§ The main field I have chosen for reform and rationalisation this year is Estate Duty, and I start with a substantial recasting of the charge of Estate Duty on settled property.
§ A central feature of the Estate Duty law is the charge under Section 2(1)(b) of Harcourt's Act of 1894 on property in which the deceased person or any other person had an interest ceasing on the deceased's death—that is, broadly, the charge on the death of the life-tenant of settled property. Over the years, the law has become a patchwork of provisions as successive Chancellors have 1018 sought to counter avoidance of the original charge. The time has come to restate the law, and at the same time to provide against the possibility of other avoidance measures.
§ I propose that the existing charge on settled property should be replaced by one expressed to be on the death of any person who in the seven years before his death was entitled to a beneficial interest in the property. The new provisions will not affect the charge in the ordinary case of the death of a life-tenant, but will go wider so as to impose a new charge on the capital of settled property on the death of a person who had a beneficial interest in property settled for a fixed term or during the life of someone else, including persons to whom such an interest or a life interest has been assigned. I can assure the House that that is both a good deal simpler and a good deal shorter than the patchwork of existing provisions.
§ At the same time, I propose to put an end to the existing freedom from Estate Duty on the death of a beneficiary under a discretionary trust. Under this type of trust, no beneficiary is held to have a measurable interest in the settled property; and no claim for duty arises on the death of a beneficiary under the trust even if he has been receiving the whole income, provided the discretionary trust continues in favour of two or more beneficiaries. These trusts offer a substantial means of avoidance of duty. I propose, therefore, that there should be a charge on the capital of such a trust on the death of a beneficiary. It will be calculated on the proportion which the income he has received over the time he was a potential beneficiary bears to the whole income of the trust property over that period.
§ These changes will affect existing settlements, but in the case of existing discretionary trusts, since the new charge will require reference to records of the disposition of the trust income in the past, it will not have regard to any income of the trust which arose more than six years before today.
§ The yield from these changes will be about £10 million in a full year, but negligible this year.
§ I turn now to the rates of Estate Duty. At present, duty is charged on estates of over £5,000 at graduated rates, rising 1019 to 80 per cent. on the whole estate. I do not think it right in this Budget to reduce the yield from estate duties as a whole, but I am anxious to find room for some lightening of the burden of duty in the smaller cases. The exemption limit of £5,000 is now too low. It has stood since 1963. It may mean that duty is payable when a man dies leaving little more than a modest house, and can thus present a real burden, especially to his surviving widow. I propose therefore that the exemption limit should be raised to £10,000. This will take out of duty 40,000 estates a year, approximately 55 per cent. of the total. The cost will be about £8 million in a full year and £5 million this year: this will be roughly balanced by the settlement proposals which I have described.
§ I have decided also to recast the Estate Duty scales, which are expressed in terms of a rate on the whole estate depending on the value of the whole estate—the "slab" system as it is somewhat lugubriously described—and to introduce instead a "slice" system under which duty is charged at increasing rates on successive slices of the estate. This will provide a smoother progression, and, in particular, remove a difficulty of the present system in dealing with marginal cases where the value of an estate is just above a change point in the scale. In these cases at present, the whole of the estate above the change point may be taken in duty, together with duty on the rest of the estate at the lower rate, instead of charging the whole estate at the higher rate. This was intended as a relieving provision, but it looks very much like the expropriation of the top part of the estate, and is understandably so regarded.
§ The new slice scale has been devised in such a way that the change to a slice system will itself involve no net loss to the revenue—whilst not recovering any of the cost of the increased exemption limit. In the result, some estates will bear rather more duty than they would under the present system, and some will bear rather less. This is inevitable if we move to a smoother progression. It has not been my objective to increase the duty at any point for its own sake. Details of the new scale are set out in the Budget Report.
1020§ I also propose to adjust the rules for Estate Duty relief for works of art. At present, exempt works of art are left out of account when the estate is assessed, and if they are later sold they are charged at the rate already calculated on the general estate. This rate in some cases is very much lower than the rate that would apply if the works of art had been included in the general estate. In an extreme case, a substantial purchase, shortly before death and with a view to its subsequent sale, can be a major means of avoidance. In future, qualifying works of art will remain exempt if retained in the beneficiary's possession; but the exemption allowed for any work of art will be cancelled if it is sold within three years of the death. If it is sold later than that, the rate of duty on it will be calculated by adding the proceeds of sale to the general estate plus the value of other works of art sold in the three years after the death. This will in no way make more difficult the position of a family which wishes to maintain intact an outstanding collection. But the pursuit of art for loophole's sake will become less worthwhile.
§ All these changes will have effect in relation to deaths occurring after today.
§ I turn next to betting and gaming, the one area in which last year I had to explain why I had not done more. The increase to 5 per cent. in the rate of General Betting Duty which I then introduced has produced the expected revenue, though there are signs that a further general increase now would endanger the return. I therefore propose no change in the present percentage, but I nevertheless think it reasonable to seek more revenue from this source. I propose a new supplementary duty, in the form of an annual licence duty measured at three times the rateable value of off-course betting premises, both cash and credit. This will introduce some discrimination, which I believe to be justifiable, in favour of on-course betting. The yield should be £7 million a year.
§ The existing licence duty on bingo, attracted on the rateable value of the premises, bears no direct relationship to the volume of gaming and is, therefore, unfair in its incidence. I propose to abolish the present duty and to replace it by a new duty at the rate of 2½ per cent. of the stakes. There will be an exemption 1021 for small scale bingo. A general review of casino taxation must wait until next year and the full operation of the recent Gaming Act. But it is reasonable to look this year for an increased contribution from the larger establishments. The rates of duty for those with rateable values exceeding £1,500 will go up by one-third in each case. These changes will operate from 1st October and will together yield about £1 million a year extra revenue.
§ The gaming machine licence duty will also bear an increase. I propose that the annual rate of duty for 6d. machines should be raised from the present duty of £75, to £100 for the first machine, and £300 for any other machine in the same club. If a club can afford more than one machine, this is evidence of high turnover, and the differential is, I think, justified. The rate for machines charging 3d. or less a time will be half these rates, and there will also be provision for half-yearly licences at rather more than half the full-year rate.
§ So far, the licence duty has been confined to gaming machines of the jackpot type. I now propose to bring in machines provided for gaming by way of amusements with prizes. These are the machines, at amusement arcades and elsewhere, for the provision of which a permit granted by the local authority is required. They are essentially no different from the jackpot machines of the kind found in clubs. Gaming by means of such machines is increasing, and there is no reason in equity why they should not be liable for duty. The annual rates for 6d. machines in this category will be £25 for the first machine and £150 for each other machine on the same site. Here, too, there will be provision for lower rates for machines charging 3d. or less a time and for half-yearly licences. All these changes on gaming machines will operate from 1st October, and will yield an additional £4 million a year. I thus hope to get an extra £12 million from betting and gaming in a full year. The extra revenue in 1969–70 will be £9 million.