§ Question proposed, That the Clause stand part of the Bill.702
§ Mr. Houghton
This is the moment to ask the Treasury Minister to tell us a little more about this Clause. It was referred to by the Chancellor of the Exchequer in his Budget speech, and it was referred to briefly by the Financial Secretary in his Second Reading speech. I think that the Committee would like to know a little more about these queer goings on in the world of wealth and affluence.
It looks as though it has been possible for a father, on the marriage of his daughter, not only to make a gift inter vivos to her on the occasion of her marriage, but to distribute gifts all round the family. If, unfortunately, he died within the five-year limit, not only was the gift to the daughter exempted from Estate Duty, but the gifts to the rest of the family were similarly exempted. Perhaps the Financial Secretary will tell us how much he knows about this matter.
We know that there was a judgment of the courts which, no doubt prompted the Chancellor of the Exchequer to introduce the Clause before this method of tax avoidance went any further. Perhaps the case which was the subject of the proceedings was the only case known to the Inland Revenue where this happened, or, at least, where exemption was claimed and granted. It might conceivably be that this practice had been followed in other cases, but that when it was claimed that these gifts inter vivos should be exempted from Estate Duty and the Revenue refused exemption the matter was not further pressed, in which case there would be no loss to the Revenue.
The Clause defines not the state of marriage, but what the Chancellor of the Exchequer and the Financial Secretary have called "the marriage consideration". It seems that the Clause will limit the exemption of gifts inter vivos in the circumstances which I have described where the gift is given tothe parties to the marriage, issue of the marriage, or a wife or husband of any such issue".703 That is going rather wide. There is provision fora subsequent wife or husband of a party to the marriage or any issue of a subsequent marriage of either parry".That takes the matter further. It is not only in consideration of the first marriage, but it can be in consideration of the second, and not only in consideration of the first marriage, but in consideration of the issue of the second. It is not only in consideration of the issue of the marriage. It can be a wife or husband of the issue of the marriage. In fact, it can be Uncle Tom Cobley and all.
The only thing which the Clause stops is the distribution of gifts by a generous parent to brothers and sisters, aunts and uncles and all sorts of other people who are not getting married at that moment so that there is no marriage consideration. What other consideration there may be is irrelevant. One has to get married in order to be part of the marriage consideration under the Clause. Previously, one had not. A gift could be made on a marriage consideration to a relative who had already declared that under no circumstances would he get married. How ridiculous can things become before the law is altered to make sense of this sort of arrangement?
Incidentally, I have omitted to say that not only the marriage consideration of those getting married, the issue of those getting married, the wife or husband of the issue of those getting married, but persons legitimated by marriage can apparently come within the scope of this exemption.
This raises the whole question of gifts inter vivos and the widespread avoidance of Estate Duty which people are enabled to practise. Although there is this limitation, if people have the prescience to make their dispositions when they are in reasonable health and vigour and can hope to live more than five years, they can dispose of very large sums to relatives, not only on the marriage consideration but on other considerations. too.
All that the Clause deals with is the estate caught by the time limit on gifts inter vivos and which provides the exemption of this kind of gift inter vivos, which is a gift on consideration of marriage which, as I said, is spread so widely 704 that it almost reaches the ends of the earth. It seems that a generous benefactor, on the occasion of the marriage of his daughter, could distribute gifts round the country and that they would all be regarded as gifts in consideration of marriage unless the law were changed. We welcome the change in the law, but whether it goes far enough is another matter.
I know that those who advise rich people are very cynical about the willingness of rich people to dispose of their wealth for the purpose of avoiding Estate Duty. It seems that when one has money it gives power, but when one disposes of it one loses that power; one cannot keep one's relatives as affectionate as one would like them to be when one has given the money away to them while one is still alive. They may become indifferent towards one. They may sit on the "boodle" and lose their natural love and affection for their parents. It is said that tyrannous parents who are determined to have the love and affection of their family on the lowest mercenary grounds retain it by not doing anything which would enable them to avoid Estate Duty.
There are others. I have one case particularly in mind where, as a matter of principle and civic duty, people will not indulge in practices which lead to the avoidance of Estate Duty. They feel that the law is the law, their obligations are what they are, that it is their duty to fulfil them, and that they will not take any advantage. That is very noble of them in a wicked world of avoiders and evaders, scrimshankers and all the rest who are willing to rob the Exchequer hen roost on the slightest provocation.
This Clause is a puny thing. It looks as if it is shutting the door on perhaps only one case, though others may follow. I think that the Chancellor might have considered removing entirely the exemption in connection with gifts inter vivos on the marriage consideration. After all, why should there be any specal treatment of a gift inter vivos on the occasion of the marriage of one's son or daughter? What is there exceptional about that in modern conditions which make a special claim upon the sympathy of the Chancellor.
The days of marriage settlements are past, except in the small and exclusive 705 circle of those who have a corner in the national wealth. It is a very small number of people who have it. They are well enough off to manage without it. The gifts that are given to children on marriage should run the same risk as gifts to other members of the family. They are mostly marrying into money, not for money. They marry for love—but money with it—and I cannot shed any tears for people who may be caught by a Clause of this kind. Nothing that the Financial Secretary will say will wring the withers of my hon. and right hon. Friends.
I can only say that I pour the utmost scorn upon all the apparatus of avoidance in the matter of Estate Duty. The Chancellor is touching only one corner of it, one in which he should clearly do something, but I doubt whether the scandals of this case are any worse than many more which the Chancellor is not touching at all.
§ Mr. Eric Johnson (Manchester, Blackley)
I do not pretend to have the knowledge of the hon. Member for Sowerby (Mr. Houghton) on these matters, but I have no quarrel with this Clause. I understand that its purpose is to withdraw exemption from Estate Duty from such far-reaching settlements as were possible under Section 59 of the Finance Act, 1910, but to retain exemption for settlements made to benefit only parties to a marriage and their children.
I should have thought that in these days, when adopted children are, in general, treated as equal with natural-born children, the marriage settlement which is drawn in such a way that the adopted children of the parties can benefit should not in itself be sufficient to make that settlement lose its exemption, as it seems to me it would, under the terms of the Clause.
I cannot believe that it is the intention of my right hon. Friend or the desire of the Committee, when we bear in mind all the legislation passed by Parliament in recent years to help adopted children and to see that they are no worse treated than natural-born children, that we should then turn round and make a settlement which excludes an adopted child from getting this exemption.
An Amendment was put down in the name of my hon. Friend the Member 706 for Portsmouth, Langstone (Mr. Stevens) and myself which was intended to remedy what seems to be a defect in the Clause. I hope that my right hon. Friend will look at it again and perhaps put right this apparently small defect at a later stage.
§ Mr. Graham Page
I have no objection to the definitions in subsection (1), but subsection (2) states:A disposition made by either party to a marriage on or in contemplation of the marriage shall be treated for estate duty purposes as a gift.Then there is a full stop.
I do not know whether it means as a gift in consideration of marriage or as a gift which is not in consideration of marriage. At present, as the law stands, marriage is a good consideration for the transfer of property if not valuable consideration. But the transfer of property on marriage or in contemplation of marriage is never a gift because there is consideration for it.
This Clause is a major alteration in the law, in saying something which any lawyer in the Committee at the moment learned in his student days—that marriage is good consideration. Now, in a subsection to this Clause, we are making a major alteration in the law; at least I think we are, but where the full stop comes leaves me in doubt. I do not know whether we are told that it is just a gift, or that it is not a gift. Is it a gift in consideration of marriage, or is it not a gift in consideration of marriage?
The importance, of course, is this: if we exclude settlements on marriage by either party to the marriage from being treated as a gift inter vivos which gets exemption, we are taking a very major step. We are telling the parties to a marriage, an engaged couple, one of whom may wish to settle property on the other, "You do not get any Estate Duty benefit out of doing it".
My second point I will not ask my hon. Friend to answer at once, because it is a rather technical one, but I want to put it on the record. Subsection (4) states:This section shall not apply where the disposition was made before the 4th April, 1963.Does disposition mean the instrument by which, for example, the settlement is 707 made, or does it mean perhaps the exercise of a power of appointment given by the settlement, or does it mean an event on which property passes under some terms of the settlement? It may be that the settlement was made before 4th April, 1963, but it gave power of appointment of some persons under the settlement. Does disposition mean the actual instrument which first created the settlement, or may it apply to the occasion on which property passes under the settlement?
§ Mr. Barber
To deal, first, with the points raised by my hon. Friend the Member for Crosby (Mr. Graham Page), he referred to subsection (2), which provides that a disposition made by a person on the occasion of his marriage shall be treated for estate duty purposes as a gift.
My hon. Friend is right in saying that this is a change in the law. It has not hitherto been thought to be the law, but in view of the House of Lords decision, to which the hon. Member for Sowerby (Mr. Houghton) referred, there is the danger that gifts to strangers made by a person in contemplation of his marriage would not be regarded as gifts within the meaning of the taxing provisions and would, consequently, escape duty on the person's death within five years of the date of the gift. The subsection eliminates this danger.
Gifts made on the donor's own marriage will, of course, depend for exemption on satisfying the terms of subsection (1).
§ Mr. Graham Page
Am I right, therefore, in understanding that a gift by one party to the marriage or contemplated marriage to the other party does not come within the subsection and that it is only if one party who is about to marry gives away property to a third party that it conies within the subsection?
On a point of order. May I suggest, Sir Robert, that when these fundamental questions are being submitted to the Treasury Bench we ought 708 to have the Attorney-General present to answer them? No Law Officer of the Crown is present.
§ Mr. Barber
Having thus been given an opportunity to consider the matter, my hon. Friend will, I think, find if he looks at the wording that the case which he has in mind is brought within the scope of subsection (2) by the words of the subsection but then would be taken out again by subsection (1). [Laughter.] If I am right, my hon. Friend need not be particularly concerned on that score. I shall have to give my hon. Friend a rather dusty answer also to his other question. He asked the meaning of "disposition" for these purposes. I am not sure, but I think that somewhere in the Income Tax Acts it is defined. Perhaps I can write to my hon. Friend about it.
As the hon. Member for Sowerby said, the Clause is not concerned with the general rules about gifts inter vivos. It covers a narrow point and it simply closes a particular loophole in the Estate Duty law relating to gifts made in consideration of marriage, a loophole which was revealed by the House of Lords in the case of the Commissioners of Inland Revenue and Lord Rennell. The decision by the House of Lords was given on 13th March and, therefore, on this occasion, the Opposition will agree that we have acted swiftly.
At least, the general rule has always been that a gift inter vivos is liable to Estate Duty if the donor dies within a specified period—namely, five years—of making the gift. By Section 59 of the Finance (1909–10) Act, 1910, gifts which are made in consideration of marriage were exempted. The Clause covers gifts made otherwise than on the donor's own marriage, because dispositions made by a person in consideration of his own marriage were never treated as gifts within the meaning of the provisions imposing Estate Duty on gifts made within a fixed period before death.
Until the case came before the House of Lords, there was never any uncertainty about the sort of gift that the marriage exemption was intended to cover. It was an exemption which might broadly 709 be called wedding presents and for marriage settlements made on persons within the marriage consideration, as it is put —that is to say, the intended spouses and the issue of the marriage. As the hon. Member for Sowerby has pointed out, the decision opens a wide door to avoidance. According to the judgment of the House of Lords, a wealthy man on his deathbed has only to look round to find somebody about to be married. It need not necessarily be a member of his family, and it will bring tears to the hon. Member's eyes to know that he need not even be a friend.
All he has to do is to include that person in a discretionary trust otherwise consisting of his own children and the settlement will escape duty on his death even though, at the end of the day, little benefit might go outside the senior's family. The Clause undoes the effect of the House of Lords decision by restating the exemption in the shape in which it has always been applied.
My hon. Friend the Member for Manchester, Blackley (Mr. E. Johnson) raised a point about the possible inclusion in subsection (3) of a reference to adopted children as well as persons legitimated by a marriage. As I understood it, my hon. Friend's suggestion would permit exemption where a settlement conferred benefits on a child who had been adopted by one of the parties to the marriage before the marriage which is the subject of the settlement. The trouble is that such a child is no more within the marriage consideration than a child of a former marriage of one of the parties to the marriage.
A child legitimated by a marriage is different in that he is a child of both the spouses and can, therefore, be reasonably treated as a child of the marriage. It has occurred to me—because although my hon. Friend's Amendment has not been called, I considered the matter after he had put it down—that there might be a case for including in the class of permitted beneficiaries a child who is adopted after the marriage. It would, of course, be somewhat unusual for a marriage settlement to include provision for such children, except, perhaps, when the parties to a marriage know or think that they will not be able to have children themselves and they intend to adopt children.
710 However, in this limited sense, it may be that my hon. Friend has raised a point of substance. We have gone a stage forward by referring in subsection (3) to persons who are legitimated. That is something which, the Scots would say, is outwith the House of Lords decision. We have done that which on social grounds is right. It may be that in the limited sense in which I have described it we could do something to meet the point raised by my hon. Friend. If we can, I am sure that it would be the wish of the Committee to do it.
Mr. J. T. Price
I fully understand that in the Clause the Government are seeking to stop one of the leaks which has been discovered in existing legislation. Whilst my hon. Friend the Member for Sowerby (Mr. Houghton) has poured righteous scorn in his own inimitable fashion, which we have all enjoyed, nevertheless for every hole which is stopped up may Allah be praised.
Every year when we come to these debates, we find that an elaborate, ingenious, nefarious device has been discovered which somebody in the Treasury recommends should no longer be permitted. When talking about Estate Duty, however, the biggest leak of all—and it is linked with the Clause—is an assumption on the part of all those who engage in these highly academic arguments of great finesse about inter vivos, covenants, and so on. What we always forget is that the very obligation upon a trustee or an executor of a will to give proper information to the Treasury is itself something which involves self-assessment.
There are many quite considerable estates where the original owner dies intestate and his next-of-kin have to go to the estate office to get letters of administration. Who is to discover all the history of these inter vivos gifts going back for five years? Ordinary householders and many businessmen do not keep proper books of accountancy. There are professional friends of mine in this Committee who wish that they kept proper books because they would probably get more work in their own professions if they did. But it is blithely assumed by the Treasury that if it stops up odds and ends of abuse it is dealing with the evasion of Estate Duty. It is not.
§ The Deputy-Chairman
Order. The hon. Gentleman is getting a little wide of the Clause. We cannot deal with general evasion or avoidance of Estate Duty under this Clause.
I am obliged to you for reminding me, Sir Robert. I do not wish to go beyond the rules of order.
I am not so sophisticated as some of my colleagues. We are asked to agree to a Clause which does not stop some kind of Budget leak—[Laughter.] I am not saying that in any ulterior way, for I do not want to refer to past history. I will use the correct terminology and say that this is an attempt to stop an abuse in financial regulations, and I want to know what is being done to see that the main stream of our legislation is observed.
I am obliged. I have finished what I have to say and I would like an answer to my question.
§ Mr. Mitchison
I congratulate the Government on what they have avoided. There were appalling prospects. This was a case in which three Law Lords decided one way and two the other. Out of the three, two gave reasons which were not entirely shared by the third. It is, therefore, one of those very clear cases in which every court will be bound by the reasons for the decision of the House of Lords, but will be in some difficulty in ascertaining precisely what those reasons were. That is what a Scottish judge once observed as an "infirmity of our judgment".
In this case, the most vivid illustration was given by Lord Radcliffe. It was a dissenting judgment, but it provided a nice description. Lord Radcliffe said:There is no difficulty in stating what the deceased had achieved by this disposition. He had transferred a considerable fortune from his own resources to the ownership of the trustees selected by him to be held and applied by them for the benefit of his family in general, a phrase that includes all his children, all their descendants and their future husbands and wives; and the allocation of it between those persons or lines of descent was entirely at the mercy of the trustees, present or future.The result is that people might be benefited who were descendants, however 712 remote, of the testator, and all this in consideration of marriage.
What brought me to my feet was a casual and rather frightening remark made by my hon. Friend the Member for Westhoughton (Mr. J. T. Price), who observed—and I do not know what promoted it in that particular connection "by Allah". This opens up appalling possibilities. There was a potentate in West Africa, called the Sultan of Foa, who had one hundred wives. He had to. Now, these emerging countries very often adopt the English law and revenue practice. I shudder, therefore, to think how much Estate Duty might have been avoided by the Sultan in consideration of even one of his numerous marriages.
§ Question put and agreed to.
§ Clause ordered to stand part of the Bill.
§ Clause 51 ordered to stand part of the Bill.