§ (1) In the case of persons dying after the coming into operation of this section, any provision of the enactments relating to estate duty which imposes, in connection with a gift of property, or the disposition or determination of an interest in Property, a condition that property shall have been possessed or enjoyed by a person to the entire exclusion of another person or of any benefit to him by contract or otherwise shall be applied in accordance with the following provisions of this section.
§ (2) In the case of property being an interest in land, or being chattels, retention or assumption by the said other person of actual occupation of the land, or actual possession of the chattels, shall be disregarded if for full consideration in money or money's worth.
§ (3) In the case of a gift, a benefit which the said other person obtained by virtue of any associated operations (as defined by section fifty-nine of the Finance Act, 1940) of which the gift is one shall be treated as a benefit to him by contract or otherwise.
§ (5) In the application of this section to Scotland, for references to chattels there shall be substituted references to corporeal moveables.—[The Solicitor-General.]
§ Brought up, and read the First time.
§ The Solicitor-General
I beg to move, That the Clause be read a Second time.
I am sorry to have to inflict upon the Committee a further dose of Estate Duty topic, but it is not long. Had it not been for a decision in the Judicial Committee of the Privy Council in an Australian case, we might not have had to have it at all.
Gifts inter vivos might be divided broadly into out-and-out gifts which, in general, suffer duty if they are made within five years of the death of the 1096 giver, and a second class in which the donee, the person to whom it is given, does not maintain enjoyment and possession of what is given to the entire exclusion of the donor or of any benefit to him by contract or otherwise. If that is the case, the property will remain liable for duty, however long before the death the gift, or the surrender of the life interest, was made.
The second class comprises the kind of case in which the giver enjoys the occupation of property rent free or at less than a full rent, but hitherto in this land we have always thought that it excluded the case in which the donor came into occupation of what had previously been given pursuant to a lease from the donee for which he paid the full economic rent, because that is a case in which the donor is paying in full for the use of what he has given and the donee is receiving the full benefit of the gift just as if he had let it to some third party in the market.
The Judicial Committee of the Privy Council has lately decided in relation to an Australian enactment, which is exactly the same as our own, that that was a wrong view on the construction. It is a hard case and ought to be put right because, as the Committee will understand, the circumstances may be wholly bona fide. For instance, if a landowner makes an out-and-out gift of some of his land to his son and continues to farm other parts of his land, and if he wants, in due course, in the interests of good husbandry, to take a lease of the land which he has given to his son so as to farm it with the land which be is farming himself, that is a wholly bona fide case. On this interpretation of the law, however, which would be expected to be binding upon us, it would result in the gift remaining liable for duty however long before death it had been made.
That is what the Clause does in the first instance. It does something in 1097 favour of the taxpayer. It also does something else. It corrects a weakness in this part of the law in favour of the Revenue. The first point relates to gifts inter vivos and surrenders of life interests, but the second point is concerned only with gifts inter vivos.
The weakness is this: supposing the donor gives a gift but receives a benefit by a wholly separate and distinct transaction. An example would be if A makes an out-and-out gift of land to B and then B grants to A an annuity equal to the annual value of the land. The Revenue can extort duty only if it can link the two transactions. It is sometimes remarkably difficult to do it, but it ought to be done in the true case. The Committee will remember that we put this right in the Finance Act, 1950, in relation to surrenders of life interests. We did that by enacting that benefits received by virtue of any operation associated with the surrenders were to be taken into account in the context. Subsection (3) of the new Clause makes an exactly parallel enactment in relation to gifts inter vivos to cure that weakness. That is all that the Clause does. I submit that it is necessary and innocuous.
§ Mr. Mitchison
I doubt whether any hon. Members on this side of the Committee, at any rate, will object to the new Clause in principle, but it raises one point. It relates to a lease of the type about which the right hon. and learned Gentleman was talking. The lease must be a lease for full consideration in money or money's worth. What strikes me as rather remarkable is that, when we are dealing with Estate Duty and other financial matters, the Treasury seems to have no difficulty in determining what the right rent for a property is, that is to say, what is in effect full consideration in money or money's worth.
However, those concerned with rating recently put off rating revalution for a matter of four years upon the ground that there was no such thing at present as a stable market in ordinary house property and accordingly no one could say what the proper annual value of that property was when let to the hypothetical tenant who is assumed for rating purposes.
I wonder whether the excuse then given or the reason then given, if I may 1098 be more courteous about it, is wholly consistent with what the Government are now putting forward in this Clause. They will appreciate that it has a distinct relation to this Clause, because if they are not able to determine what "full consideration" is and if there is some doubt about what is the full and proper rent in cases of this kind—some of them may be large cases; others may be small ones—the door may be closed by subsection (3) to one kind of fraud or contrivance, but it may equally be open on the question of a lease to another kind of fraud or contrivance, because what some people would think would be full rent may not, in fact, be truly full rent. Yet, since the Government are unable to decide what is the right annual value of property for rating purposes, they may be unable to decide what is the right rent for Estate Duty purposes.
§ Mr. Mulley
The whole Committee will welcome the Clause in so far as it is concerned with putting right the decision in the Judicial Committee of the Privy Council in an Australian farming case. It should also congratulate the Solicitor-General on the extremely funereal air which he manages to bring to our discussions on Estate Duty.
One distressing note which I detected in the right hon. and learned Gentleman's speech was that, as well as putting right in favour of the taxpayer a discrepancy which no one knew existed until the Judicial Committee of the Privy Council found it, the Government were taking the opportunity of putting right on behalf of the Revenue the discrepancy in the situation with regard to associated operations between inter vivos, which was not completely covered, and the surrender of life interest which we on this side of the Committee dealt with in 1950. It seemed to me from the reasoning of the right hon. and learned Gentleman that, if the Judicial Committee of the Privy Council had not taken the decision it did, we should still have the anomaly about associated operations and inter vivos.
While we are very glad that this opportunity has been taken as a new Clause and not as part of the original Bill, I should like an assurance from the right hon. and learned Gentleman that, where loopholes are known to exist, the 1099 Government do not have to wait for a judicial decision on any point before bringing before the Committee legislation to rectify loopholes which are only too well known to the Treasury. Before we pass the new Clause tonight we should be given that assurance by the right hon. and learned Gentleman.
§ 9.0 p.m.
§ The Solicitor-General
Of course, subject to considerations of time, sizes of Finance Bill and the like, I imagine that it is a very clever person who discourages the Revenue from closing loopholes, if they are found to exist in its armour. I do not think that the hon. Member for Sheffield, Park (Mr. Mulley), or the Committee need have any doubt that opportunity is persistently being taken for closing loopholes as they are found.
With regard to the observations of the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison), which were of such an enjoyable character, I wonder whether it would be impertinent to deal with him in this way. I do not think that he need have grave anxiety about the Government's ability to assess full consideration in the context here. It is not a matter, ultimately, for the Government. It goes, for instance, to the Court of Appeal, and I have no doubt that the Court of Appeal, if necessary, when we get there, does not have the slightest difficulty in saying what is or what is not full consideration.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.