HC Deb 05 July 1965 vol 715 cc1258-64

(1) For the purposes of section 21 (5) of this Act and of section 12 (5) of the Finance Act 1962 (which is the corresponding provision for income tax under Case VII of Schedule D) funds in court held by the Accountant General shall be regarded as held by him as nominee for the persons entitled to or interested in the funds, or as the case may be for their trustees.

(2) The Public Trustee shall apportion to the shares into which a common investment fund established under section 1 of the Administration of Justice Act 1965 is divided the chargeable gains accruing in a year of assessment in respect of assets comprised in the fund, after deduction of the capital gains tax which will be charged in respect of those gains, and the amount so apportioned to any shares shall be treated for the purposes of Part III of this Act as if it were expenditure allowable under paragraph 4 of Schedule 6 to this Act in computing a gain accruing on the disposal of those shares and incurred in respect of those shares at the time when the amount was so apportioned.

(3) Where funds in court standing to an account are invested or, after investment, are realised the method by which the Accountant General effects the investment or the realisation of investments shall not affect the question whether there is for the purposes of Part III of this Act or of Chapter of Part II of the Finance Act 1962 an acquisition, or as the case may be a disposal, of an asset representing funds in court standing to the account, and in particular there shall for those purposes be an acquisition or disposal of shares in a common investment fund established under section 1 of the Administration of Justice Act 1965 notwithstanding that the investment in such shares of funds in court standing to an account, or the realisation of funds which have been so invested, is effected by setting off, in the Accountant General's accounts, investment in one account against realisation of investments in another.

(4) If any common investment fund established under section 1 of the Administration of Justice Act 1965 is for the time being designated for the purposes of this subsection by an agreement between the Commissioners of Inland Revenue and the Public Trustee—

  1. (a) the Public Trustee shall be entitled to exemption from income tax in respect of so much of the income derived from that fund or any investment thereof as is paid by him by way of dividend on the shares into which the fund is divided; and
  2. (b) dividends on those shares shall be paid without deduction of tax and shall be chargeable under Case III of Schedule D.

(5) A claim for exemption under subsection (4)(a) above shall be made to the Commissioners of Inland Revenue and section 9 of the Income Tax Management Act 1964 (procedure on claims) shall apply to any such claim.

(6) Where at any time, by virtue of subsection (4) of this section, the income of a person from any source becomes chargeable as therein provided, not having previously been chargeable by direct assessment on that person, so much of section 131(3) of the Income Tax Act 1952 as relates to the charge of tax where a person acquires a new source of income shall apply as if the source of that income were a new source of income acquired by that person at that time.

(7) The Accountant General shall as respects each year of assessment furnish to the Commissioners of Inland Revenue, at such time and in such manner as they may direct, particulars of any sums paid without deduction of tax by virtue of subsection (4) of this section and of the persons to whom such sums were paid, except that particulars shall not be required of any case where the total of such sums paid to any person in that year did not exceed fifteen pounds.

(8) An agreement designating a fund for the purposes of subsection (4) of this section may provide for incidental and consequential matters, including arrangements for giving effect to subsection (4)(a) of this section by provisional repayments of tax deducted at source, and may be determined by the Commissioners of Inland Revenue or the Public Trustee by one year's notice in writing expiring with the end of any year of assessment.

(9) In this section "funds in court" means—

  1. (a) money in the Supreme Court, money in county courts and statutory deposits 1260 described in section 14 of the Administration of Justice Act 1965,
  2. (b) money in the Mayor's and City of London Court transferred to the Accountant General in pursuance of section 11 of the said Act of 1965, and
  3. (c) any such moneys as are mentioned in section 30 of the said Act of 1965 (which relates to Northern Ireland) and money in a county court in Northern Ireland,
and investments representing such money; and references in this section to the Accountant General are references to the Accountant General of the Supreme Court of Judicature in England and, in relation to money within paragraph (c) above and investments representing such money, include references to the Accountant General of the Supreme Court of Judicature of Northern Ireland or any other person by whom such funds are held.—[Mr. MacDermot.]

Brought up, and read the First time.

Mr. MacDermot

I beg to move, That the Clause be read a Second time.

I hope that this Clause may prove to be non-controversial. I told the right hon. Gentleman the Member for Bexley (Mr. Heath) at an early stage of our intention to put it down and I think I may say that he evinced a sympathetic interest in it. It was originally put down at the Committee stage, but owing to the request that we should reprint the Bill in two parts, in order not to disturb the numbering of the Clauses, we withdrew the new Clause at that stage and have put it down again in slightly modified form. This explains why at this late stage we have brought the matter forward.

The need for the Clause arises out of the establishment of common investment funds under the Administration of Justice Act, 1965. It gives effect to one of the recommendations of the Committee of Funds in Court which led to the passing of that Act. As hon. Members will know, this Act deals with the administration of funds in court where successful plaintiffs, mostly widows and children, who have recovered damages in the courts, have those damages supervised by the courts. Very many of these people are people who either pay no Income Tax or very little. It would be a considerable burden to them if the proceeds of their investments were paid net of tax and they then had to claim repayment of tax on the very small and numerous amounts which, although small, are naturally of great importance to them.

The typical case is what some hon. Members will recognise as the "county court widow". Up to now these funds have been invested in 3½ per cent. war stock, the interest on which is paid gross and, consequently, the problem has not arisen. Now that these funds are being invested in common investment funds it is important, as the Committee points out, that one, at least, of these funds should cater for the needs of this class of impecunious and successful suitors. That is what this Clause does. It authorises arrangements to be made for income from a common investment fund to be paid gross. The intention is that this power should be increased in relation to one of the common investment funds. The shares in the funds would be held by the Accountant General as nominee for the suitors. The new Clause provides for relief from double taxation in respect of capital gains.

I imagine that the House will not wish me to elaborate at length on the somewhat complicated and technical provisions of the Clause, but if there are any specific points on which I can help I shall be glad to try to do so if I have leave to address the House again.

Mr. Donald Box (Cardiff, North)

Before the Financial Secretary sits down, would he clarify one important point concerning the effect of the Administration of Justice Act, 1965, on funds in court? As I understand, funds in court are transferred to the common investment fund to which the Financial Secretary referred which is under the jurisdiction of the Public Trustee. That is done presumably on a market value basis when the law came into effect on, I think, 23rd March this year. The problem which I cannot understand—

Mr. Deputy-Speaker

Order. This is a long intervention. Would it not be better if the hon. Gentleman made a speech during the debate? The Minister will be able to answer the debate later.

Mr. Box

Very well, Mr. Deputy-Speaker: I have practically finished. I just wanted to explain the position.

The problem, as I see it, is that the Queens' Bench Master who had control of the trust funds was a very poor trustee indeed and invested, as the Financial Secretary said, the proceeds of these im- pecunious and successful suitors in 3½ per cent. War Loan. I have a specific example—

Mr. Deputy-Speaker

Order. I have to protect the House. Interventions should not be speeches, specially when speeches will be in order at the appropriate moment.

Mr. Box

I thought that you had turned my intervention into a speech, Mr. Deputy-Speaker.

Mr. Deputy-Speaker

If the hon. Gentleman will wait a moment, he will get a chance to speak when the Clause is formally before the House. It has not yet been formally moved. The Question is, That the Clause be read a Second time.

Mr. Box

I apologise, Mr. Deputy-Speaker. I had nearly reached the fundamental point of what I was putting to the Financial Secretary.

I have a specific case of a constituent who was awarded £750 damages in 1955. That £750 was invested in War Loan at 82. It stood on 23rd March at 55. In other words, the injured person has suffered a 33⅓ per cent. fall in the value of his original damages. As the Financial Secretary said, this applies to many widows and infants, who are the chief people concerned. I remember looking at the Pearson Report some years ago and finding that upwards of £4 million was invested in this way. There is, therefore, quite a considerable sum in question.

What I seek from the Financial Secretary is an absolute assurance that these unfortunate people will not find themselves liable to Capital Gains Tax if the Public Trustee is successful with his common investment fund. The hon. and learned Gentleman will agree that it would be absolutely monstrous and unfair if people who had already suffered a 33⅓ per cent. depreciation in the value of their damages were to suffer Capital Gains Tax if after the transfer of those damages from 3½ per cent. War Loan to the common investment fund they were to find that the new investments appreciated and might be liable to tax. I hope that the hon. and learned Gentleman will clarify this very important point.

Mr. MacDermot

There is no provision in the new Clause to deal with the situation to which the hon. Member for Cardiff, North (Mr. Box) has referred. There is no provision for carrying forward a pre-Budget loss against a post-Budget gain in this or any other sphere. An individual in the situation which the hon. Gentleman has described would be taxed only on a gain which had been made compared with an increase over the original acquisition price. But as here there is a clear disposal of the old asset and its reinvestment, the starting point is the Budget date.

I have not had the point drawn to my attention before, and I shall be glad to look into it and to consider it. I take the point which the hon. Gentleman makes, but the answer to his Question is that it is not covered under the provisions of the Clause.

10.15 p.m.

Mr. Box

May I point out that the unfairness of the situation is that the person who was awarded damages had no choice in the matter; he was forced to put them under the jurisdiction of the Supreme Court, who lost 33 per cent. by bad investment.

Mr. William Roots (Kensington, South)

I am sure that the House and the Financial Secretary are grateful to my hon. Friend the Member for Cardiff, North (Mr. Box) for raising this very important point. We on this side of the House acknowledge that the hon. and learned Gentleman said that he would look at this matter. I think that the point was clearly one of considerable and avoidable hardship, and since it is avoidable I am sure that the House will agree that it should be avoided. At this stage, however, having considered the new Clause, it is not our intention to divide against it on this point. In general I can only give our view of it as better late than never in terms of a new Clause.

Mr. John Harvey

What worries me is a point which I touched on earlier today. The Financial Secretary said that he will look at any important matter which is raised. But what can be done about it after today? Presumably if we pass the Clause as it stands the point cannot be dealt with in this year's Finance Bill and must, therefore, be left until further legislation. Can anything further be done about points which are left in an unsatisfactory state at this stage?

Mr. MacDermot

If I may have leave to answer the specific question, the position is that once the Bill leaves the House after Report it cannot be amended, and if amendment proved desirable on a point such as this it would have to wait until next year's Finance Bill. But if a decision is clearly taken that an alteration should be made, I think that the precedents are that it would be applied administratively straight away.

Question put and agreed to.

Clause read a Second time and added to the Bill.