§ The second proposal relates to the tax position of families where children have investment income of their own or investment income is held or applied on their behalf.
§ Our tax system has always treated the income of husband and wife as one, on the basis that they are a single spending unit. Logically the unit for tax purposes ought to include children as well as husband and wife, for the children's income, just as much as the parents', is available for the family and is reflected in its living standards. The fact that the same amount of family income is divided in one family between parents and children and in another belongs only to the parents ought not to involve a difference in tax liability. Moreover, the fact that a child's income has up to now been taxed separately from that of its parents has encouraged arrangements under which grandparents or other relations have provided income or capital to children with the object of benefiting the family as a whole. I therefore propose to carry the principle of aggregation further, so that the investment income of minor children will be aggregated with that of their parents for tax purposes.
§ The new rule for the aggregation of a child's investment income with his parents' income will not come into operation this year. The legislation must, 293 however, be included in this year's Finance Bill, because a considerable amount of preparatory work by the Inland Revenue is necessary beforehand. The new rule will take effect from 1969–70.
§ The new legislation will establish the principle that a child's investment income is to be aggregated with that of its parents. The picture will not be complete, however, until we have dealt with certain associated questions, such as the use of settlements to accumulate income. I give notice now that in next year's Budget I will attend to these details so that the legislation as a whole can come into effect from 6th April, 1969. Obviously, therefore, no revenue can accrue in 1968–69. But the significance of this change is indicated by the fact that it is estimated that it will produce £25 million for a full year. This shows how greatly families with established wealth available to them have benefited over those with the same gross income coming entirely from the efforts of the parents. I do not think any theory of incentives justifies that.
§ The net additional yield from the changes in direct taxation I have described so far—many of which will have only a small effect—will be £51 million for a full year, and £42 million in 1968–69.