New Clause.—(DEATH DUTIES; ADMINISTRATION EXPENSES.) (Hansard, 18 June 1964)

§ Mr. W. Clark
I beg to move. That the Clause be read a Second time.

§ The Temporary Chairman (Sir Samuel Storey)
It will be in order to discuss at the same time new Clause No. 55—"Death duties; valuation of stocks and shares".

§ Mr. Clark
I am much obliged, Sir Samuel. My hon. Friend the Economic Secretary will realise that my right hon. and hon. Friends and I are not wedded to the wording of these Clauses. All we want to do is to have a short debate on the subject. I apologise as much as anyone for the lateness of the hour, but I think that a short debate on death duties generally in this connection would be valuable. Neither Clause seeks to reduce the rates of Estate Duty. The starting rate is now 80 per cent. but that is, possibly, the subject for another debate.
In the first Clause, we are attempting to get a claim for expenses against the gross estate. I am sure that the hon. Member for Gloucester (Mr. Diamond) will agree that if one employs an accountant to do one's books or prepare one's accounts, the accountancy charges are a legitimate charge against the profits of the business. In the case of an estate, whether small or large, the executors or administrators are put to a certain amount of professional expense, either legal or accountancy, and there is no possibility of charging that expenditure against the gross estate. Consequently, it is high time that an allowance should be given against the gross estate.
I appreciate that the wording of the Clause is far too wide for the Government to accept it, but its spirit is that something should be done. Obviously, there would have to be limits; whether a percentage of the gross estate or only the legal expenses, I am not arguing. An allowance should, however, be given for the administration expenses of any estate, whether large or small.
The second of the two Clauses deals with the valuation of assets for Estate Duty purposes. Anybody who has had anything to do with estates knows that if the executors take shares in the estate, for example, they are unable to deal with those shares until they obtain probate. Depending upon the complications of the estate, probate can take a long time, sometimes over a year, but the average, being fairly expeditious, would be two or three months. This means that after somebody's death, nobody is able to sell the shares and not until two or three months after the date of death can anybody deal with the assets of the estate.
1667 The new Clause suggests different dates for valuation. Again, we are not wedded to the wording of the Clause, which gives three alternatives: valuation at date of death, realisation value or valuation six months after death. This might be considered to be too generous to the estate or to the executors and it might be that one should stipulate realisation value or date of death value, or realisation value or the value six months after the date of death.
We are not making too much of that in our argument, but I ask my hon. Friend the Economic Secretary to assure us that very soon the Government will do something about death duties, because, first, it is anomalous that no administration expenses are allowed against an estate, and secondly, executors are sometimes put in an impossible position because of the date of valuation for death duty purposes of the assets of the estate.

§ Mr. Graham Page
I support my hon. Friend the Member for Nottingham, South (Mr. W. Clark). There is no fairness in not allowing the charging of administration expenses against estates, not only the normal legal expenses of obtaining representation to an estate, but the expenses of the realisation of the property, which must be realised to divide it between the beneficiaries of the estate, the commission on the sale of property, whether real property or shares, and the legal costs on the sale.
12.30 a.m.
In giving an example, I should declare an interest. The case to which I refer is at present going through my office. The estate is worth half a million pounds and the costs on the realisation of estate, £10,000 roughly, and the executors have to pay—

§ Mr. Diamond
Does the hon. Gentleman mean that in a case which his office is looking after he is going to allow more than £400,000, out of an estate of half a million, to go to the beneficiaries?

§ Mr. Page
I thought that the hon. Gentleman was going to make a serious point. What I am talking about is an estate of half a million pounds, spread over a great many shares, and a considerable amount of real property. The beneficiaries have to pay tax on costs 1668 of £10,000, and the Estate Duty on an estate of this size is 75 per cent. So that, in fact, the beneficiaries are out of pocket to the extent of £10,000 costs, plus three-quarters of that amount, which is another £7,500.
They are out of pocket because the law as it stands rules that they must pay all the expenses and 75 per cent. Estate Duty on those expenses—in other words, very nearly double the amount.
The other Clause concerns the evaluation of stock as at the date of death and when dealing with this, what happens is that one laboriously goes through the Stock Exchange List for the day after the date of death, takes a quarter up on the selling price of the difference between selling and buying price, and estimates the value of the stock as at the date of death. But one never realises at that figure. Of course, one may be fortunate. Stock may have gone up since the date of death, but it is a fiction to say that one is required to pay duty on the value as at the date of death.
What happens is that the executors have to borrow the Estate Duty from the bank, and pay bank interest accruing between the date of payment of duty and the date or grant of representation. So, interest has to be paid by having to borrow money and then, to add insult to injury, one has to pay interest on the Estate Duty from the date of death until the time that it is paid. All this is in addition to having to pay on the value of the shares at the date of death, when they cannot possbily be realised at that date, and I think that we should get some realism into this and look at the whole matter from a practical point of view.

§ Mr. Maurice Macmillan
These two Clauses taken together are, in fact, proposals which I think it will be agreed would make a really substantial alteration in principle over the whole system of paying death duties. I would not argue with my hon. Friend the Member for Nottingham, South (Mr. W. Clark) about the wording of the Clauses. He has drawn the first one as widely as possible for the purpose of having a debate, unfortunately rather early in the morning, but it is not on the details of the wording that I argue at this stage.
1669 My hon. Friend said he did not want to reduce the rate, but in practice, the effect of the Clause about administration expenses would tend to do that since they are, rather naturally, thinly spread, proportionate to the size of the estate. It would mean a percentage reduction over the whole field of estate duty and it might well be argued that that would be a fairer and more practical way of achieving what he wants. As I shall come to mention, there are certain considerable practical difficulties in his proposal.
My hon. Friend the Member for Crosby (Mr. Graham Page) referred with some emphasis to the date of death. This is a point which is inherent in a death duty which is an estate duty. I think it is fair to say that the arguments put forward on both these new Clauses are really suggesting that Estate Duty should become in some form at least, as to some part of it and its method of administration, an inheritance duty. I quite accept that in practice property cannot change hands on death without incurring a good deal of expense. To an ordinary person there is a sort of inherent feeling that those expenses, like others, ought not to be charged to tax, but apart from the wording of the Clause, and whatever its wording, it would be a quite difficult decision to make, to know what would be a reasonable deduction, and so on.
The cost of administration, for example, cannot be split up among various items of property, and it does seem illogical to allow deduction from the value of the Estate Duty as a whole and relief at the full rate, if the expenses were incurred on particular items attracting the lower rate of duty. Again, it would not be possible to make deduction till the administration of the estate were complete, by which time Estate Duty would have been paid. Almost every case would, therefore, require corrective accounts to be submitted to the Estate Duty Office, and there would be a considerable addition of staff needed; so the cost of collection would be increased at the same time as the yield was diminished.
The main objection to the Clause, however, is one of principle. Administration expenses were deductible for the 1670 purposes of Legacy Duty and Succession Duty, but these were what were technically known as acquisition duties-which only sought to tax the actual benefit to the legatee or the successor, and these were abolished in 1949. The deduction of expenses does not really fit into the concept of Estate Duty, which is a mutation duty imposed on the total value of separate items at the time of death without regard to destination. Either one looks at what the beneficiary gets, which is the net sum, or at what the estate is worth at the time of death, which is the gross sum. If expenses arising after death were allowed there might be a case for bringing into the value of the estate the increase in value during the period of administration.
Turning for a moment to the other new Clause, No. 55, the purpose of it is clear. I think that in a time of slump the fall in the value of shares in an estate awaiting probate could indeed bring a considerable amount of hardship, but I am happy to say that that has not been the general experience; even in cases where share values were falling the Inland Revenue has not had complaints or cases of hardship brought to its notice.
Again, I would not rest the argument about the practical difficulties on the wording of the Clause but on the trouble of having a variable duty at all. If we tried to solve the problem by means of an optional date of valuation there would be quite a lot of administrative complications. To begin with, what sort of period would one extend this to? I agree that stocks and shares are a most vulnerable form of property in a time of slump, but other assets—land—may well suffer. I think that if one did have this sort of concession it ought to apply not only to stocks and shares but to all property on equal terms. There is the difficulty that the executor is not the only person responsible for the payment of death duty. Trustees of settled property and donees are also liable for duty on property in their hands. It would be difficult to allow the executor to impose his preference if there were any conflict of interest.
The hon. Gentleman said that executors were put in a difficult position by the present law. I think that they would be left in a difficult position by the adoption 1671 of new Clause No. 55. There would inevitably be difficulties of delay in administration. The executors might have to wait till the end of six months before obtaining probate so that they could tell which was the most advantageous date, and it might even be necessary to make a duplicate valuation. I think that in many cases it would add to the burden of executors, and in some cases the option of choosing the date could be embarrassing. Take, for example, the case of a large estate consisting mostly of a large holding of shares in a few companies whose value is likely to be affected by the death. There might be some conflict of interest between the live and the dead members of the family or trust, who were shareholders in the companies.
Again there are the difficulties which my hon. Friend mentioned and which exist now. They would still exist. I refer to the difficulties of having to make arrangements for the provisional payment of duty. The new Clause does not deal with the assets which have changed their character between the date of the death and the end of whatever period may be decided upon. There is also the question of company shares being devalued by the issue of bonus shares. There are many of these examples of administrative complication. However, the main reason for resisting the Clause, particularly this year, is the loss, although I agree it would not be heavy over a long period. It might be of the order of £5 million a year. There would be an initial extra cost, decreasing as the years went by, it is true, arising from the inevitable delay in obtaining probate. This year it would amount to some £10 million to £15 million.
The purpose behind these two Clauses is clear, and it is fair to say that, particularly with regard to the problem which new Clause No. 55 seeks to solve, in the case of slump there would be some possibility of considerable hardship. I do not think, however, that I can recommend the Committee to accept that new Clause this year. On new Clause No. 50, apart from the practical difficulties, there is the inherent difficulty of principle. This is a step in turning an Estate Duty into an inheritance duty. I know that some of my hon. Friends, and perhaps 1672 even some of my right hon. Friends, might not regard this as necessarily a backward step, but it is one that cannot be readily discussed further at this time of the morning, and certainly it is one which the Chancellor could not include in this year's Finance Bill.
I hope, therefore, that my hon. Friend will not press the Clause now.