy is effected by someone other than the donor, say the beneficiary, and the contractual obligation to pay the premium on the policy is on the person who took it out, but the deceased pays that premium. What he does is to relieve the beneficiary of the contractual obligation to pay. That is already, in Estate Duty law on established cases, a case of a gift of money. No new provision is required in this context because the existing law already provides for it in the right way.
"By way of gift," a person pays a premium which falls to be treated both "as a gift and as one of money" under existing law. In that case, because we do not want a new provision, that is expressly excluded from the operation of the Clause by the words which the hon. Member for Sheffield, Park mentioned. It is necessary to make a new rule where the contractual obligation to pay a premium is on the deceased—he is the person in contractual relation with the insurance company—by reason of the actual words in the old Section. The charge was on property "taken" under a voluntary disposition, and so on, and there is no means of identifying for Revenue purposes the property "taken" when an improved policy is given by payment of further premium after the policy has been assigned or given. That is why we must have a new provision in the second part of subsection (2).
1083 Subsection (3) is only designed to ensure that the right proportion of policy is taken in cases where property passes on assignment for the purposes of section 2 (1, c) of the 1894 Act. Subsection (4) is only to provide for the appropriate valuation, and I do not think that requires any special explanation Subsection (5) is the machinery to get the proportion right in each case by reference to the right lot of relevant premiums, and subsection (6) is to help with certain exemption provisions.
The Committee will remember that there ate exemption provisions which confer an option as to gifts totalling £500 in the case of any particular donee or when a gift is one of an interest in settled property of £100. It may, in certain circumstances, be valued, at the option of the taxpayer, either on the date the gift was made or on the date of the death. The enactment in subsection (6) is to produce the right result in relation to those cases of gift or assignment. I hope that indicates broadly the principle on which the Clause works, that it has manifested the right result to aim at and that we have largely attained it.
§ Question put and agreed to.
§ Clause, as amended, ordered to stand part of the Bill.